Macroeconomics hw 06

Macroeconomics hw 06 - Maria Vega David Santamaria Nicole...

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Maria Vega David Santamaria Nicole Perez Joaquin Castillo Review questions 2. Of the three sources of growth identified by growth accounting, which one is primarily responsible for the  slowdown in U.S. economic growth after 1973? What explanations have been given for the decline in this  source of growth? The United states have experienced a turn down in productivity growth. This is the main reason for the delay in the  growth of their output since 1973. The decline in Productivity growth may have been caused by other factors such as  the high oil prices causing a decline on technological innovation.  4. Explain what is meant by a steady state. In the Solow model, which variables are constant in a steady state?  Steady-state refers to a situation in which the economy’s output per worker, consumption per worker and capital stock  per worker are constant.   6.True or false? The higher the steady-state capital–labor ratio is, the more consumption each worker can  enjoy in the long run. Explain your answer. False, if the capital-labor ratio is too high, consumption per worker may decrease because of diminishing marginal  returns to capital, and the need to redirect much of output to mai the capital-labor ratio. 7. What effect should each of the following have on long run Living standards, according to the Solow model? a.  An increase in the saving rate. A raise in saving rates causes an increase in the long-run living standards. Higher saving causes a larger capital stock  and more investment. b. An increase in the population growth rate. A raise in the population growth rate diminishes living standards in the long-run. If more output is used to provide a larger number of new workers with capital, leaves less output accessible to raise consumption. c. A one-time improvement in productivity. A once boost in productivity increases living standards straightforwardly, by increasing output, and indirectly, since by raising incomes it also raises saving and the capital stock. 8. What two explanations of productivity growth does endogenous growth theory offer? How does the  production function in an endogenous growth model differ from the production function in the Solow model? The Endogenous growth theory insinuates that the primarily sources of productivity growth are accumulation of human  capital; this is the knowledge, skills, and training of individuals and technological innovation which is the research and  development. It also explains that the production function in an endogenous growth model doesn’t show any  diminishing marginal productivity of capital. This changes the production function in the Solow model, which has 
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This note was uploaded on 06/24/2011 for the course ECO 3202 taught by Professor Telier during the Spring '08 term at FIU.

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Macroeconomics hw 06 - Maria Vega David Santamaria Nicole...

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