EC402: Solutions to Problem Set 1
1. This question has you investigate the speed of convergence in the Solow growth model. Specifically, assume that the functional form for the production function is given by:
Yt = AKt L1t
Assume the following values for
Labor Supply
EC402
Qingqing Cao
Michigan State University
Spring 2016
Time devoted to work varies a lot across countries.
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Modelling labor supply
What determines how much people choose to work?
Here we develop a simple model to think about this.
The
EC402: Problem Set 2
Due in class: Tuesday, Feb 16
For the rst 2 questions: Suppose that income (output) grows at 15 percent, capital grows at 6
percent, and labor grows at 3 percent. Suppose Y = AK N 1 , with = 1/3.
1. What is productivity growth?
A) 10%
Test practice problems
1. What is the hypothesis of rational expectations? 2. Assume that the actual inflation in an economy evolves as follows: )(45211Att+=+ If an agent form expectations according to the adaptive expectations hypothesis, can we say that
Algebraic Version of the IS-LM and AD-AS Models
By finding the equilibrium values from the Labor, Goods, and Asset markets, we can, with a little algebra, find the equilibrium values for the IS-LM and AD-AS models.
The Labor Market The demand for labor is
EC 402 Sample Test for the first mid-term (remember: the mid-term will have 30 questions) 1) Suppose there is an increase in the profits distributed by firms. The demand for leisure will i) Increase ii) Decrease iii) Remain unchanged Increase in profits p
The Conference Board Total Economy Database
Output, Labor and Labor Productivity Country Details, 1950-2011
January 2012
Variables
GK GDP
EKS GDP
Pop
Emp
Hours
Total Hours worked
GDP-capita GK
GDP-capita EKS
LP-Person GK
LP-Person EKS
LP-Hour GK
LP-Hour E
Endogenous Growth Model
EC402
Qingqing Cao
Michigan State University
Spring 2016
Critique of the Solow model
The Solow model fails to explain the persistent cross-country income
differences.
This diagram plots the dynamics of income per capita predicted b
The Solow Growth Model: Part 3
EC402
Qingqing Cao
Michigan State University
Spring 2016
Sources of long-run growth in the Solow model
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Sources of long-run growth in the Solow model
One prediction of the Solow model is that an economy converges to it
The Solow Growth Model: Part 2
EC402
Qingqing Cao
Michigan State University
Spring 2016
Comparative statics
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Comparative statics
Now that we have developed the Solow model and studied some of its
features, we are ready to use it to help us understan
EC402-001 Advanced Macroeconomics, Spring 2016
Instructor: Qingqing Cao
Ofce: 202 Old Botany
Phone: 517-432-4978
Email: caoqq@msu.edu
Class meets: Tuesdays and Thursdays 10:20 am to 11:40 am, 111 Berkey Hall
Ofce hours: Tuesdays 2:30 pm to 4:00 pm
Prerequ
EC402: Quiz 1
Name:
Multiple choices
1. Across countries, real per capita income and the investment rate are
A) positively correlated.
B) negatively correlated.
C) uncorrelated.
D) unknown.
Answer: A
2. Which of the following functions satises the three p
The Solow Growth Model: Part 1
EC402
Qingqing Cao
Michigan State University
Spring 2016
Readings for this topic
Chapter 7 of the textbook
Economic growth facts: page 220-226
Solow growth model: page 237-267
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Robert M. Solow
The Sveriges Riksbank Pri
EC402: Solutions to Problem Set 2
Due in class: Tuesday, Feb 16
For the first 2 questions: Suppose that income (output) grows at 15 percent, capital grows at 6
percent, and labor grows at 3 percent. Suppose Y = AK N 1 , with = 1/3.
1. What is productivity
Development Accounting
EC402
Qingqing Cao
Michigan State University
Spring 2016
Growth accounting vs development accounting
Growth accounting tries to account for the differences in output across
time in a given economy.
Development accounting tries to ac
EC402: answers to the exercises in class
Updated January 22, 2016
Exercises from Note 3
1. Consider a government policy that increases labor supply per person l. What would be the shortrun and long-run effect?
Long run: A larger value of l shifts the curv
The material on these notes is borrowed from http:/qed.econ.queensu.ca/pub/faculty/lloyd-ellis/econ320/notes/ramsey.pdf
THE NEOCLASSICAL GROWTH MODEL The neoclassical growth model extends the Solow growth model by allowing for endogenous consumption choic
DTMS-AFA5S Define competitive equilibrium. 1. A theoretically economic market state, whether short-term or long-term, with the "goal" of determining an outcome when the agents (consumers and firms) optimize their individual self-interest. i. Long-term mea
Midterm Exam - EC 402 01) Various economists argue that an expansionary fiscal policy should have no impact on output because this policy is simply a transfer of resources from the private to the public sector. Consider the model below, aimed at capturing
Problem Set 01 Due April 9th 1. What is the hypothesis of rational expectations? The hypothesis of rational expectations states that economic agents forecast in such a way as to minimize forecast errors., subject to information and decision making constra
Problem Set 02 Answers 01) Assume that the equation describing the dynamics of capital accumulation in an economy is given by 3Kt+1 = 2Kt + 2. What is the steady-state capital stock? Answer: Since K t = K t +1 = K in the steady-state, 3K = 2 K + 2 holds i
EC402: Solution to Problem Set 5
1. In the real intertemoral model with investment, explain how and why the factors below shift the
demand curve for current output.
(a) An increase in future income Yt+1 .
An increase in future causes an increase in curren
EC402: Solution to Problem Set 4
1. Consider the two-period model we studied in class. A consumers income in the current period
is Y1 = 110, and income in the future period is Y2 = 110. The interest rate R is 10%. Assume that
the price level equals 1 in b
The Solow Growth Model: Part 1
EC402
Qingqing Cao
Michigan State University
Spring 2016
Robert M. Solow
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
1987 was awarded to Robert M. Solow for his contributions to the theory of
e
Development Accounting
EC402
Qingqing Cao
Michigan State University
Fall 2016
Growth accounting vs development accounting
Growth accounting tries to account for the differences in output across
time in a given economy.
Development accounting tries to acco
The material on these notes is borrowed from qed.econ.queensu.ca/pub/faculty/lloyd-ellis/econ320/./consume.pdf
DYNAMIC THEORIES OF CONSUMPTION AND INVESTMENT BEHAVIOR Following the Lucas critique, macroeconomists started to become much more concerned with