section+11 - ECON 101B Section 11 Handout Date The rst 6...

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ECON 101B: Section 11 Handout Date: 02/23/2011 Question 1 Suppose that the capital stock per worker ( k ) is 100, the depreciation rate ( ) is 10 percent per year, and output per worker ( y ) is 25. There is no labor force growth ( n = 0 ). What must the saving rate ( s ) be to keep the capital stock per worker constant? A. 2.5 percent B. 10 percent C. 25 percent D. 40 percent What happens to k if the saving rate is smaller/bigger? Question 2 Again, assume there is no labor force growth. Draw a graph for the following question. If the capital stock per worker is above the steady-state level, then investment A. is smaller than depreciation. B. is larger than depreciation. C. is equal to depreciation. D. could be higher than, lower than, or equal to depreciation. What if capital stock per worker is below the steady-state level? What is the implication for the evolution of k over time? Question 3 Suppose that the production function is y = p k , s = 0 : 40 , and = 0 : 10 . Using your observation from the previous question, write down the steady state condition. What is the steady-state level of capital per worker? A. 2 B. 4 C. 10 D. 16 Question 4 Suppose that the production function is y = p k and = 0 : 10 . What level of saving rate will lead to the highest possible level of output in the steady state? A. 25 percent
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section+11 - ECON 101B Section 11 Handout Date The rst 6...

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