ECON402 Study Guide - Quiz Guide: Farad, Unemployment Benefits, Sensitivity Analysis
20 May 2018
School
Department
Course
Professor
Name___________________________
Student # ______________________
University of Waterloo
Department of Economics
ECON 402
Prof. Kate Rybczynski
Term Test 1 solutions
June 10, 2014
Instructions:
NO CALCULATORS.
It is a closed book exam and no “cheet sheets” are permitted.
TURN OFF ALL CELL PHONES!
You have 80 minutes to complete the exam.
There are 7 pages and 3 questions. Answer all parts of the 3 questions in the space provided.
EXPLAIN for full marks.
If you have any questions, do not hesitate to ask.
ECON 402 – Term Test 1 - Spring, 2015 page 1of 7
1. Consider the Basic Solow-Swan Model. And let
f(k)=kα
.
(Assume that the economy is initially located at kgr*)
a) Show graphically the golden rule level of kgr*. Explain (but do not derive) why this k* is the
golden rule level. (2)
f(k), sf(k)
||
kα
(n+g+δ)k
||
skα
kgr* k
The kgr* drawn on this graph is the golden rule k* because at this k* the slope of the line
tangent to the production function is exactly the same as the slope of the break even
investment line → f'(k) = (n+g+δ) which is, as derived in class, the maximization of c*.
ECON 402 – Term Test 1 - Spring, 2015 page 2of 7
Document Summary
It is a closed book exam and no cheet sheets are permitted. You have 80 minutes to complete the exam. Answer all parts of the 3 questions in the space provided. If you have any questions, do not hesitate to ask. Econ 402 term test 1 - spring, 2015 page 1of 7: consider the basic solow-swan model. And let (assume that the economy is initially located at kgr*) f ( k )=k : show graphically the golden rule level of kgr*. Explain (but do not derive) why this k* is the golden rule level. (2) f(k), sf(k) k (n+g+ )k sk kgr* k. Econ 402 term test 1 - spring, 2015 page 2of 7: show graphically (and explain) what happens to kgr* if the population growth rate, n, falls. (2) f(k), sf(k) (n1+g+ )k k (n2+g+ )k sk kgr1* kgr2* k. A drop in n will pivot the break even investment line downward (red).
