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mt 1 &amp; 2 s2003

# mt 1 &amp; 2 s2003 - MIDTERM EXAMINATION#1(Spring 2003...

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MIDTERM EXAMINATION #1 (Spring 2003) Question 1 (12 points total; 9 minutes total) A. (6 points) In 2001, Kate bought a \$600 piece of U.S. manufactured furniture and charged it to her credit card. She paid off her credit card balance in full in 2002. Why is her purchase recorded in consumption spending in 2001 even though it is not paid for until 2002? B. (6 points) In 2000, Ming bought \$5,000 worth of stock in the U.S. company, General Electric. She sold the stock for \$2,400 in 2002. What, if anything, was recorded in 2000 on the expenditure side of U.S. GDP accounting? What, if anything, was recorded in 2002 on the expenditure side of U.S. GDP accounting? Explain your answers. Question 2 (16 points total; 12 minutes total) Consider the following statement: Because only the growth of labor efficiency matters when determining long-run rates of growth of living standards, and because men are more likely to be in the labor force than women, countries wishing to increase living standards should provide quality education to boys but not to girls. Construct an argument that either supports or opposes this statement. Full credit answers will reflect a strong understanding of the growth model, will do a good job of identifying critical assumption(s) and demonstrating how the assumption(s) lead to support/opposition of the statement, and will present an argument that is consistent with the material in Chapters 4 and 5 of the textbook. Your answer will not be graded based on the position (support or oppose) that you take. Question 3 (16 points total; 12 minutes total) A. (4 points) “Translate” the equation g(K/L) = s/(K/Y) - δ - n into English. (That is, write the equation out in words.) B. (4 points) Assuming a Cobb-Douglas production function with Y/L = (K/L)α(E)1-α, derive the equation that expresses the growth rate of the standard of living as a function of s, K/Y, δ, n, α, and g(E). C. (8 points) When the economy is at its long-run steady-state balanced-growth

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equilibrium, what is the relationship between the growth rate of the capital- labor ratio and the growth rate of the standard of living?
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