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Consider the following economy. Larryvilles production function per effective worker is given by the following expression y = k^{0.5}. Larryville has a savings rate of 25 percent, a depreciation rate of 2 percent, a population growth rate of 1 percent. The rate of technological change is 2 percent.

T F 1. In the steady-state, Larryville’s real gross domestic product per capita is growing at a rate of 2 percent per annum.

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T F 2. In the steady-state of this economy, the marginal product of capita per effective worker (MPK) is equal to 0.10.

T F 3. The steady-state level of capital per effective worker in Larryville is equal to 20.0.

T F 4. In the Golden-rule steady-state of this economy, consumption per effective worker is equal to 2.

T F 5. A government interested in maximizing consumption per worker should increase the savings rate to 45 percent.

T F 6. If the population growth rate decreases, output per effective worker would increase.

T F 7. If Larryville’s saving rate doubles from 20 percent to 40 percent, the steady-state level of capital per effective worker and output per effective worker doubles.

T F 8. According to the readings, the German and Japanese economic miracles in the aftermath of World War II was the direct result of an increase in the rate of technological progress.

T F 9. In the steady-state of Larryville’s economy, output (Y) grows at a rate of 6 percent per year.

T F 10. The government of Larryville could use tax policy to increase the savings rate in order to increase consumption per worker.

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