Tutorial 2A - Economic Growth Revised

Tutorial 2A - Economic Growth Revised - Tutorial 2A...

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1 Tutorial 2A Economic Growth Short Answer Questions 1. In the Solow model, how does the saving rate affect the steady-state level of income? How does it affect the steady-state rate of growth? 2. Why might an economic policymaker choose the Golden Rule level of capital? 3. Would a policymaker choose a steady state with more capital than in the Golden Rule steady state? With less capital than in the Golden Rule steady state? Explain your answers. Applications 1. Country A and country B both have the production function 1/ 2 1/ 2 Y K L . (a) Does this production function have constant returns to scale? Explain. (b) What is the per-worker production function, y =f(k)? (c) Assume that neither country experiences population growth nor technological progress and that 5 percent of capital depreciates each year. Assume further that country A saves 10 percent of output each year and country B saves 20 percent of output each year. Using your
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This note was uploaded on 11/12/2011 for the course ECON 2003 taught by Professor Macoeconomics2 during the Spring '10 term at University of the West Indies at Mona.

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Tutorial 2A - Economic Growth Revised - Tutorial 2A...

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