Practice Test 2 - 2010

Practice Test 2 - 2010 - TEST 2 (Practice): Macroeconomic...

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TEST 2 (Practice): Macroeconomic Theory Please answer the following questions. Be BRIEF and only write on the space provided. No extra points will be given if you just ±ll the space with words. Work alone and do not use any type of “external help”. You have 80 minutes to work on your test. NAME: 1. (1 point) Why is Growth Accounting useful? It helps to identify what are the main factors behind growth given the data. 2. (2 points). Given the production function Y = AK L 1 , ±nd the growth rate of A as a function of the growth rate of Y , K , and L : Note that, for a general production function Y = F ( A, K, L ) , we have ˙ Y Y = F A A Y ˙ A A + F K K Y ˙ K K + F L L Y ˙ L L or: ˙ A A = Y F A A ˙ Y Y F K K F A A ˙ K K F L L F A A ˙ L L For our case: ˙ A A = ˙ Y Y ˙ K K (1 ) ˙ L L 3. (1 point) What was the “productivity slowdown”? The big reduction in TFP growth that the U.S. economy su ered during the 1970s and 1980s. 4. (1 point) Why does the presence of taxes complicate growth accounting? Taxes make input prices (capital and labor) di erent from the marginal productivities. Hence, you need to account for these di erences when you evaluate expressions such as F K K Y or F L L Y using input prices. 1
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Take the following Social Planner’s problem in per capita terms: max t =0 t log c t s.t. c t + (1 + n ) k t +1 = k t (1 + g ) t 1 + (1 ) k t where l 0 =1 and A 0 =1 . 5. (1 point) Why is k t +1 multiplied by (1 + n ) ? Capital is expressed in per capita terms. Population growth implies that, to deliver a capital per capita k t +1 next period, we need to save (1 + n ) times more to compensate for population growth. 6. (2 points) Find the FOCs of this problem.
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Practice Test 2 - 2010 - TEST 2 (Practice): Macroeconomic...

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