### Information about the economy of margaritaville

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In answering questions 1-10, use the following information about the economy of Margaritaville. Margaritaville's production function per effective worker is given by the following expression y = k0.5, where y = Y/(E×L) and k = K/(E×L). Y is real output; K is the stock of capital which depreciates at a rate of 2 percent per year (δ = 0.02). L is the size of the labor force which grows at the rate of 1 percent per year (? = 0.01); and E is a coefficient describing the efficiency of labor which grows at the rate of 2 percent per year (g = 0.02). In sum, Magaritaville has a savings rate of 25 percent, a depreciation rate of 2 percent, a population growth rate of 1 percent, and a rate of labor-augmenting technological change of 2 percent.

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

T F 3. The steady-state level of capital per effective worker in Margaritaville 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 9. In the steady-state of Margaritaville's economy, output (Y) grows at a rate of 6 percent per year.

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