That is the population growth rate in country a is 3

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a faster rate in country A than in country B. That is, the population growth rate in country A is 3 % per year ( n A = 3%) and the population growth rate in country B is 1 % per year ( n B = 1%) (a) [4 points] Which country will have the higher level of output per worker in the steady state? Illustrate graphically (b) [3 points] What is the rate of growth of output per worker ( y = Y/L ) in country B? (c) [3 points] What is the rate of growth of output ( Y ) in country A? Case II: Growing Population and Technological Progress Consider a hypothetical economy. Suppose that marginal product of capital ( MPK ) is 5 percent per year, depreciation rate is 2 percent per year ( δ = 0 . 02), population growth rate is 1 percent per year ( n = 0 . 01), and the economy’s real GDP growth rate is 3 percent per year (d) [4 points] Let’s assume that the economy is in a steady state. Let A be the efficiency of labor or a society’s knowledge about production method. What is the rate of growth of efficiency of labor ( g )? (e) [4 points] Is the steady-state capital per worker at, below, or above the Golden Rule level of capital per worker, k g ? (4) [8 points] Money and Inflation Answer the following questions (a) [4 points] According to the Fisher equation, if the Fed announces that it will raise the money supply in the future but does not change the money supply today, then what happens to nominal interest rate? 3
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(b) [4 points] Suppose velocity is constant and, in addition, the factors of production and the production function determine real GDP. If the money supply increases 8 percent and the price level increases 5 percent, then what is the change in nominal GDP and real GDP ? (5) [8 points] Unemployment Let’s assume that supply of labor is fixed in the long run, and thus the labor supply curve is vertical. Suppose that a country experiences a reduction in productivity that lowers the
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