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Intermediate Macroeconomic : Assignment

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Added on  2020-10-05

Intermediate Macroeconomic : Assignment

   Added on 2020-10-05

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INTERMEDIATEMACROECONOMIC
Intermediate Macroeconomic : Assignment_1
Table of ContentsINTRODUCTION...........................................................................................................................1Question 1...............................................................................................................................1Question 2:..............................................................................................................................2Question 3: .............................................................................................................................3Question 4: ............................................................................................................................5Question 5: .............................................................................................................................5Question 6:..............................................................................................................................8Question 7: ...........................................................................................................................10REFERENCE.................................................................................................................................12
Intermediate Macroeconomic : Assignment_2
INTRODUCTIONQuestion 1Solution: Solow Growth is a key which consider as basis for modern economic growth.According to Cobb-Douglas production functions:Y = F (K, AN) = Kα (AN)1−α Where, output per effective worker : y = Y/AN and,Consumption per effective worker : k ≡ K/AN.Investment per worker i = 1/AN. Therefore, Y = Kα (AN)1−α Y/ AN = (K/ AN) α y= k αIn this regard, Steady state in Solow model : s f (kss) = δ kss i.e. kss/ f (kss) = s/ δAs per given Table: Benchmark Parameter valuesα 1/3s3%δ18%gA3.0%gB2.0%Therefore, Cobb Douglas case, capital per worker can be estimated as: s (kss) α = δ ksskss = (s/ δ)1/1−α = (0.03/0.18) 3/2= 0.0339Golden rule saving rate (kgr): According to Solow Model, it has predicted that countries havingrate of savings and investment, will have higher output per effective worker.Therefore, level of capital worker (kgr) maximizes when css = f(k) – δk1
Intermediate Macroeconomic : Assignment_3
First order condition with respect to k, dy/dk = δ or, f’(kgr) = δor, α (kgr) α-1 = δor, kgr = (α/ δ) 1/1−α here, α=1/3, δ = 18% then, kgr = 2.516Question 2:Solution: As economy begins with initial steady state, therefore, economy of nation devotes asmall share to consumption. This would is said to be an immediate effect of contribution oflarger share of national output to investment. In this regard, higher investment rate shows thatcapital stock increases at rapid rate. So, productivity of employees or output per effective workeralso rises. In context with new steady state, generally output raise at rate n+g and output perworker at rate g. Therefore, productivity seems to be independent from investment rate. (i) Begins with steady state condition, sy = (δ+n+g)k Or, s = (δ+n+g)k/yHere, δ is depreciation or saving rate and equals to 0.03 (from 18% to 15%). And, capital- output ratio (k/y)= 2.5 and growth rate of output (n+g) = 3%Therefore, new steady state condition can be calculated as = (0.03 + 0.03)/ 2.5 = 0.024Thus, new steady state is 24%. Therefore, beginning with an initial steady state, higher steady state shows high level ofconsumption. Under this condition, increase in investment rate will raise productivity growth ratealso but in short run. Because for long run, it has no effect.(ii) marginal capital per effective worker, differentiate function f with respect to KMPK = δF/ δK = α Kα-1(AN)1−α=α (K/AN)α-1= α kα-1In order to get marginal output per effective worker, differentiate function F with respect to N, 2
Intermediate Macroeconomic : Assignment_4

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