# Suppose the capital stock increases by 10%

6. a. Suppose the capital stock increases by 10% and the number of employed workers increases by 5%. Given this information, explain what will happen to output and to output per worker. 1pt6.b. Suppose the saving rate is greater than the golden rule saving rate (sG). First, explain what must happen to the saving rate in order to increase steady state consumption. Second, what are the advantages and disadvantages of this policy to increase steady state consumption? 2pts6.c. Graphically illustrate and explain the effects of an increase in the rate of technological progress on the Solow growth model. In your answer, you must clearly label all curves and the initial and final equilibria. In your answer, explain what happens to the rate of growth of output per worker and the rate of growth of output as the economy adjusts to this increase in the rate of technological progress. 2pts6.d. Explain with example how change in production system towards more advanced technology can cause changes in wage and income inequality. 1pt6.e. Suppose an economy is characterized by the equations below:Price setting: P= (1 + m) (W/A)Wage setting: (1 – u)Solve for the natural rate of unemployment if the markup (m) is equal to 4%. 1pt6.f. Suppose an economy experiences an increase in productivity. Graphically explain both the short-run and medium-run effects of this increase in productivity on output, employment, and the unemployment rate. 2pts

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