Unformatted text preview: if from were to grow at a constant rate over time.
(d) How is the response of the economy to an increase in TFP different to an increase in
the investment rate? (Hint: Think about what happens to consumption). Q2. Do exercises 2 and 8 from Chapter 5 of Jones.
Question 5.2 (a) (a)
Y K*(0) K*(1) K 5 the stock of capital tends increase. As the capital stock evolves towards K*(1) the
growth rate of capital (and of output) will slow and eventually cease once the new
steadystate level of capital has been reached.
(b) The increase in technology has two effects on output percapita. There is a direct
effect via the production function and then a second effect that comes from higher
The increase in The shift the saving/investment curve upwards (as will look like
capital accumulation.A willpath of output (or output percapita) over time shown above).
It will also
the following. shift the percapita production function upwards as well (not shown
above – but you should draw it in). It the transition period investment exceeds
deprecation so the stock of capital tends increase. As the capital stock evolves
towards Y(1) the growth rate of capital (and of output) will slow and eventually
K*(1)
The increase ease once the new steadyupwards (as shown above). It
cin A will shift the saving/investment curve state level of capital has been reached.
will also shift the percapita production function upwards as well (not shown above –
but you should draw it in). It the transition period investment exceeds deprecation so
the stock of capital tends increase. As the capital stock evolves towards K*(1) the
growth rate of capital (and of output) will slow and eventually cease once the new
steadystate level of capital has been reached. (b) The increase in technology has two effects on output percapita. There is a direct
effect via the production function and then a second effect that effect on output.
This vertical section shows the direct comes from higher
(b) The increase in technology has two effects on output percapita.of output (or output percapita) over time wil...
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 Spring '11
 Macroeconomics, Queensland

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