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Econ 204A  Midterm Exam
Fall 2010
This exam is closed book. Most points are given for the correct setup of a problem and for
economically insightful interpretations.
Problem 1 (50p)
Consider a Solow model with general production function
Y
=
F
(
K
,
AL
)
. Notation is as in Romer
unless noted. Population L grows at a rate n. The savings rate s is constant. The depreciation rate is
δ
=
δ
0
>0. Productivity A grows at an exogenous rate g=g
0
>0.
a.
Derive an equation for the steady state capitallabor ratio k* =k
0
* (meaning: in efficiency units).
[Derive means: Show your work. No credit for a memorized formula.]
b.
Suppose at time t=t
1
, a new way of organizing research is discovered that accelerates productivity
growth but at the expense of making capital obsolete more quickly. Specifically, assume the
economy after the discovery has the parameters g=g
1
>g
0
and
δ
=
δ
1
>
δ
0
. Derive the new steady state
capitallabor ratio k*=k
1
*. Compare k
0
* and k
1
*.
c.
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This note was uploaded on 12/26/2011 for the course ECON 240a taught by Professor Staff during the Fall '08 term at UCSB.
 Fall '08
 Staff

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