Consider a model of the economy's aggregate output, where output in period t is given by: Yt = AtKg (h₁Lt) ¹-a Where A, is TFP in period t, K, is the capital stock, L, is the labor force, and he is the average education of each worker. a) Use the growth accounting framework to find an expression for the growth rate of output. (hint, take the natural log of the expression and then a derivative with respect to time, t). b) Using the data in the table below, and your expression from part (a) above, calculate the growth rate in TFP. Assume that capital's share of income, a, is 1/3. (hint, to calculate the growth rate in a variable, say GDP, calculate the percentage change over the base year: gy = Yt+1-Yt
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- Given that E = C +I , derive a function for Y in terms of t for each of the following macroeconomic models and then use it to predict Y when t is 10.I have to analyze, using the IS-LM model, the macroeconomiceffects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Can you plase answer the following question (using graphs where possible): In terms of total savings and, therefore, of potential long-term growth, is a flat LM curve or a positive sloping LM curve better?Suppose that output is given by the neoclassical production function Y (t) = F (K(t), L(t), A(t)) satisfying Assumptions 1 and 2, and that we observe output, capital, and labor at two dates t and t + T . Suppose that we estimate TFP growth between these two dates using the equation Where g(t, t + T ) denotes output growth between dates t and t + T , and other growth terms are defined similarly, while αK(t) and αL(t) denote the factor shares at the beginning date. Let x(t, t + T ) be the true TFP growth between these two dates. Show that there exist functions F such that x(t, t ˆ + T )/x(t, t + T ) can be arbitrarily large or small. Next show the same result when the TFP estimate is constructed using the end-date factor shares: Explain the importance of differences in factor proportions (capital-labor ratio) between the beginning and end dates in these results.
- I have to analyze, using the IS-LM model, the macroeconomiceffects of an increase in savings in the short term and its implications for long-term growth. Specifically, I have to suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Can you plase answer the following question (using graphs too): In terms of total savings and, therefore, of potential long-term growth, is a flat LM curve or a positive sloping LM curve better?a. List all the equilibrium conditions of this model and Using the equilibrium conditions listed, write down an expression that describes the evolution of the aggregate capital stock, Kt over time. Briefly explain why this expression is not particularly convenient for our analysis of the model? b.Using your answer to the above question, derive the equation that describes the evo- lution of the the capital stock per effective unit of worker, kt. ' Why is the analysis in terms of the variables per effective unit of worker more useful than the one with the aggregate capital stock? c. Assume that a E (0, 1). Draw a diagram that describes the evolution of kt, and show that there exists a unique steady state, k* > 0. Label properly. Find the expressions for the steady state variables k*, y*, and c* in terms of the parameters of the model. , Now, assume that α = 1. Draw a diagram that describes the evolution of kt, and show that income per worker can grow indefinitely in this case. Label…Piketty (2014) argues that a fall in the growth rate of the economy is likely to lead to an increase in the difference between the real interest rate and the growth rate. This problem asks you to investigate this issue in the context of the Ramsey Cass Koopmans model. Specifically, consider a Ramsey Cass Koopmans economy that is on its balanced growth path, and suppose there is a permanent fall in g. (a) How, if at all, does this affect the k = 0 curve? (b) How, if at all, does this affect the c = 0 curve? (c) At the time of the change, does c rise, fall, or stay the same, or is it not possible to tell? (d) At the time of the change, does r - g rise, fall, or stay the same, or is it not possible to tell?
- The level of potential GDP for the US in the Growth Cycle model was assumed by most analysts to be 3.5% in the late 1990s and the early 2000s. Now it is estimated that potential is only 1.8 - 2.0%. What are some possible reasons for decline in potential GDP?In the graph of Figure I, the annual growth rate of the GDP of the United States economy is presented since the first quarter of 2004, while, in the graphs of Figure II, three different scenarios of the relationship are represented between demand and aggregate supply that reflect different situations of economic growth. 4. Explain in detail what is happening in Graph C of Figure II and, after examining the data in the graph of Figure I, identify in what period of time this situation is occurring. Figure I = Real data of the United States economyFigure 2 = Representation of the aggregate demand and supply modelDA = AGGREGATE DEMANDGDP = GROSS DOMESTIC PRODUCTNGP = GENERAL PRICE LEVELOAL = LONG TERM AGGREGATED OFFEROAC = SHORT-TERM AGGREGATE OFFERConsider an economy in which production is characterized by the neoclassical productionfunction:Y = K0.5N0.5Suppose that it has a saving rate (s) of 0.1, a population growth rate (n) of 0.02, and an average depreciationrate (d) of 0.03.a) Write this production function in per capita form, and find the steady-state values of per capitacapital k and per capita output y.b) At the steady-state value of k, is there more or less capital than at the golden-rule level?c) Determine what saving rate would yield the golden-rule level of capital in this model.
- Consider the Solow Model. Suppose a country enacts a tax policy that discourages investment, and the policy reduces the investment rate immediately and permanently from sbar to sbarprime . Assuming the economy (and hence the initial capital stock) is in its initial steady state, use the Solow Model to explain what happens to the economy over time and in the long run. Draw a graph showing how output evolves over time (put Y_t on the vertical axis with a ratio scale and time on the horizontal axis), and explain what happens to economic growth over time.In which ways the product-cycle model inconsistent with the Heckscher-Ohlin model? In which ways are the two consistent? Explain in detail.In class we argued that if people could accumulate human as well as physical capital, the production function would look like the “AK” production function. • (a) If the production function is AK and the savings rate is constant at rate “s”, and the rates of depreciation and populati on growth are δ and n respectively, what would the growth rate of the economy be? • (b) What would be the macroeconomic consequences of decreasing the savings rate in this economy? • (c) What would be the consequences of an increase in fertility in this economy? • (d) Would the consequences of decreasing fertility be UNAMBIGUOUSLY GOOD? • (e) Can human capital grow without bounds? Explain why or why not (make sure you discuss the physical nature of human capital). • (f) What is the growth rate of the economy (in the absence of technological progress) if human capital cannot grow without bounds?