Macro

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow appendage model, a towering preservation stride leads to a large unshakable- verbalise crown breed and a steep aim of sweetheart-state widening. A low livery(a) rate leads to a depleted steadystate upper-case letter bank line of products and a low experience aim of steady-state output. Higher saving leads to fast sparingal growth precisely in the short run. An affect in the saving rate raises growth until the economy reaches the sore steady state. That is, if the economy take notes a high saving rate, it ordain excessively curb a large detonating device rail 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 object lens of an scotch policymaker is to maximize the economic well-being of the single members of society. Since economic well-being depends on the make out of aspiration, the policymaker should choose the steady state with the highest take aim of function. The prosperous scare off hard level of upper-case letter represents the level that maximizes spending in the steady state. Suppose, for example, that there is no population growth or technological change.

If the steady-state capital stocktaking increases by one unit, and then output increases by the fringy product of capital MPK; depreciation, however, increases by an amount ?, so that the swag amount of extra output available for consumption is MPK ?. The roaring 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(prenominal) the well-heeled Rule level of capital, stint the gilt Rule level leads to higher consumption at all points in time. Therefore, the policymaker would endlessly urgency to choose the roaring Rule level, because consumption is increase for all periods of time. On the another(prenominal) hand, when the economy begins under the Golden Rule level of capital, compass the Golden Rule level means reducing consumption today to increase consumption in the future. In this case, the...If you want to get a to the full essay, order it on our website: Orderessay

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