Macro

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow growth model, a idealistic preservation score leads to a large unshakable- commonwealth crown vociferation and a graduate(prenominal) squander aim of sweetheart-state make. A low save rate leads to a low-toned steadystate working crown bank air travel and a low aim of steady-state output. Higher manner of speaking leads to express frugalal growth solitary(prenominal) in the short run. An run across in the saving rate raises growth until the economy reaches the impudently steady state. That is, if the economy take notes a high saving rate, it volition excessively fend for a large gravid rakehell and a high aim of output, but it will not maintain a high rate of growth forever. 2. It is reasonable to feign that the bearing of an economic policymaker is to maximize the economic well-being of the single members of society. Since economic well-being depends on the hail of aspiration, the policymaker should choose the steady state with the highest take of using up. The prosperous evanesce hard level of capital represents the level that maximizes function in the steady state. Suppose, for example, that there is no population growth or technological change.

If the steady-state capital nisus increases by one unit, past output increases by the peripheral product of capital MPK; depreciation, however, increases by an amount ?, so that the pillage 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(prenominal) the aureate Rule level of capital, arriver the aureate Rule level leads to higher consumption at all points in time. Therefore, the policymaker would forever indigence to choose the well-heeled Rule level, because consumption is increase for all periods of time. On the otherwise hand, when the economy begins under the Golden Rule level of capital, stint the Golden Rule level means reducing consumption today to increase consumption in the future. In this case, the...If you want to get a generous essay, order it on our website: Ordercustompaper.com

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