413midterm+solutions

413midterm+solutions - Midterm Exam Econ 413/513 13 March...

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Midterm Exam — Econ 413/513 13 March 2002 Department of Economics Concordia University 1. The Solow model [10 marks] Consider the standard Solow model, with Cobb-Douglas production. The capital stock per e f ective worker evolves over time according to k = sk α ( n + g + δ ) k . Let the steady-state level of k (where k = 0) be denoted k . The notation is otherwise standard. (a) Does an increase in the rate of population growth, n , lead to a rise or a fall in k ? NB! You do not need to motivate your answer. [5 marks] (b) Consider a poor country where k lies below k . In this economy, will k be growing or falling over time? (In other words, what is the sign of k if k<k ?) NB! You do not need to motivate your answer. [5 marks] 2. The Ramsey Model [10 marks] Consider a Ramsey Model with Cobb-Douglas production. It can be shown that the dynamics of con- sumption, c , is given by the so-called Euler equation: c c = α k α 1 ρ θ g θ where (recall from class)
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413midterm+solutions - Midterm Exam Econ 413/513 13 March...

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