Macroeconomics Answers

32. Briefly discuss how theories of expanding varieties, quality ladder, and technological transfer attempt to fill the gaps in the neoclassical growth model in addressing the three stylized facts?

31. The AK models are the first generation models in an attempt to endogenize technology. Why are they still categorized as neoclassical growth models? Whose works mainly constitute the AK models?

30. Suppose that in an economy, output per worker and capital per worker grew by 2.42%, and 2.48%, respectively. If the share of capital in output is 0.25:

(a) Calculate the total factor productivity.

(b) Is there a reason to believe that this economy is at steady state?

30. Suppose that in an economy, output per worker and capital per worker grew by 2.42%, and 2.48%, respectively. If the share of capital in output is 0.25:

(a) Calculate the total factor productivity.

(b) Is there a reason to believe that this economy is at steady state?

28. Consider the Solow model with technology. Suppose that saving rate increases from s to s'. Demonstrate using graphs and quantitative methods how this shock affects

(a) Level of per capita income.

(b) Growth rate in per capita income.

27. There are a number of stylized facts about growth.

(a) Write four of those stylized facts of growth.

(b) Discuss briefly how the Solow model (neoclassical growth model) addresses these stylized facts.

(c) What are the shortcomings of this model?

26. A country faced an unexpected build-up of foreign exchange earning following a positive price shock on the country’s main export in the international market. This gain was, however, accompanied by a soaring inflation. How and under what conditions, if any, can the build-up of the foreign exchange reserve trigger inflation?

25. Consider two small open economies A and B which opted to adopt a floating exchange rate regime, and a fixed exchange rate regime, respectively. While Country A wants to exercise fiscal policy, Country B wants to exercise monetary policy.

(a) What are the possible reasons for Country A to adhere to exercising fiscal policy instead of monetary policy?

(b) According to the Mendel-Fleming model and the monetary approach to the balance of payment, what should be the position of Country A on the policy of liberalizing its (foreign) capital account, i.e. capital mobility? explain the reason.

(c) What should be the position of Country B on the policy of liberalizing its (foreign) capital account, i.e. capital mobility? explain the reason.

24. If country A’s major trade partners complain about the ’artificial’ devaluation of its currency, why this becomes an issue?

23. The Euro has been consistently strong against USD. What would be the impact of this trend on the Euro zone economy in particular that of Germany?