Topic: Macroeconomics

Questions:

3. The effect of population growth in the Solow model Slide #2 Investment, break-even (8+12)k investment (8+171)k - sf(k) K2 Capital per worker, kNo. 2 SLIDE #1 Investment 5k and depreciation 5 2 f(k) s, f (k) K2 K a. Define the steady-state level of capital. b. What is k*1? c. What is k*2? d. What is the effect of increased savings on the steady-state level of capital?A. Mathematical Analysis 1. The short-run aggregate supply (SRAS) a. What is the SRAS equation? b. Identify the meaning of the 5 terms in the equation. c. What is the slope of the SRAS curve? d. Use the SRAS equation to show that when actual prices are higher than expected prices, actual output is larger than the natural rate of output. e. What can shift the SRAS curve that is not a shock?| 2. The Phillips curve a. What is the Phillips-curve equation? b. What are the three forces that influence the inflation rate according to this equation? Identify the terms in the equation that correspond to these forces. What is the relationship between inflation and each of the 3 forces, positive or negative? Put answers in the table below. Name of Force Term in the equation |Relationship with inflation 1. 2. 3. c. Distinguish between the natural rate hypothesis and hysteresis as views on the effect of aggregate demand on output and employment. d. What is 8?B. Graphical Analysis. 1. The Solow model equations: a. the production function b. the investment per worker function as a function of capital stock per worker c. the consumption function d. the change in capital stock, i.e., give the two versions 2. The effect of increased savings on growth in the Solow Modela. What line in the graph represents the increase in population? b. What is the equation for the change in capital stock per worker in the Solow model with population growth? c. What is break-even investment? d. What is the effect of population growth on the steady-state level of capital? e. What is the condition/equation in this Solow model that describes the golden rule level of capital (k*) or the level that maximizes consumption? 4. The Golden Rule Level of Capital a. What is the equation for the steady-state consumption per worker? b. What are the two opposing effects of an increase in steady-state capital on steady state consumption? C. Answer Briefly. 1. (a) What is the equation for the steady-state rate of unemployment? (b) Distinguish the rate s from the rate f. (b) What are their effects on the rate of unemployment? 2. Give the difference between frictional and structural unemployment. 3. Describe the effect of unemployment insurance on the rate ?? 3. Discuss briefly the four theories that explain how high wages make workers more productive