nIDY AINSTITUTE OF TECHNOLOGY AND SOCIENCE PILANI, K.K.

BIRLA GOA CAMPUS

II Semester 2022-23 (Comprehensive Exam)
Course No. ECON F244 Course Title: Economic Growth and Development
15/05/2023 Time: 180 minutes TotalMarks: 40
INSTRUCTIONS (READ AND FOLLOw)
1. Please write your answers without fog (Chinese metaphor for clarity). Overwritten answer:S will not be
rechecked.
2 If vou need to make any assumption, clearly state it and proceed with your analysis.
3. All the key necessary preceding steps,including mathematical derivations, must support the final answer.
4 Write your answers in sequential order and make an index thereof.

1 Consider the Solow growth model without population growth or technological change. The parameters of the
model are given by s =0:2(savings rate) and 6 = 0:05 (depreciation rate). Let k denote capital per worker; y
output per worker; cconsumption per worker; i investment per worker.
Rewrite production function in per-worker terms. y-k
Find the steady-state level of the capital stock, ks.
C.
What is the "golden rule" level of k for this economy? Recall that the golden rule level of the capital
stock kg- aximizes consumption per worker in steady-state. Report your answer totwo decimal places.
d. Let's say that a benevolent social planner wishes to obtain k=k¡r in steady-state. What is the associated
savings rate sg- that must be imposed by the socialplanner tosupport k?
Compare your result in the previous part with the assumed savings rate s. To obtain kgr, do citizens need
to save more or less?
Plot the following on a single graph: y =fk), k, sfR), and Sgf(). Does the savings curve pivot yp or
down, relative to its initial position, when the planner's s is implemented?
[2+2+3+3+3+3= 16]
2. In the context of the Solow model with no technological progress, explain the following.
What is the savings rate that maximizes steady-state consumption per worker?
b. What is the marginal product of capital in this steady state? Show this point in a Solow diagram. Be
sure to draw the production function on the diagram, show consumption and saving, and a line
indicating the marginal product of capital.
t. Can we save too much? [3+4+3 = 10]

. Suppose the output of an economy is derived through standard Cobb - Douglas production function with human
capital such that technology is labor augmenting. Solve the growth model to obtain steady-state value of the
output-technology ratio and output per worker. [5]

In Country 1, the investment rate is S%, and in Country 2, it is 20%. The two countries have the same levels of
productivity, A, and the same depreciation rate, 8. Assuming that the value of a is /3, what is the ratio of
steady-state output per worker in Country 1to steady-state output per worker in Country 2?
5.
ln a country, the production function is y = . The fraction of output invested, is 0.25. The depreciation
rate, &, is 0.05. What are the steady-state levels of capital per worker, k, and output per [4]
worker, y?

**Good Luck

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