7 macroeconomic questions, Econ Major only

Econ 302; Dr. Janko

Participation Worksheet

Due Sunday March 29th by 10pm.

1. According to Table 6.3, the sources of economic growth in the United States (i.e. in the data) are the

growth of inputs (labor and capital) and TFP growth. Between 1929 and 2008, what was the growth of

output, labor, capital, and TFP in the US?

2. How does the US compare to other counties in the world in terms of income per person? See the LINK

provided in slides (go to https://knoema.com/atlas/maps/GDP-per-capita). What are some of the countries that

rank higher? (give 2 to 3 examples)

3. Solow Growth model: SET UP:

a) How is the steady state defined? Refer to the per capital variables as well as to the aggregate variables.

b) How is investment per capital at steady state defined? How is this interpreted intuitively? I.e. discuss

the equation.

c) We know that when the economy is at steady state the savings per worker equals the breakeven

investment per worker. Express this as an equation (i.e. write down the equation that holds when the

economy is at steady state – use per worker terms, not aggregate terms).

4. What is the golden level of capital per worker? Explain (no graph needed).

5. In the Solow Growth Model what are the 3 factors (sources) that determine economic growth and the

standard of living of a country? Just list.

Econ 302; Dr. Janko

6. Solow Growth model: GRAPH of Steady State

a) Illustrate the steady state level of capital-labor ration on the diagram. LABEL ALL CURVES AND

AXES.

b) Suppose the economy is not at steady state yet, and instead it is currently at �̃� which is below k*.

Illustrate �̃� on the diagram above. In this case, is savings per worker higher than breakeven investment

per worker or lower or are they equal?

c) Continue with b): Since �̃� is below k* the economy continues to move towards steady state (towards

k*). Can you provide the economic reasoning for why/how the economy moves from �̃� to k*?

7. Numerical Example: Solow Growth model. Suppose that output per worker is given by y=10k0.5, n=0.02,

d=0.08, and consumers save 10% of their income.

a) Use the info above to calculate the steady state levels of the following 3 variables: capital per worker, output per worker, consumption per worker. Show your work.

b) Use the Solow Growth Model to analyze the impact of a rise in savings rate. Use a diagram to show the impact on capital-labor ratio, and then discuss how the economy transitions to the new steady state.

Make sure to give intuition. LABEL ALL CURVES AND AXES.

Econ 302; Dr. Janko