TOPICS IN MACROECONOMICS – SECTION A: GROWTH AND DEVELOPMENT

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MOCK CLASS EXAM 2022

TOPICS IN MACROECONOMICS – SECTION A: GROWTH AND DEVELOPMENT

Question 1: Answer each short question based on the concepts that were covered in the course. The arguments should be primarily verbal (though you can use formulas or graphs if you wish). Be concise, write no more than about half a page per question.

a) In a standard decentralized and augmented Solow model, how do the wage and the rental rate of capital move in the long run Provide an intuition for these results.

b) Consider the standard Ramsey model developed in the course. Suppose that in the initial period, the capital stock is above its steady state value, K0 > K . Provide an intuition for why the economy will not reach its steady state within a period, meaning that K1 K .

c) Consider a standard augmented Solow model with positive long-run technological growth, g > 0, and a constant population. Is it possible for such a model economy to exhibit the following pattern in output, Yt, over time t: Y0 > Y1 > Y2 and then Y2 < Y3 < ... < Y∞ Explain your reasoning. d) Briefly describe in words how misallocation may be responsible for the cross-country variation in total factor productivity. e) The UK nominal GDP increased from GBP 1,549 billion in 2009 to GBP 2,218 billion in 2019. Use the formula xt = x0 (1 + g)t to compute the average annual growth rate. To what extent does that number reflect the average growth rate in real GDP per worker over that period Explain.