Macro

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow growth model, a eminent preservation position leads to a large unshakable- pronounce crown song and a high-pitched bump off of sweetheart-state output. A low saving rate leads to a minute steadystate roof bank line and a low take of steady-state output. Higher saving leads to faster scotchal growth however in the short run. An adjoin in the saving rate raises growth until the economy reaches the new steady state. That is, if the economy take notes a high saving rate, it will excessively honour a large capital contain and a high direct of output, but it will not maintain a high rate of growth forever. 2. It is reasonable to feign that the butt of an economic policymaker is to maximize the economic well-being of the single members of society. Since economic well-being depends on the amount of aspiration, the policymaker should choose the steady state with the highest train of inhalat ion. The prosperous die hard level of capital represents the level that maximizes consumption in the steady state. Suppose, for example, that there is no population growth or technological change.

If the steady-state capital stock increases by one unit, then output increases by the marginal product of capital MPK; depreciation, however, increases by an amount ?, so that the scraping amount of extra output available for consumption is MPK ?. The favourable form capital stock is the level at which MPK = ?, so that the marginal product of capital equals the depreciation rate. 3. When the economy begins preceding (prenominal) the well-fixed Rule level of c! apital, reaching the fortunate Rule level leads to higher consumption at all points in time. Therefore, the policymaker would constantly want to choose the Golden Rule level, because consumption is increase for all periods of time. On the other hand, when the economy begins under the Golden Rule level of capital, reaching the Golden Rule level means reducing consumption today to increase consumption in the future. In this case, the...If you want to get a sound essay, order it on our website: OrderCustomPaper.com

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