interned microeconomics

ECON3334
FALL 2015
Homework 3
Due at the beginning of class on October 12.
1. Assume the initial capital stock is K0 = 8, the labor supply is fixed at 16, the saving
rate is 0.3, the depreciation rate is 0.1 and production function is in the form of CobbDouglas,
Y=K1/3L2/3.
a. Find the capital, output, consumption and investment levels for 3 periods. In
order words, solve for K1, K2, K3, Y0, Y1, Y2, C0, C1, C2, I0, I1 and I2.
b. Find the steady state values of capital, output, consumption and investment.
2. Discuss and illustrate graphically how a decrease in saving rate will affect the steady
state level of capital and output. Also illustrate graphically the transition of capital
and output from their old steady state level to new one.
3. Consider the Romer model. If the percentage of the population engaged in ideas
formation ( ) decreases, what are the short- and long-term impacts of this shift on Y?
4. Consider the following Romer model of economic growth:
a. and , what is the growth rate
of knowledge in this economy?
b. Using the information from year 1, what is the level of per capita output in
this economy in year 5?
5. Consider the following growth accounting data. The numbers on the table represent
growth rates for a specific variable over a specific time period.
Growth (%) 1948–2011 1948–1973 1973–1995 1995–2007 2007–2011
K/L 0.9 0.9 0.7 1.1 1.1
L 0.2 0.2 0.3 0.2 0.4
TFP 1.4 2.2 0.5 1.5 0.4
If the production function is given by , find the growth rate of

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