P
ROF
.
D
R
.
M
ICHAEL
F
UNKE
Hamburg, 17. November 2009
D
IPL
.
V.W
H
AO
Y
U
Tutorial
6
„Macroeconomics“ (Winter 2009/10)
1. Deficits and the capital stock.
For the production function, Y=
N
K
, equation (11.8) gives the
solution for the steadystate capital stock per worker.
a.
Retrace the steps in the text that derive equation (11.8).
b.
Suppose that the saving rate, s, is initially 18% per year, and the
depreciation rate,
δ
, is 18%. What is the steadystate capital stock per
worker? What is steadystate output per worker?
c.
Suppose that there is a government deficit of 6% of GDP and that the
government eliminates this deficit. Assume that private saving is
unchanged so that national saving increases to 24%. What is the new
steadystate capital stock per worker? What is the new steadystate output
per worker? How does this compare to your answer to part (b)?
2. FeldsteinHorioka Puzzle.
In exercise 1, it implicitly assumes a closed economy, because the
country accumulates the capital stock for their own. In a globalized world,
however, this assumption is unrealistic. The justification for considering
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '09
 BayeMichael
 Economics, Deficit, Stock and flow, Capital accumulation, steadystate capital stock, AO YU

Click to edit the document details