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Econ 100B
Macroeconomic Analysis
Professor Steven Wood
Fall 2011
Problem Set #2
Due: September 27, 2011 (in class before 3:50:01 p.m.)
Place your completed problem set in the box near the entrance.
Please sign the following oath:
The answers on this problem set are entirely my own work. I neither copied from the work of others nor allowed
others to copy from my work.
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Any problem set turned in without a signature will be assigned a grade of zero.
Problem Set Instructions
1.
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complete your problem set on this template.
2.
Graphs and equations
MAY
be drawn by hand. When drawing diagrams,
clearly and accurately
label
all axis, lines, curves, and equilibrium points.
3.
Explanations
MUST
be wordprocessed. Your explanations should be succinct and to the point.
Problem Set #2 (Fall 2011)
1/5
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A.
Multiple Choice Questions (15 points)
.
Circle
the letter corresponding to the
best
answer. (3 points each.)
1.
Suppose that total factor productivity is constant, the capital stock is growing at 1% per year, and the
output elasticity with respect to capital is 0.4. How fast will the economy be growing when it is at its
steady state?
a.
0.4%
b.
0.6%
c.
1.0%
d.
1.4%
e.
Indeterminate.
2.
Lowincome countries tend to have faster labor force growth rates than highincome countries.
Compared to a situation where the labor force growth rates were identical there would now be:
3.
In microeconomic theory the real wage rate is positively related to the amount of capital each worker
has to work with. Given this, what happens to the real wage rate in an economy described by the Solow
Growth Model if an earthquake destroys half of the capital stock?
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 Fall '08
 Wood
 Economics, Steady State

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