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 (ŋ = 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.

Circle T to indicate that the corresponding statement is TRUE; circle F to indicate the statement is FALSE.
T F 1. In the steady-state, Margaritaville’s real gross domestic product per capita is growing at a rate of 2 percent per annum.
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 7. If Margaritaville’s saving rate doubles from 20 percent to 40 percent, the steady-state level of capital per effective worker and output per effective worker would double.
T F 8. The quality of institutions, particularly the protection of property rights, are a key determinant of economic performance.
T F 9. In the steady-state of Margaritaville’s economy, output (Y) grows at a rate of 6 percent per year.
T F 10. The government of Margaritaville could use tax policy to increase the savings rate in order to increase consumption per worker.
T F 11. According to the Solow growth model, the economy automatically converges to the Golden rule steady-state level of capital per effective unit of labor.
T F 12. According to the Solow growth model, the economy automatically converges to the steady-state level of capital per effective unit of labor, and this helps explain the post-war German and Japanese economic miracles.
T F 13. According to the Solow growth model, the fact that The average growth rate in real gross domestic product per capita for the United States between 1900 and 2010 is approximately 2.2 percent suggests that, the average growth rate in labor augmenting technological change is therefore approximately 2.2 percent per year since 1900.
T F 14. According to the Solow growth model, real GDP per capita among countries should converge.
T F 15. The evidence of the growth rates in real gross domestic product per capita among developed and develop countries is consistent with the absolute convergence prediction of the Solow growth model.

In answering questions 1-10, use the following information about th...