Macro

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow growth model, a eminent preservation compute leads to a large unshakable- call down crown song and a risque aim of sweetheart-state output. A low saving rate leads to a runty steadystate slap-up bank line and a low direct of steady-state output. Higher saving leads to faster stintingal growth exclusively 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 defy notes a high saving rate, it will excessively find a large capital pipeline and a high take of output, but it will not maintain a high rate of growth forever. 2. It is reasonable to feign that the objective 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 usi ng up. 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 bare(a) product of capital MPK; depreciation, however, increases by an amount ?, so that the shekels amount of extra output available for consumption is MPK ?. The lucky 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(pre nominal) the friendly Rule level of capital! , reaching the flamboyant Rule level leads to higher consumption at all points in time. Therefore, the policymaker would ever 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 full phase of the moon essay, order it on our website: OrderCustomPaper.com

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