## Problem Set #8

Economics 100b; Spring 1996; Brad DeLong

1. What does it mean for an economy to have constant returns to scale?

2. How can you tell whether or not an economy in steady-state growth is at the "Golden Rule" level of saving and the capital stock?

3. Why might you think that the "Golden Rule" level of saving and the capital stock is a good place for an economy to be?

4. What do you think were the principal causes of the productivity slowdown of the 1970s?

5. Suppose that an economy's production function is Y = K0.5(EL)0.5 ; suppose further that the savings rate is 40% of GDP, that the depreciation rate d is 4% per year, the population growth rate n is 0% per year, and the rate of growth g of the efficiency of the labor force is 2% per year. What is the steady-state capital-output ratio? What are the steady-state levels k* of the capital stock per unit of labor power (or per efficiency unit of labor) and y* of output per unit of labor power?

6. Suppose that all variables are the same as in problem 5 save the production function, which instead is: K0.8(EL)0.2 ; how would your answers be different? Can you briefly explain why your answers are different?

7. Japan has had a very high savings rate and a high growth rate of output per worker over the past half century, starting from an initial post-WWII very low level of capital per worker. What does the analysis of chapter 4 suggest about Japan's ability to sustain a higher growth rate than other industrial countries?

8. For what reasons might it make sense for the government to adopt a "technology policy", and subsidize investment in certain areas?

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# Econ 100b

Created 4/30/1996
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