1: Let the production function for an economy be Y=AK1/2L1/2where 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*=

2: 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 ......

Right after this event, which country will have a higher growth rate?Country ......

A hundred years after this event, which country will have a higher output?Country ....

A hundred years after this even, which country will have a higher growth rate?Country A.....

(For the second two, assume that nothing else is different between the two countries over that hundred years.)

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

a. It increases

b. It decreases

c. It stays the same

4: Imagine that there is a decrease in the savings rate.Say what happens to each of the following in the steady state. choose( increase, decrease, stay the same, indeterminate

Capital......

Output......

Consumption.....