Question Econ 490 – Topics in Economic Growth

Econ 490 – Topics in Economic Growth
Spring 2014
Practice Questions – MIDTERM I
1) A country is described by the Solow Model, with a production function of y=k 1/2. Suppose that k is equal to 400. The fraction of output invested is 50%. The depreciation rate is 5%. Is the country at its steady-state level of output per worker, above the steady state, or below the steady state? Show how you reached your conclusion.

2) The following tables show data on investment rates and output per worker in for three pairs of countries. For each country pair, calculate the ratio of GDP per worker in steady state that is predicted by the Solow model, assuming that all countries have the same values of A and ? and that the value of ? is 1/3. Then calculate the actual ratio of GDP per worker for each pair of countries. For which pairs of countries does the Solow model do a good job of predicting relative income? For which pair does the Solow model do a poor job? Why do you think it’s happening?
a) Country Thailand Bolivia
b) Country Nigeria Turkey
c) Country Japan New Zealand

Investment Rate (Average 1975-2009)
35.2%
12.6%

Output per Worker in 2009

Investment Rate
(Average 1975-2009)
6.4%
16.3%

Output per Worker in 2009

Investment Rate
(Average 1975-2009)
29.9%
19.6%

Output per Worker in 2009

$13,279
$8,202

$6,064
$29,699

$57,929
$49,837

3) Country X and Country Y have the same level of output per worker. They also have the same values for the rate of depreciation, ?, and the measure of productivity, A. In country X output per worker is growing, whereas in Country Y it is falling. What can you say about the two countries’ rates of investment?

4) In a country the production function is y=k 1/2. The fraction of output invested, ?, is 0.25. The depreciation rate, ?, is 0.05. a) What are the steady-state levels of capital per worker, k, and output per worker, y?
b) In year 1, the level of capital per worker is 16. In a table such as the following on, show capital and output change over time (The beginning is filled in as a demonstration).

Continue this table up to year 8.
Year
Capital
Output (y=k1/2) Investment(?y) Depreciation(?k)
Change in
Capital Stock
1
16
4
1
0.8
0.2
2
16.2

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.