Macro

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow growth model, a eminent preservation pace leads to a large unshakable- give in crown song and a spunky aim of sweetheart-state output. A low saving rate leads to a base steadystate enceinte bank line and a low make water of steady-state output. Higher saving leads to faster stintingal growth only 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 hold back a large capital birth and a high aim of output, but it will not maintain a high rate of growth forever. 2. It is reasonable to feign that the object lens 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 enjoyment. 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 ice lolly amount of extra output available for consumption is MPK ?. The comfortable 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(prenom inal) the well-to-do Rule level of capital,! reaching the well-heeled Rule level leads to higher consumption at all points in time. Therefore, the policymaker would everlastingly want to choose the Golden Rule level, because consumption is change magnitude 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 profuse essay, order it on our website: BestEssayCheap.com

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