Part 1 - Practice Questions 1. Suppose that a country enacts a tax policy that discourages investment and pushes the savings rate permanently lower from 5₁ to 52. Assume the economy is initially in its steady state. a. Use the Solow diagram to explain how the economy reaches its new steady state. b. Draw a graph showing how output evolves over time with Y on the y-axis and time on the x-axis and explain what happens to growth over time. 2. Explain whether each of the goods below are rivalrous or non-rivalrous. a. An iPhone b. A method for mass producing goods c. The Pythagorean theorem 3. Suppose an economy is currently on a balance growth path as described the Romer model. For the following scenarios, determine whether the change will affect growth of and/or level of output per person; make use of the two equations noted in experiment #1 and #2 in Lecture 6 to support your answer. Then, using a ratio scale graph, illustrate the initial balanced growth path and the new path caused by the scenario. Follow the same format as shown with the two experiments in class. Each scenario is independent of the others. a. The productivity parameter, z, falls b. The labor force declines c. The initial stock of ideas increases

Part 1 - Practice Questions 1. Suppose that a country enacts a tax policy that discourages investment and pushes the savings rate permanently lower from 5₁ to 52. Assume the economy is initially in its steady state. a. Use the Solow diagram to explain how the economy reaches its new steady state. b. Draw a graph showing how output evolves over time with Y on the y-axis and time on the x-axis and explain what happens to growth over time. 2. Explain whether each of the goods below are rivalrous or non-rivalrous. a. An iPhone b. A method for mass producing goods c. The Pythagorean theorem 3. Suppose an economy is currently on a balance growth path as described the Romer model. For the following scenarios, determine whether the change will affect growth of and/or level of output per person; make use of the two equations noted in experiment #1 and #2 in Lecture 6 to support your answer. Then, using a ratio scale graph, illustrate the initial balanced growth path and the new path caused by the scenario. Follow the same format as shown with the two experiments in class. Each scenario is independent of the others. a. The productivity parameter, z, falls b. The labor force declines c. The initial stock of ideas increases

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

6. The constant returns to scale assumption in the endogenous growth model implies that: A) countries will definitely reach a steady-state equilibrium. B) if there are constant returns to one input alone, there will be increasing returns to scale to all factors of production taken together. C) the production function will have a concave shape. D) the production function will have a convex shape. E) the capital-labour ratio will be constant at the steady-state. 7. In the AD-AS model, in the long-run, a decrease in the real money supply: A) will result in a movement along a horizontal AS curve. B) may be the result of equilibrium prices decreasing following a contractionary fiscal policy. C) causes the actual unemployment rate to fall below the natural rate of unemployment. D) is caused by a decrease in the interest rate. E) decreases consumers’ disposable income. 8. Decreasing government expenditure is effective at: A) increasing the level of output in the short-run,…
31) Given the narrow interpretation of technology, technology will include which of the following? A) how well firms are run B) the organization and sophistication of markets C) the political environment D) none of the above 32) Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run A) the growth rate of output per capita will be greater in B than in A. B) the growth rate of output per capita will be greater in A than in B. C) the capital-labor ratios (K/N) will be the same in both countries. D) the growth rate of output per capita will be the same in both countries. 33) Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run A) the capital-labor ratio…
Question 7 What is meant by economic growth and why is it one of the most important goals macroeconomists seek to achieve? In your explanation, show the relationship between production, consumption, and investment in periods of economic growth?
Long run economic growth a) An economy is in its steady-state. According to the Solow model, what will happen to output per worker if the saving rate were to increase? Draw a diagram to illustrate. b) According to the Solow model, an increase in the saving rate is not always desirable. Why not? c) In the world economy, we see a great disparity of income per person. Yet the Solow model predicts conditional convergence – that poor countries will grow faster than rich countries and eventually converge to the same level of income per person as the rich countries. According to the Solow model, what conditions must be met for convergence to occur?
7. Suppose that the economy's production function is Y = √K√LA where K is capital, L is labor, and A is the state of technology. Suppose that the saving rate (s) is equal to 6%, the rate of depreciation of capital (8) is equal to 5%, the number of workers grow at 5% per year and the rate of technological progress is 4%. (a) Find the steady state values of: iv. growth rate of output per worker growth rate of output v. (b) Suppose that the saving rate increases. What is its short-run and the long-run effect on the growth rate of per-capita output?
12. According to Solow's model of economic growth, what determines the growth rate of income per person for a nation that is not in its steady state? What determines the growth rate of income per person for a nation that is in its steady state? In what sense is technological progress necessary for sustained growth of income per person in Solow's model?
1. In the Malthusian model, suppose that the quantity of land increases. Using diagrams, determine what effects this has in the long-run steady state and explain your results.
6. Using the Solow Model, determine graphically, the steady state for capital and output when there is an: (a) a permanent decrease in the savings rate (b) a permanent decrease in A (c) a permanent increase in the depreciation rate.
4. On January 12th 2010 a devastating earthquake with a magnitude of 7.3 struck Haiti. As a result, about 40% of the capital stock of Haiti was destroyed. Assume the economy was at its steady state before the earthquake hit. Use the Solow Diagram to illustrate how the economy was impacted. Draw a graph showing how output evolves over time and explain what happens to the level and growth rate of per capita GDP.
16 True or False? The key difference between the Solow and production/expenditure models of the economy is that the Solow model endogenizes the saving rate.
10. The Reverend Thomas Malthus (a British economist) thought that arithmetic growth in food supply (such as a farmer adding five more bushels of apples to his harvest every year) exhibited: A. positive exponential growth (logarithmic increase) over time B. logistic growth (linear increase, then exponential, then linear again) over time C. saturation growth (Michaelis-Menten increases) over time D. negative exponential growth (logarithmic decrease) over time E. linear growth (straight line increase) over time
5..Using the graphical representation of Solow growth model explain what happens in each of the following cases, assuming that the economy is at the steady-state initially. a) A one-time, permanent improvement in technology decreases the depreciation rate. b) A war does not directly affect the capital stock, but casualties reduce the labor force