Dmytro Hryshko Problem Set 2 (45 points). Due September 29 1.

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(h) (1 point) Based on your answer to (1g), is the economy over-saving or under-saving?(i) (3 points) Now assume another economy, similar in all respects to our original economy, buthaving the population growth n = 0. Compute the steady state consumption per worker, outputper worker, and consumption per worker relative to their respective steady state values in theeconomy with the population growth rate n = 0.02.(j) (2 points) What is the growth rate of total output in the economy with the population growth of0%? In which economy the average worker is better off?4
2. (10 points) (Problem 5, p. 107) One view of the consumption function, also consistent with evidenceon savings from household data, is that workers have high propensities to consume and capitalists(entrepreneurs) have low propensity to consume. Using this observation, suppose that an economyconsumes all wage income and saves all capital income. Show that if the factors of production earntheir marginal products, this economy reaches the golden rule level of capital. (Hint: Begin with thedefinition of capital income, and use the condition that it earns its marginal product. Use the identitythat savings are equal to investment and the steady state condition that investment is just enough tokeep up with depreciation and population growth.)3. (7 points) Indicate, for each of the statements below, whether it is true or false. Briefly explain,supporting your answer with formulas and/or graphs.(a) (2 points) (Solow Growth Accounting) Writing the CRS production function in terms of capitaland effective labor (i.e., as Y = F (K, E × L), where E is the level efficiency per worker) impliesthat as the level of technology increases by a certain percentage, the number of workers requiredto achieve the same level of output decreases by the same percentage. (Hint: If you find it hardto see this for a general function, use some CRS function like Y = K 1/2 (L × E) 1/2 . For a generalproof, use steps we have done to arrive at the growth accounting formula.)5
Page 1 and 2: Name:Intermediate Macroeconomic The
Page 3: (f) (3 points) Compute the golden r
Page 7: 4. (8 points) Suppose that a massiv

Dmytro Hryshko Problem Set 2 (45 points). Due September 29 1.

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