Practice Test 2: Macroeconomic AnalysisProfessor SinhaFall 2020Q.1.Suppose the production function takes the following form:Y=K1/2(LE)1/2a.What is the output-per-e§ective-worker,yE?b.Express the steady state capital per-e§ective-worker (kE)in terms of the savings rates, depreciation rate!, population growth ratenand the growth rate of labor e§ectiveness,g.c.Ifn= 2%,g= 1%, depreciation rate is4%and the economy saves 30% of its output,what is the steady state level of output-per-e§ective-worker?d.What are the steady state rates of growth ofyE, output per worker(Y/L)and the levelof outputY?e.At the steady state, is the economy above or below the golden rule level of capital pere§ective worker?Ans

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Q.2.Assume that the demand for real money balance (Md/P) isMdP=Y/i, whereYis income andiis the nominal interest rate (in percent). The real interest rateris fixed at 3 percent. The expectedinflation rate equals the rate of money growth.a.IfYis1000,Mis500, and the growth rate of money is1percent, what mustiandPbe? Please show the relationships used and your computations.