1) Explain how crowding out works, using the one-period model as an example.
2) If total factor productivity rises in the one-period model, explain what happens to the real wage
in equilibrium, and why.
3) In the one period model, suppose, that there is a decrease in government spending, and that
government spending is also productive. Explain what the effect is on employment, and explain
why we get this effect.
4) Explain, mathematically, why a proportional tax on consumer’s wage produces a competitive
equilibrium that is not Pareto Optimum.
5) In the Solow growth model, what happens in the steady state if total factor productivity
declines?
6) In the Solow growth model suppose that the economy is initially in a steady state. Then, some
capital is destroyed by a major earthquake. What are the effects in the short run and in the steady
state?
7) In the Solow growth model, suppose that the population growth rate declines. Explain what
the steady state effects are, and why.
Answers
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Posted 22 Jun 2017 05:06 AM
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