ECONOMICS W/CONNECT+20 >C<
20th Edition
ISBN: 9781259714993
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 42, Problem 1P
To determine
The change in the output per capita in DVC and IAC.
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Question 2
Suppose that the production function is Y = 10K5L5, the population growth rate is 15 percent
and the depreciation rate is 5 percent. What is the steady state level of k if the economy saves 30
percent?
O 400
O 225
100
O 1000
Question 3
Suppose that the production function is Y 10K SL5, the population growth rate is 15 percent
and the depreciation rate is 5 percent. What is the steady state level of y if the economy saves 30
percent?
250
350
150
O 450
Explain why U.S. potential GDP per worker per week is greater than that in Europe.
What could induce Europeans to work the same hours as Americans and would that close the gap between potential GDP per worker in the two economies?
U.S. potential GDP per worker per week is greater than that in Europe because
O A. U.S. workers work fewer hours on average but they are more productive than Europeans
O B. U.S. workers are more productive per hour of work and they work longer hours than Europeans
C. the supply of labor in America is smaller than the supply of labor in Europe
O D. the United States uses less capital but they use it more effectively
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Question I - Solow Model without Population or Technology Growth
Consider the Solow growth model with no population growth and no technology growth, i.e., n = x = 0. Output is
created by a Cobb-Douglas production function combining Labor, Lt, and capital, Kt, such that output Yt is given
by
Y₁ = A+ KL
1-α
=
=
Recall that, without population growth, Lt Lo and assume that Lo 1. Furthermore, recall that, without
technology growth, At Ao and assume that A0 = 1. The law of motion for capital per worker is
=
kt+1 = (1 − 6) kt + sAtko.
(1)
Assume that the savings rate is s = 0.2, the depreciation rate is 8 = 0.1, and that the capital share is a = 0.3.
1. Use equation (1) to solve for the steady state level of capital, kss, (hint, replace kss in that equation on both
sides)
kss
=
What is the steady state level of capital? (Replace the numbers in the expression)
=
2. Suppose that this economy starts with ko 1. Does capital grow or fall over time? What is the maximum
level of capital per capita…
Chapter 42 Solutions
ECONOMICS W/CONNECT+20 >C<
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Similar questions
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- In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles? LO26.2 a. Country A. b. Country Barrow_forward"Consider the simple production model studied in class, but with different exponents. Suppose that the production function is Cobb-Douglas. The exponent on capital is 0.1 and the exponent on labor is 0.9. The data for this economy is A=10, K0-300 and the initial population is LO-30. We will assume that everyone in this country works so that population equals employment and per-person GDP equals per-worker GDP. Now suppose that the country receives foreign aid that is used to invest in infrastructure and electric vehicles. As a result, over the next few years, the economyos capital stock doubles to K1=600. Fortunately, no one is killed during the hurricane. In the initial final equilibrium, per-worker GDP will be..." Between 12.3% and 14.4% higher than in the initial equilibrium. Between 7.0% and 8.0% higher than in the initial equilibrium. Between 4.4% and 6.6% lower than in the initial equilibrium. None of the above.arrow_forwardSelect one or more: O a. If Country C's GDP per capita rises from $2,500 to 7,500, and Country D's GDP per capita rises from $6,000 to 18,000, the ratio of GDP per capita between the two countries is unchanged. O b. If a country's GDP doubles every 50 years on a ratio scale graph against time it will rise at an increasing rate. O c. Country B is growing a higher percentage rate than Country A, but Country A is 5 times richer than Country B. On a linear scale graph against time the gap between the two lines must be narrowing. O d. Country E is growing at the same percentage rate as Country F, but Country E is 3 times richer than Country F. On a log scale graph against time the gap between the two lines will be constant.arrow_forward
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- Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year? O 12% O 10% O 4% 2%arrow_forwardThe nominal U.S. GDP per capita was about $23,954 in 1990 and $48,375 in 2010. The GDP deflator of 2010 against 1990 was about 1.5159. What is the average annual growth rate of real GDP per capita during 1990-2010 approximately? O 1.44% O 2.33% O 2.02% O 1.98%arrow_forward6. LO 2 Suppose that z, the marginal product of efficiency units of labour, increases in the endogenous growth model. What effects does this have on the rates of growth and the levels of human capital, consumption, and output? Explain your results.arrow_forward
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