Use the classical rbc model

Reference no: EM13248636

1)Suppose we are at steady state in the Solow Model. Suddenly we have a significant technological advance.
(a) Show, using properly labeled graph(s), how this improvement in technology affects the steady state levels of income per worker, consumption per worker, and the capital-labor ratio.
(b) Does steady state income per worker increase, decrease, or stay the same?
(c) Does steady state consumption per worker increase, decrease, or stay the same?
(d) Does the steady state capital-labor ratio increase, decrease, or stay the same?
(e) Do any of your answers depend on what you assume about the golden rule capital-labor ratio? Why or why not?

#2)Suppose the Fed has just learned that a massive computer virus has attacked computers in the U.S. While productivity this quarter is unaffected, fixing the computers will take time (but at no cost) and will reduce the future marginal productive capital. Assuming no other changes in the economy, what would you (as member of the Federal Open Market Committee) do in response to the shock if you want to keep the economy at full-employment equilibrium under each of the following cases? Draw the movements in a IS-LM-FE diagram for each case, and explain your recommendation and reasons in words. Be sure to label your graphs carefully.
(a) You use the classical (RBC) model
(b) You use the Keynesian (efficiency wage) model
(c) You use the extended classical model with misperceptions, both with and without the shock being anticipated

Reference no: EM13248636

Questions Cloud

What is the pros & cons of giving the fda : What Is the pros & cons of giving the FDA more authority over pharmaceutical and marketing companies?

Regulations allows banks to start paying interest : An economy begins in long-run equilibrium, and then a change in government regulations allows banks to start paying interest on checking accounts.

Emphasis on the on the great recession and the recovery : What is the history of inflation in the US in the last 10 years, with particular emphasis on the on the great recession and the recovery?

The gulf oil spill from a communications perspective : Critique BP's handling of the Gulf oil spill from a communications perspective. What were their central messages? What were their major challenges?

Use the classical rbc model : Use the classical (RBC) model

The commonly used password management protocol : Analyze one of the commonly used password management protocol what is the weakness of this protocol?

Why are they both important to game development explain : In an array of characters we saw that NULL is important in defining where the end of the string is. As we keep looking further and further into strings (both array and string) why is NULL important? With two different types of NULL, why are they both..

Business level and corporate-level strategies : Business-Level and Corporate-Level Strategies

Bacteria does not belong with the others : Which of the following bacteria does NOT belong with the others?

User Account

All Pages