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Homework answers / question archive / 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
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." 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:
Correct!576
Answer 2:
Correct!960
Answer 3:
Correct!768
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:Correct!
Country A
Answer 2:Correct!
Country B
Answer 3:Correct!
both the same
Answer 4:Correct!
both the same
2 / 2 pts
What happens to the marginal product of capital as capital increases?
It increases
Correct!
It decreases
It stays the same
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:Correct!
decreases
Answer 2:Correct!
decreases
Answer 3:Correct!
indeterminate
2 / 2 pts
At a higher interest rate, people will be willing to save more and firms will invest less .
Answer 1:Correct!
more
Answer 2:Correct!
less
