1. Suppose that a country's production function is = and that the savings rate, s, is equal to 20% and the depreciation rate, , is 10%. Suppose further that the labor force grows by 1% each year and that the rate of technological progress is 6% per year.

a. Calculate the values of

i) the steady-state level of capital per effective worker

ii) the steady-state level of output per effective worker

iii) the growth rate of output per effective worker

iv) the growth rate of output per worker

v) the growth rate of output

b. Suppose that the labor force now grows at 5% per year. Calculate the changes in the values obtained in part (a). Compare parts (a) and (b) and comment.

c. Suppose that the country experiences a technological setback, and now grows at 2% a year while the labor force continues to grow at 5%. Recompute the answers to part (b). Compare and comment with respect to (a)

2. Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.

a. The change in employment and output per person in the United States since 1900 lends support to the argument that technological progress leads to a steady increase in employment.

b. Workers benefit equally from the process of creative destruction.

c. In the past two decades, the real wages of low-skill U.S. workers have declined relative to the real wages of high-skill workers.

d. Technological progress leads to a decrease in employment if, and only if, the increase in output is smaller than the increase in productivity.

e. The apparent decrease in the natural rate of unemployment in the United States in the second-half of the 1990s can be explained by the fact that productivity growth was unexpectedly high during that period.

f. If we could stop technological progress, doing so would lead to a decrease in the natural rate of unemployment.