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Economics 304 Homework #12 � Answer Sheet Correct Answers

Homework answer sheet covering key economic concepts in ECO 304.

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Economics 304Homework #12–Answer SheetCorrect Answers1.According to the economic growth theory that we have studied, how would each of the following eventsaffect per capita consumptionin the long-run (i.e., after return to the steady state).. Illustrate graphically andexplain.In all of the parts, we can assume that the rate of saving is less than the golden rule level ofsaving, so that a reduction in steady-state output per worker leads to a reduction in steady-stateconsumption per worker.a.A terrorist attack destroys a portionof the nation’s capital stock.Assume that the economy begins (pre-attack) in the steady state. The destruction of a portion of the nation’scapital will reduce the capital-labor ratio to a level that is below the steady-state level. (We are assuming herethat the population and labor force were not reduced significantly by the war.). We know that when thecapital-labor ratio is below its steady-state level, the rate of saving (and therefore investment) will be greaterthan the rate required to replace worn out capital and equip new workers, so the capital labor ratio will begrowing. This growth in the capital labor ratio will continue until the economy returns to the steady state.Since there was no change inf,s,n, ord, the steady state will be the same as it was before the war.k*Per capitainvestmentksf(k)(n+d)kk0

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Document Details

University
University of Texas
Course
ECO 304
Subject
Economics

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