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Assignment_2_solutions

# Assignment_2_solutions - ECON 410.502 Macroeconomic Theory...

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Page 1 ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Assignment #2 Suggested Answers and Comments

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Page 2 Problem 1~25: Multiple choice problems 1. C 2. B Due to the diminishing MPK, the slope of the production function is steeper when the corresponding level of capital per worker is lower (here the Lowland’s k ), therefore an extra unit of k will cause a larger increase of output per worker y . 3. C 4. A The answer comes directly from the definition of “steady state”. 5. D This problem asks how to solve for steady state k , the “k-star”. 6. B 7. D 8. C Here without population growth or technological change, consumption per worker is maximized when the MPK equals capital depreciation rate. 9. D 10. B 11. C Remember, if total output and population grow at the same rate, then our living standard will not change forever since output per person will be a constant. 12. A Total output will fall because it depends on labor input positively. Output per worker will rise because, remember k=K/L , when L jumps down and K does not change, k will jump up, then according to
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