Question

*multiple choice questions*.

1. Suppose that an economy is in it's steady state and the capital stock is above the golden rule level. Assuming that there is no population growth or technological change, if the saving rate falls:

(a). Output, consumption, investment and depreciation will decrease.
(b). Output and investment will decrease, and consumption and depreciation will increase, and then decrease but Finally approach levels above their initial state.
(c). output and investment will decrease, and consumption and depreciation will increase.
(d). Output, investment and depreciation, and consumption will increase and then decrease but Finally approach levels above their initial state.

2. In the Solow growth model of an economy with population growth but no technological change, the Break even level of investment must do all of the following except:

(a) Equal the marginal productivity of capital (MPK)
(b) Offset the depreciation of existing capital.
(c) Keep the level of capital per worker constant.
(d) Provide Capital for new workers.

Answer 1

1) Ans: b) Yield and speculation will diminish, and utilization and devaluation will increment, and afterward decline however Finally approach levels over their underlying state

                             In the Solow development model, a high sparing rate prompts an enormous consistent state capitalstock and an elevated level of consistent state yield. A low sparing rate prompts a little consistent state capital stock and a low degree of consistent state yield. Higher sparing prompts fastereconomic development just in the short run. An expansion in the sparing rate raises growthuntil the economy arrives at the new consistent state. That is, if the economy keeps up a high sparing rate, it will likewise keep up a huge capital stock and an elevated level of output,but it won't keep up a high pace of development for eternity

                         It is sensible to expect that the target of a financial policymaker is to boost the monetary prosperity of the individual citizenry. Since monetary prosperity relies upon the measure of utilization, the policymaker ought to pick the consistent state with the most significant level of utilization. The Golden Rule level of capital speaks to the level that augments utilization in the consistent state.

                      At the point when the economy starts over the Golden Rule level of capital, arriving at the Golden Rule level prompts higher utilization at all focuses in time. Along these lines, the policymaker would consistently need to pick the Golden Rule level, since utilization is expanded for all timeframes. Then again, when the economy starts beneath the Golden Rule level of capital, arriving at the Golden Rule level methods lessening utilization today to build utilization later on. For this situation, the policymaker's choice isn't as clear. In the event that the policymaker thinks more about current ages than about future generations, the individual in question may choose not to seek after strategies to arrive at the Golden Rule consistent state. In the event that the policymaker thinks similarly about all ages, at that point the person decides to arrive at the Golden Rule. Despite the fact that the current age should devour less,an limitless number of people in the future will profit by expanded utilization by moving to the Golden Rule.

                         The higher the populace development rate is, the lower the consistent state level of capital per specialist is, and along these lines there is a lower level of consistent state pay.

2) Ans : a) Equal the marginal productivity of capital (MPK)

                                Marginal product of capital (MPK) is the steady increment in absolute creation that outcomes from one unit increment in capital while keeping every single other information consistent.

Recognizing the peripheral result of capital is significant on the grounds that organizations take speculation choices by contrasting their negligible result of capital and their expense of capital. At the point when the negligible result of capital is higher than the expense of capital, it bodes well to expand creation by expanding capital however when peripheral result of capital falls underneath the expense of capital, including any increasingly capital outcomes in a lessening in the association's benefit.