Question

A) consider an economy that starts at a "per-person capital stock" above the golden rule level. in order to reach the golden rule one must what?

-requite initially increasing consumption to decrease consumption in the future

-require initially reducing consumption to increase it in the future

-results in higher consumption at all times in the future

-results in lower consumption in the future

B) which of the following is a good explanation as to why the typical production function y=f(k,l) is concave when plotting Y against L on the graph? (conditional convergence, constant returns to scale, golden rule, depreciation, diminishing marginal product, rulers theorem)

C) a country with a population growth rate of 3%, rate of labor augmenting technical progress of 2% and depreciation rate of 4% will exhibit steady state growth rate In output per worker of what? In a solo growth model (0%,4%,2%,5%,3%)

Answer 1

A) When the economy begins above 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 below 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 policymaker’s decision is not as clear. Therefore, if the policymaker is considering per-person capital stock above the golden rule level, in order to reach the golden rule level, one must require initially reducing consumption to increase it in the future.

B) y= f(k,l) that determines how much output per worker y can be produced with any quantity of capital per worker k. Firms use the production function to determine how much output they should produce given the price of a good, and what combination of inputs they should use to produce given the price of capital and labor. When firms are deciding how much to produce they typically find that at high levels of production, their marginal costs begin increasing. This is also known as diminishing returns to scale – increasing the quantity of inputs creates a less-than-proportional increase in the quantity of output. If it weren’t for diminishing returns to scale, supply could expand without limits without increasing the price of a good.

the production function gets flatter as the amount of labor increases, resulting in a shape that is curved downward. Short-run production functions typically exhibit a shape like this due to the phenomenon of diminishing marginal product of labor.In general, the short-run production function slopes upwards, but it is possible for it to slope downwards if adding a worker causes him to get in everyone else's way enough such that output decreases as a result.