CORNELL UNIVERSITY Professor Levon Barseghyan Econ 314-1 Final Exam 1. (20 points) How would each of the following changes affect the steady-state values of the capital-labor ratio, output per worker, and consumption per worker? a. A change in the composition of the capital stock lowers the depreciation rate. b. A change in social norms lowers the population growth rate. c. Changes in the government tax policies discourage a higher saving rate. d. A permanent supply shock increases productivity sharply. 2. (20 points) Suppose you were a forecaster of employment, output, the real interest rate, consumption, investment, and the price level. A shock hits the economy, which you think is a temporary adverse supply shock. a. What are your forecasts for each of the variables listed above (rise, fall, no change)? b. What if the shock was really due to people's reduced expectations about their future income? Which variables did you forecast correctly, and which did you forecast incorrectly? 3.
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