ECON10003
Assignment #2
Introductory Macroeconomics
Assignment #2
Due Wednesday May 11
Instructions. You can but do not have to do this assignment in a group. If you work in a group,
it can have at most three people. The assignment is due by 4pm on Wednesday May 11.
The submission process will have two steps:
(i) Group formation : Students wanting to submit as a group will first need to form their assignment
group through the Canvas LMS site (under the People tab), further details to be provided in an
LMS announcement around 25 April. Students completing the assignment alone do not need to
form a group. Assignment groups must be formed no later than 10am on Monday May 9. This
is a strict deadline and cannot be extended for any student. Students can form an assignment
group with any other students (up to a group size of three), they do not have to be from the
same tutorial group.
(ii) Submission : Assignments can only be submitted after group formation has closed, i.e., from
10am, May 9. Assignments are submitted through the Assignments section of the Canvas LMS
site, details to be provided in an LMS announcement beforehand.
Late assignments. Late assignments will not be accepted. Please apply for Special Consideration
if for some documented reason you cannot submit by the due deadline.
Marking criteria. The tutors will mark the assignment according to the following criteria:
• Ability to use material discussed in lectures, tutorials, and other sources to answer the assign-
ment questions in a logical and coherent fashion (90 per cent weight).
• Overall presentation of the assignment. This includes spelling, grammar, correct construction
of diagrams, etc. (10 per cent weight).
• Note that there is no word limit. The number of words is not correlated with the number of
marks. What matters is the correct and logical answers!
• Please note that the University and the teaching staff take academic integrity seriously. Please
be aware that plagiarism and collusion are unacceptable. Further details can be found in the
subject guide.
Intro Macro: Assignment #2 2
Questions.
1. Growth Accounting (3 marks).
The graph below shows that the labor share in Australia has been declining since the late 1970s.
Consider the statement in italics below.
The declining labour share, which is expected to continue in the future, implies that Australia
will experience faster economic growth (growth in GDP per capita) in the future.
Assuming that the production function in Australia is the Cobb-Douglas production function,
do you agree or disagree with this statement? Explain your reasoning.
Intro Macro: Assignment #2 3
2. Solow-Swan Model (6 marks).
(a) You will demonstrate the importance of diminishing returns to capital in the Solow-Swan
model. Draw a Solow-Swan diagram in which there are constant returns to capital. This
would happen if the production function were Yt = AKt, where A = 1. Furthermore,
assume that the sum of population growth and the depreciation rate is greater than the
saving rate. Does the economy converge to a steady state in this case? To answer this
question, you should draw a Solow-Swan diagram in terms of output per person, as we did
in class. Use this diagram to explain why the economy converges to a steady state or does
not. (4 marks)
(b) Assume, instead, that the sum of population growth and the depreciation rate is equal to
the saving rate. In this case, are there any steady states? If yes, describe the steady-state
levels of capital per person. If no, explain why not. (Note: Diagram is not needed for this
part.) (2 marks)