unemployment and inflation
Question 5 energy prices permanently increased
The rise in energy prices reduces the productivity of capital per worker. This causes sf(k) to shift down from sf1(k) to sf2(k). The result is a decline in steady-state k. Steady-state consumption per worker falls for two reasons: (1) Each unit of capital has a lower productivity, and (2) steady-state k is reduced.
population growth rate permanently increased due to increased immigration
Immigration raises n from n1 to n2. The rise in n lowers steady-state k, leading to a lower steady-state consumption per worker.
c. A temporary rise in s has no effect on the steady-state equilibrium.
d. The increase in the labor force participation rate does not affect the growth rate of the labor force, so there is no impact on the steady-state capital-labor ratio or on consumption per worker. However, because a larger fraction of the population is working, consumption per person increases.
Question 4
How would each of the following affect the national saving, investment the current account balance and the real interest rate in the large economy
(a) The home country’s saving curve shifts to the right, from S1 to S2. The real world interest rate falls, so that the current account surplus in the home country equals the current account deficit in the foreign country. National S rises, I rises, CA rises, rw falls.
(b) The foreign country’s saving curve shifts to the right, from S1For to S2For. The real world interest rate must fall, so the current account surplus in the foreign country equals the current account deficit in the home country. National S falls, I rises, CA falls, rw falls.
C The foreign country’s saving curve shifts to the left, from S1For to S2For. The real world interest rate must rise, so the current account deficit in the foreign country equals the current account surplus in the home country. National S rises, I falls, CA rises, rw rises.
(c) If Ricardian equivalence holds, there
The rise in energy prices reduces the productivity of capital per worker. This causes sf(k) to shift down from sf1(k) to sf2(k). The result is a decline in steady-state k. Steady-state consumption per worker falls for two reasons: (1) Each unit of capital has a lower productivity, and (2) steady-state k is reduced.
population growth rate permanently increased due to increased immigration
Immigration raises n from n1 to n2. The rise in n lowers steady-state k, leading to a lower steady-state consumption per worker.
c. A temporary rise in s has no effect on the steady-state equilibrium.
d. The increase in the labor force participation rate does not affect the growth rate of the labor force, so there is no impact on the steady-state capital-labor ratio or on consumption per worker. However, because a larger fraction of the population is working, consumption per person increases.
Question 4
How would each of the following affect the national saving, investment the current account balance and the real interest rate in the large economy
(a) The home country’s saving curve shifts to the right, from S1 to S2. The real world interest rate falls, so that the current account surplus in the home country equals the current account deficit in the foreign country. National S rises, I rises, CA rises, rw falls.
(b) The foreign country’s saving curve shifts to the right, from S1For to S2For. The real world interest rate must fall, so the current account surplus in the foreign country equals the current account deficit in the home country. National S falls, I rises, CA falls, rw falls.
C The foreign country’s saving curve shifts to the left, from S1For to S2For. The real world interest rate must rise, so the current account deficit in the foreign country equals the current account surplus in the home country. National S rises, I falls, CA rises, rw rises.
(c) If Ricardian equivalence holds, there