6. Consider the Solow growth model with aggregate production function F(K, L) = AK¹/312/3 and saving rate 5 = 0.5. The economy is initially at a steady state. A change of the saving rate from 5 = 0.5 to 5 = 1/3 leads to: a. An increase in consumption at all future dates. b. A decrease in consumption at all future dates c. An increase in consumption in the short run and a decrease in consumption at the new steady state. d. A decrease in consumption in the short run and an increase in consumption at the new steady state. e. An increase in consumption in the short run and no change in consumption at the steady state.

6. Consider the Solow growth model with aggregate production function F(K, L) = AK¹/312/3 and saving rate 5 = 0.5. The economy is initially at a steady state. A change of the saving rate from 5 = 0.5 to 5 = 1/3 leads to: a. An increase in consumption at all future dates. b. A decrease in consumption at all future dates c. An increase in consumption in the short run and a decrease in consumption at the new steady state. d. A decrease in consumption in the short run and an increase in consumption at the new steady state. e. An increase in consumption in the short run and no change in consumption at the steady state.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I need help with both questions and please provide justification

6. Consider the Solow growth model with aggregate production function F(K, L) = ĀK¹/³L²/³ and saving rate
5 = 0.5. The economy is initially at a steady state. A change of the saving rate from 5 = 0.5 to 5 = 1/3
leads to:
a. An increase in consumption at all future dates.
b. A decrease in consumption at all future dates
C.
An increase in consumption in the short run and a
decrease in consumption at the new steady state.
d. A decrease in consumption in the short run
and an increase in consumption at the new
steady state.
e.
An increase in consumption in the short run
and no change in consumption at the steady
state.

12. Consider the Solow model where the production function is F(K, L) = ĀKL. For simplicity we normalize the
labor force to L=1. Moreover, we assume sÃ> d. The growth rate of the capital stock is
s-d
d. A/d
SĀ - d
e. SÃ/d
s+d
a.
b.
C.

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