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Consider a Solow growth model with the following production function:
(1) If A = 2, L = 20,000, and K = 400, what is output?
(2) Does this production function have constant returns to scale? Explain.
(3) Suppose the labor force grows by 5% so that it is now 21,000. By how
much does output increase?
(4) Starting again with the conditions in part (1), what if capital increases by
5%, so that it is now 420. By how much does output increase?
1) Consider a country with an ICOR of 8.0 in which GDP rises by 4% per annum to prevent a decline in per-capita income. This requires a saving rate of
2) For an economy’s output function, where y=(Y/L) and k = (K/L), what statement best describes it?
3) In a steady-state economy with no population growth, capital per worker is 80, the saving rate is 25 percent, and the depreciation rate is 12.5 percent. The level of output per worker is ________
4) What is true regarding the situation when k = k*?
5) What is the condition required for k = k* to become a golden rule steady state equilibrium level of k?
1) If the economy’s output function is given as , where y=(Y/L) and k = (K/L), the average productivity of capital diminishes as k increases.
2) Other things the same, in the Solow model in the steady state, a higher rate of population growth leads to an increase in the level of output per worker.
3) While capital dilution lowers the value of k, capital widening raises the value of k in the Solow model.
4) In the Solow model with technological progress, the growth rate of GDP is the same as the population growth rate and the savings rate.
5) If the production function is given as Y = L∙K, then it follows constant returns to scale.
6) When the output stays the same after the use of each input has been doubled, then the economy’s production function follows a constant returns to scale.
An economy following a flexible exchange rate regime is in its long run equilibrium while suffering from a trade deficit would a reduction in government spending be helpful in eliminating the trade deficit explain indicating all co movements both in the short run and long run assuminh that ricardian equivalence holds
Suppose that declining resource supplies reduce potential output in
each period by 4%. What kind of monetary policy would be needed to
maintain a zero rate of inflation at full employment?
Supose the perfectly competitve price is given as $46 and the total cost of the firm is given by TC=14X+2X^2, find
A) the prifit maximizing level of output for the firm
B) the profit of the firm
And show its graphical illustrations
12. Consider two cultures X and Z. In culture X, parents live for their children and grandchildren where their current income is divided among current consumption, saving for retirement, and investment in the education of their children. In culture Z, children are born as assets for their parents so that the current generation expects to be taken care of by the future generation. Output produced by the younger generation is divided into proceed and bequest for parents, and investment for future self-sufciency.
(a) What is the direction of flow of resource of investment in the two cultures?
(b) What is the implication of the two cultures for growth?
4. A country faced an unexpected build-up of foreign exchange earning following a positive price shock on the country’s main export in the international market. This gain was, however, accompanied by a soaring inflation. How and under what conditions, if any, can the build-up of the foreign exchange reserve trigger inflation?
3. Suppose a country targets an income level of Y ∗.
(a) Demonstrate, using graphs, that either fscal or monetary policies can be used to achieve the targeted level of income.
(b) What are the possible reasons for a country to opt for a particular policy (fscal or monetary) while both of them can yield similar level of income?
2. Transmission mechanism is the process by which changes in the monetary sector (money market) affects variables such as income in the real sector (goods) market. explain.
