Tutorial Economic Growth II

Tutorial Economic Growth II - saving rate s and the...

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Tutorial on Economic Growth 1 Nicola Viegi 1 True - False - Uncertain Justify your answer with a short argument. 1. A higher saving rate alone can sustain higher growth of output forever. 2. The golden-rule level of capital tells us that the highest level of consumption in steady-state is achieved when the saving rate is equal to 0. 2 Solow Model of Growth Suppose that the production function is given by Y = 0 : 5 p K p N . As- sume that the size of the population, the participation rate, and the unemployment rate are all constant. 1. Is this production function characterized by constant returns to scale? Explain. 2. Transform the production function into a relationship between out- put per worker and capital per worker. 3. Derive the steady state level of capital per worker in terms of the
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Unformatted text preview: saving rate ( s ) and the depreciation rate ( & ) . 4. Derive the equations for steady-state output per worker and steady-state consumption per worker in terms of s and & . 5. Let & = 08 and s = 0 : 16 . Calculate the steady-state output per worker, capital per worker, and consumption per worker. 1 6. Let & = 08 and s = 0 : 32 . Calculate the steady-state output per worker, capital per worker, and consumption per worker. 7. What is the e/ect of an increase in the saving rate on output per worker over time? Show the transition from s to s 1 graphically. 8. Explain what happens to the level of output per worker and the growth of output per worker when the saving rate increases from s to s 1 . 2...
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