WS11 - Final Solutions

# WS11 - Final Solutions - after steady state is achieved the...

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/. Purchasing Power Parity a. \$5,000 b. 2500 pesos c. \$500 d. \$1000 e. Mexican standard of living relative to the U.S.-exchange rate method: 500/5000 =0.10; PPP method: 1000/5000=0.20. It makes a huge difference. 2.. The Production Function and Constant Returns to Scale a. Y=63 b. Y doubles. c. Yes. Constant returns to scale means precisely that if both K and N double (or more generally al inputs double) then output also doubles. d. Y/N=(K/N)li2 e. K/N=4 implies Y/N=2. K/N=8 implies Y/N=2.83. Output less than doubles. f. No. g. No. In part (t), we are looking at what happens to output when we increase capital only, not capital and labor in equal proportion. There are decreasing returns to capital. h. Yes. 3. The Gro~1h Rate and the Saving Rate The statement is false since in the very long run
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Unformatted text preview: after steady state is achieved the rate of gro~1h in this chapter is zero at any choice of savings rate. Although Japan did have a higher savings rate that many other countries the contribution of high saving to gromh in Japan should, however, eventually comes to an end. 1. The Paradox of Saving Revisited Using Figure 15-7, you can see that there is a higher gromh rate in transition after the higher permanent savings rates. This certainly lasts for I year and 10 years but is very small after 50 years. S. The Determinants of Output per Worker in Steady State a. A higher saving rate would eventually lead to higher output per worker b. In the steady state, the output per worker would be the same. Because a larger proportion of the population is working, there would be higher output per capita....
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