Question 1
6 / 6 pts
Let the production function for an economy be Y=AK1/2L1/2 where Y is output, K is capital, L is labor and A is "ideas

Economics

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Question 1

6 / 6 pts

Let the production function for an economy be Y=AK^{1/2}L^{1/2} where Y is output, K is capital, L is labor and A is "ideas." If A=4, L=100, the savings rate is 1/5 and the depreciation rate is 1/3, find the steady-state levels of capital, output and consumption. [Answers are all whole numbers.]

K*=

Y*=

C*=

Answer 1:

576

Answer 2:

960

Answer 3:

768

Question 2

4 / 4 pts

Country A and Country B are identical in every way but then one day there is an earthquake in country B. Then because of the earthquake there is a tsunami. Then, because of the tsunami there is a meltdown at a nuclear power plant and then because of the meltdown at the nuclear power plant, Godzilla comes out of the ocean and smashes a bunch of capital.

Right after this event, which country will have a higher output? Country A

Right after this event, which country will have a higher growth rate? Country B

A hundred years after this event, which country will have a higher output? both the same

A hundred years after this even, which country will have a higher growth rate? both the same

(For the second two, assume that nothing else is different between the two countries over that hundred years.)

Answer 1:

Country A

Answer 2:

Country B

Answer 3:

both the same

Answer 4:

both the same

Question 3

2 / 2 pts

What happens to the marginal product of capital as capital increases?

It increases

It decreases

It stays the same

Question 4

6 / 6 pts

Imagine that there is a decrease in the savings rate. Say what happens to each of the following in the steady state.

Capital decreases

Output decreases

Consumption indeterminate

Answer 1:

decreases

Answer 2:

decreases

Answer 3:

indeterminate

Question 5

2 / 2 pts

At a higher interest rate, people will be willing to save more and firms will invest less .

Answer 1:

more

Answer 2:

less

Quiz Score: 20 out of 20

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