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PS 2_BScII_2011 - immediately and over time Is the steady...

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Lahore School of Economics Macroeconomics II BSc II Problem Set II – Due Monday, 7 th  February, 2011 1. Consider how unemployment would affect the Solow growth model. Suppose that output is  produced according to the production function Y = K α [(1 – u)L 1- α , where K is capital, L is  labor force and ‘u’ is natural rate of unemployment. The national saving rate is ‘s’, the labor  force grows at ‘n’ and capital depreciates at rate ‘ ’. δ a. Express output per worker (y = Y/L) as a function of capital per worker (k = K/L) and the  natural rate of unemployment. Describe the steady state of this economy. b. Suppose a government policy reduces the ‘u’. Describe how this change affects output both 
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Unformatted text preview: immediately and over time. Is the steady state effect on output larger or smaller than the immediate effect? Explain. 2. Assume that China grows at a faster rate than US. Is China farther away from its Golden rule level of savings and consumption? Explain if the income disparity across these two regions would disappear over time? 3. Question 5 from Chapter 7, Economic Growth 1 4. Question 4 from Chapter 8, Economic Growth II 5. Question 3 from Appendix to Chapter 8, Economic Growth II, ‘More Problems and Applications’ 6. Question 4 from Chapter 4, Growth Policy (Techincal Problems)...
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