Macro

CHAPTER

7

Economic Growth I

Questions for Review
1. In the Solow growth model, a eminent preservation rate leads to a large unshakable-state crown song and a high level of sweetheart-state output. A low saving rate leads to a small steadystate capital bank line and a low level of steady-state output. Higher saving leads to faster economical growth only 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 take notes a high saving rate, it will excessively maintain a large capital stock and a high level of output, but it will not maintain a high rate of growth forever. 2. It is reasonable to feign that the objective 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 highest level of consumption. 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 marginal product of capital MPK; depreciation, however, increases by an amount ?, so that the boodle amount of extra output available for consumption is MPK ?. The Golden 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 Golden Rule level of capital, reaching the Golden Rule level leads to higher consumption at all points in time. Therefore, the policymaker would always want to choose the Golden Rule level, because consumption is increased 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 full essay, order it on our website: Orderessay



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