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Macro Assignment Tahirah Smith- 409002047 Question 1 Consider the following between the real money supply and the growth rate of money: Δ(M/P) /M/P=-γu where M is the money supply, P is the price level, γ is a constant of proportionality and u is the constant growth rate of money. a) The relationship measures the sensitivity of real money balances to the growth rate of money. The equation shows that the growth rate of money is inversely related to the real money supply, i.e. if the growth rate of money increases, the level of real money supply will fall. b) The price level is proportional to the money supply and to hold the growth rate of money constant the price level will have to increase in proportion to an increase money…show more content…
This will then alleviate the effect of the tax change on consumption. Question 4 a) Y= 12(3√KL2) Y= 12K1/3 (L2)1/3 Y= 12K1/3 L2/3 MPK= 4K-2/3 L2/3 If L= 64 MPK= 4K-2/3 642/3 4K-2/3 16 64K-2/3 b) When k= 1 MPK MPK= 64(1)-2/3 64 = 64*1=64 When k= 64 MPK= 64(64)-2/3 = 64*0.0625=4 4 MPK 1 64 K Fig1: Marginal Product of Capital Curve Another name for the marginal product of capital curve is the demand for capital curve. c) R/P= MPK 24/1.5= 64K-2/3 16= 64K-2/3 16/64= K-2/3 0.25= K-2/3 0.25-3/2= K 8= K d) If L= 125 MPK= 4K-2/3 1252/3 4K-2/3 25 100K-2/3 Since R/P= MPK 24/1.5= 100K-2/3 16= 100K-2/3 16/100= K-2/3 0.16= K-2/3 0.16-3/2= K 16= K Question 5 a) Steady state rate of growth of output in Country A: y= Y/L ∆y/y= ∆Y/Y - ∆L/L In steady state ∆y/y= 0 Therefore, 0= ∆Y/Y - ∆L/L ∆Y/Y= ∆L/L ∆L/L=
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