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7 Macroeconomic Questions

7 Macroeconomic Questions

1. According to Table 6.3, the sources of economic growth in the United States (i.e. in the data) are the growth of inputs (labor and capital) and TFP growth. Between 1929 and 2008, what was the growth of output, labor, capital, and TFP in the US?

2. How does the US compare to other counties in the world in terms of income per person? See the LINK provided in slides (go to https://knoema.com/atlas/maps/GDP-per-capita). What are some of the countries that rank higher? (give 2 to 3 examples)

3. Solow Growth model: SET UP:

a) How is the steady state defined? Refer to the per capital variables as well as to the aggregate variables.

b) How is investment per capital at steady state defined? How is this interpreted intuitively? I.e. discuss the equation.

c) We know that when the economy is at steady state the savings per worker equals the breakeven investment per worker. Express this as an equation (i.e. write down the equation that holds when the economy is at steady state – use per worker terms, not aggregate terms).

4. What is the golden level of capital per worker? Explain (no graph needed).

5. In the Solow Growth Model what are the 3 factors (sources) that determine economic growth and the standard of living of a country? Just list.

6. Solow Growth model: GRAPH of Steady State

a) Illustrate the steady state level of capital-labor ration on the diagram. LABEL ALL CURVES AND AXES.

b) Suppose the economy is not at steady state yet, and instead it is currently at �̃ which is below k*. Illustrate �̃ on the diagram above. In this case, is savings per worker higher than breakeven investment per worker or lower or are they equal?

c) Continue with b): Since �̃ is below k* the economy continues to move towards steady state (towards k*). Can you provide the economic reasoning for why/how the economy moves from �̃ to k*?

7. Numerical Example: Solow Growth model. Suppose that output per worker is given by y=10k0.5, n=0.02, d=0.08, and consumers save 10% of their income.