Reference no: EM13841578

In answering questions 1-10, use the following information about the economy of Margaritaville.

Margaritaville's production function per effective worker is given by the following expression: y' = (k')^0.5, where y' = Y/(E×L) and k' = K/(E×L). Y is real output, and K is the stock of capital.  The rate of depreciation is 2 percent(δ = 0.02). L is the size of the labor force which grows at the rate of 1 percent per year (g = 0.01); and E is a coefficient describing the efficiency of labor which grows at the rate of 2 percent per year (σ = 0.02).In sum, Magaritaville has a savings rate of 25 percent, a depreciation rate of 2 percent, a population growth rate of 1 percent, and a rate of labor-augmenting technological change of 2 percent.

CIRCLE T to indicate that the corresponding statement is TRUE; CIRCLE F to indicate the statement is FALSE.

T          F    1. In the steady-state of this economy, Margaritaville's real gross domestic product per capita is growing at a rate of 2 percent per annum.

T          F    2. In the steady-state of this economy, the marginal product of capital per effective worker (MPK) is equal to 0.10.

T          F    3. The steady-state level of capital per effective worker in Margaritaville is equal to 20.

T          F    4. At the Golden-rule steady-statelevel of capital, the marginal product of capital per effective of worker is equal to 0.05.

T          F    5. A government interested in maximizing consumption per worker should increase the savings rate to 50 percent by using fiscal policy.

T          F    6.   If the population growth rate decreases, the growth rate of output per worker will increase.

T          F    7. If Margitaville'sgrowth rate in labor-augmenting technological increases from 2 percent to 3 percent, then the growth rate in real gross domestic product per capita will increase from 2 percent to 3 percent, as well.

T          F    8. If Margaritaville's saving rate increases from 20 percent to 40 percent, the steady-state level of consumption per effective worker will increase.

T          F    9.  In the steady-state of Margaritaville's economy, output (Y) grows at a rate of 6 percent per year.

T          F    10. The government of Margaritaville could use tax policy to increase the savings rate in order to increase consumption per worker.

T          F    11. According to the discussion in class and in the readings, the quality of institutions, particularly the protection of property rights, are a key determinant of economic performance. (read pages 228-230 of chapter 8 of Mankiw which is available on BRIGHTSPACE).

T          F    12. According to the Solow growth model, the economy automatically converges to the steady-state level of capital per effective worker.

T          F    13.According to the Solow growth model, the fact that the average growth rate in real gross domestic product per capita for the United States between 1900 and 2010 is approximately 2.2 percent suggests that, the average growth rate in labor augmenting technological change is approximately 2.2 percent per year.

T          F    14. According to the Solow growth model, real GDP per capita among countries should converge. (read pages 221-222 of chapter 8 of the Mankiw which is available on BRIGHTSPACE)

T          F    15. The evidence of the growth rates in real gross domestic product per capita among developed and develop countries is consistent with the conditional convergence prediction of the Solow growth model. (read pages 221-222 of chapter 8 of the Mankiw which is available on BRIGHTSPACE)