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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

Economics

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

 

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:Correct!

Country A

 Answer 2:Correct!

Country B

 Answer 3:Correct!

both the same

 Answer 4:Correct!

both the same

 

 

Question 3

2 / 2 pts

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

  

It increases

 Correct!  

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:Correct!

decreases

 Answer 2:Correct!

decreases

 Answer 3:Correct!

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:Correct!

more

 Answer 2:Correct!

less

 

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