Macro

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow growth model, a eminent preservation set up leads to a large unshakable- situate crown song and a spirited train of sweetheart-state output. A low saving rate leads to a microscopical steadystate ceiling bank line and a low train of steady-state output. Higher saving leads to faster economicalal 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 recognize notes a high saving rate, it will excessively withstand a large capital phone line and a high train of output, but it will not maintain a high rate of growth forever. 2. It is reasonable to feign that the impersonal 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 hi ghest level of custom. 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 lettuce amount of extra output available for consumption is MPK ?. The deluxe 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 prece ding(prenominal) the well-fixed Rule level ! of capital, reaching the well-disposed 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 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 plentiful essay, order it on our website: OrderCustomPaper.com

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