ECON 2102 Study Guide - Midterm Guide: Real Interest Rate, Consumption Function

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11 Jul 2014
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The marginal propensity to consume (mpc) measures the change in consumption when disposable income changes by 1 unit. We work with the income equals expenditure condition: Or, 100r = - 300 r = - 3. Thus, c = 1,200 + 0. 3(6,000 1,000) -50(-3) = 2,850. I = 1,500 50(-3) =1,650: private saving = y t c = 6,000 - 1,000 2,850 = 2,150. Public saving = t g = -500. National saving = 2,150 500 = 1,650: a. y= k 0. 4 l0. 6. Given are s = 0. 1 and =0. 05 , the steady state equilibrium condition is: 0. 1k0. 4=0. 05k , which solves for steady state capital per worker k =3. 17 . 3. 17 c =(1 0. 1) k0. 4=0. 9 : golden-rule steady state equilibrium solves the following two equations simultaneously: From (2) s =0. 05 k0. 6 k0. 6=8 , which substituted into the above solution gives, s* = 0. 4. Substituting s* into (2) and solving for k gives k* =32. 2.

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