mc7 - Mock Multiple Choice, Solow Kyle F. Herkenhoff * UCLA...

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Unformatted text preview: Mock Multiple Choice, Solow Kyle F. Herkenhoff * UCLA Department of Economics May 6, 2011 Which of the following are true? (We assume a Cobb-Douglas Production Function Y t = AK t L (1- ) t ). (a) If a country starts at k ss which is to the right of k gold , then it is necessarily optimal to cut savings to reach k gold . (b) If a country starts at k ss which is to the left of k gold , then it is necessarily optimal to increase savings to reach k gold . (c) If s = , then k ss = k gold . (d) If two countries have the same n , , and A , then they must converge to the same steady state. (e) Two of the above (f) None of the above * Correspondence: kfh@ucla.edu 1 Answer: (a) If a country starts at k ss which is to the right of k gold , then it is necessarily optimal to cut savings to reach k gold . TRUE We have that output today is fixed in the short run (it takes one period for capital to adjust to a change in investment)... so in the SHORT RUN y = z}|{ c + z}|{ i , and in the LONG RUN we will be at...
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mc7 - Mock Multiple Choice, Solow Kyle F. Herkenhoff * UCLA...

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