# Intermediate Macroeconomics – Problem Set 2

Document Type

Essay

Pages

3 pages

Word Count

2023 words

School

Emory University

Course Code

ECON 212

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Intermediate Macroeconomics

Juan Rubio-Ram´ırez

Fall 2020

Problem Set 2

Due Date: By the end of the day (11:30 PM), March 2nd

Instructions: You may work on this problem set in groups of up to three people; should you choose to do so,

please make sure to legibly write each group member’s name on the first page of your solutions. Also: i) be neat,

ii), for the data part, if the question asks for a graph, copy the graph from Excel to Word and write your answer

next to or below it, iii)when graphing, label all plots, series, and axes accordingly, iv)if a graph has a time

dimension, always plot it on the horizontal axis, v)write down your name, vi)staple all pages together. Have

fun!

Production Function

1. Williamson, 5th edition, problem 2.12 (slightly modified). You need to do this problem in Excel.

Let Ktdenote the quantity of capital a country has at the beginning of period t. Also, suppose that capital

depreciates at a constant rate δ, so that δKtof the capital stock wears out during period t. If investment

during period tis denoted by It, and the country does not trade with the rest of the world, then we can say

that the quantity of capital at the beginning of period t+1 is given by

Kt+1=(1−δ)Kt+It.

This equation is often referred to as the “law of motion for capital.” Suppose at the beginning of year 0 that

this country has 80 units of capital. Investment expenditures are 10 units in each of years 0,1,2,3,4,...,10.

The capital stock depreciates by 10% per year.

(a) Calculate the quantity of capital at the beginning of years 0,1,2,3,4,...,10.

(b) Repeat 1a, except assume now the country begins year 0 with 100 units of capital. Explain what

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