ECONOMICS
Macroeconomics (7QQMM201)
MSc in Economics and Finance
King’s Business School
King’s College London
Term 1, 2021-2022
Mock exam Questions for Practice
The aim of this mock exam is to give you an idea of the structure of the exam paper. It
cannot predict the exam questions, the nature of the questions and the balance across
lectures and textbook chapters.
Answer all three questions
QUESTION 1
Assume that a country's per-worker production is y = k1/2, where y is output per worker
and k is capital per worker. Assume also that 10 percent of capital depreciates per year
(= 0.10).
a. If the saving rate (s) is 0.4, what are capital per worker, production per worker,
and consumption per worker in the steady state? (Hint: Use sy = k and y = k1/2 to get
an equation in s, , k, and k1/2, and then solve for k.)
b. Solve for steady-state capital per worker, production per worker, and
consumption per worker with s = 0.6.
c. Solve for steady-state capital per worker, production per worker, and
consumption per worker with s = 0.8.
d. Is it possible to save too much? Why?
[35 marks]
Q1 Answer key:
a. k = 16; y = 4; consumption per worker is 2.4.
b. k = 36; y = 6; consumption per worker is 2.4.
c. k = 64; y = 8; consumption per worker is 1.6.
d. Yes. If the capital stock gets so big that the extra output produced by more
capital is less than the extra saving needed to maintain it, extra capital reduces
consumption per worker. The saving rate exceeds the Golden Rule rate.
1
This study source was downloaded by 100000839306532 from CourseHero.com on 06-24-2022 18:08:19 GMT -05:00
https://www.coursehero.com/file/134624942/7QQMM201-2021-2022-Mock-exam-with-answerspdf/
Macroeconomics (7QQMM201)
MSc in Economics and Finance
King’s Business School
King’s College London
Term 1, 2021-2022
Mock exam Questions for Practice
The aim of this mock exam is to give you an idea of the structure of the exam paper. It
cannot predict the exam questions, the nature of the questions and the balance across
lectures and textbook chapters.
Answer all three questions
QUESTION 1
Assume that a country's per-worker production is y = k1/2, where y is output per worker
and k is capital per worker. Assume also that 10 percent of capital depreciates per year
(= 0.10).
a. If the saving rate (s) is 0.4, what are capital per worker, production per worker,
and consumption per worker in the steady state? (Hint: Use sy = k and y = k1/2 to get
an equation in s, , k, and k1/2, and then solve for k.)
b. Solve for steady-state capital per worker, production per worker, and
consumption per worker with s = 0.6.
c. Solve for steady-state capital per worker, production per worker, and
consumption per worker with s = 0.8.
d. Is it possible to save too much? Why?
[35 marks]
Q1 Answer key:
a. k = 16; y = 4; consumption per worker is 2.4.
b. k = 36; y = 6; consumption per worker is 2.4.
c. k = 64; y = 8; consumption per worker is 1.6.
d. Yes. If the capital stock gets so big that the extra output produced by more
capital is less than the extra saving needed to maintain it, extra capital reduces
consumption per worker. The saving rate exceeds the Golden Rule rate.
1
This study source was downloaded by 100000839306532 from CourseHero.com on 06-24-2022 18:08:19 GMT -05:00
https://www.coursehero.com/file/134624942/7QQMM201-2021-2022-Mock-exam-with-answerspdf/
