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- If the maximum potential combination of consumer and capital goods produced by an economy has increased over time, which of the following is true? a. Marginal tax rates have increased due to contradictory fiscal policy. b. Keynesian policy initiatives have allowed for increased consumption of both consumer and capital goods. c. New physical capital has been introduced to firms throughout the economy. d. Resources are being utilized inefficiently at this combination of goods and services. e. Monetary policy authorities have effectively decreased bank reserves through open market operations.An economy has an aggregate production function to produce goods and services Y = AK1/3L 2/3 where Y represents total output (i.e GDP), K is capital, L is labor, and A is total factor productivity (TFP). This economy devotes a share of 30% of its output to gross investment. Capital depreciates at a rate of 10% per period. The TFP level is one and there are 2 units of labor available for production. • Suppose the economy starts with a capital stock at time t = 1 equal to 1 unit. Write down the values of gross investment, net investment, capital, consumption, and output observed during the subsequent 10 periods • What is the steady state level of capital, assuming A = 1 and L = 2? • Suppose that the economy is at its steady state and there is an increase in the depreciation rate from 0.10 to 0.15. What is the new steady state value for capital? Discuss your results.Suppose that K(t+3)/N > K(t+1)/N, where K(t+3) is capital in period t+3 and K(t+1) is capital in period t+1. The economy will reach or reached a steady-state (long-run equilibrium) in period __ (choose the best one, given the information available). t+5 t-2. t-1. t
- Consider an economy in which the consumption, investment and production functions are as follows.C = 90 + 0:7(Y - T)I = 250 - 20r F(K;L) = AK1=2L1=2The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute theequilibrium values of output, overall labor income, consumption, public savings, national savings,investment, and the interest rate.Suppose now government spending decreases to G=100 (everything else stays the same). Whathappens to output, consumption, savings, investment and the interest rate? Compute the newvalues for these variables.Our closed economy has a production function Y = A•F(K,LxE), where Y, K, L, E & A all have their usual meanings as per our lectures & course textbook. Also, this production function exhibits all the usual mathematical/economic properties we usually assume: positive marginal products, diminishing marginal products, complementarity between K & (LxE), and constant returns to scale. The aggregate consumption function depends negatively on the real interest rate, the government budget is balanced initially & the economy is in both a long-run equilibrium and steady state initially. The population growth rate is 2% per year, capital depreciates at a rate of 3% per year, the saving rate is 25% and technology is constant. Suppose the level of labour effectiveness (E) suddenly permanently rises by 10%. a) Use the long-run classical model to determine the qualitative impact of this shock on the long-run equilibrium levels of real output, consumption, investment, real interest…Our closed economy has a production function Y = A•F(K,LxE), where Y, K, L, E & A all have their usual meanings as per our lectures & course textbook. Also, this production function exhibits all the usual mathematical/economic properties we usually assume: positive marginal products, diminishing marginal products, complementarity between K & (LxE), and constant returns to scale. The aggregate consumption function depends negatively on the real interest rate, the government budget is balanced initially & the economy is in both a long-run equilibrium and steady state initially. The population growth rate is 2% per year, capital depreciates at a rate of 3% per year, the saving rate is 25% and technology is constant. Suppose the level of labour effectiveness (E) suddenly permanently rises by 10%. a) Use the long-run classical model to determine the qualitative impact of this shock on the long-run equilibrium levels of real output, consumption, investment, real interest…
- In an economy, the future marginal product of capital is MPKf=100-K, where K denotes the future capital stock. The price of capital is 100, the depreciation rate of capital is 0.1 and the current capital stock is 10. An equation relating desired investment (I) to real interest rate (r) isSuppose that output is produced according to the production function Y =Kα[(1 - u)L]1-α, where K is capital, L is the labor force, and u is the natural rate of unemployment. The national saving rate is s, the labor force grows at rate n, and capital depreciates at rate d. Express output per worker (y = Y/L) as a function of capital per worker (k = K/L) and the natural rate of unemployment (u). Write an equation that describes the steady-state of this economy. Find the steady-state capital per worker and steady-state output per worker. Does this production function have constant returns to scale? Explain.Consider a closed-economy. The economywide expected future marginal product of capital is MPKf = 50 − 0.05K^f , where Kf is the future capital stock. The depreciation rate of capital, δ, is 10% per period. The current capital stock, K, is 900 units of capital. The real price of a unit of capital is 8 unit of output. Firms pay taxes equal to 20% of their output. The consumption equation is C = 100 + 0.6Y −100r, where C is consumption, Y is output, and r is the real interest rate. Government spending equals 150 and full-employment output is 1000. (a) Suppose the current real interest rate is 10% per period. What are the values of the tax-adjusted user cost of capital, the desired future capital stock, and the desired level of investment? (b) When the real interest rate equals 10%, what are the desired levels of consumption and saving (assuming output is at the full-employment level)? 10 (c) Is the goods market in equilibrium when the real interest rate equals 10%? Provide an intuitive…
- The Bureau of economic analysis announced today that gross domestic product, the widest measure economic activity, grew in a meager 0.9% annualized rate in the third quarter compared to the first six months of 2018 the US economy in the first 3 quarters of 2019 grew just 1.6%, a pronounced slow down relative to the 3.9% growth in the second half of 2018. Some of this slowdown can be explained by a negative contribution from inventory investment, which contracted 0.9% in the third quarter. There’s plenty to worry about in this report, as it showed us Retail sales Fell for the first time in seven months in September, although overall consumer spending which comprises about 66% of the US GDP activity was up 0 .4%. Capacity utilization also decreased 0.4% in the third quarter to 74.5%.1. Write a phrase from the article that speaks to change in household consumption in the third quarter in 2019. 2. From the information in this article, did household consumption increase or decrease in the…Homework Study Question 4 - Long Answer Our closed economy has a production function Y = A•F(K,LxE), where Y, K, L, E & A all have their usual meanings as per our lectures & course textbook. Also, this production function exhibits all the usual mathematical/economic properties we usually assume: positive marginal products, diminishing marginal products, complementarity between K & (LxE), and constant returns to scale. The aggregate consumption function depends negatively on the real interest rate, the government budget is balanced initially & the economy is in both a long-run equilibrium and steady state initially. The population growth rate is 2% per year, capital depreciates at a rate of 3% per year, the saving rate is 25% and technology is constant. Suppose the level of labour effectiveness (E) suddenly permanently rises by 10%. Use the long-run classical model to determine the qualitative impact of this shock on the long-run equilibrium levels of real output,…Suppose that we have an economy whose production can be represented by a Cobb Douglas production function with parameter α=0.3. You may assume that there is no depreciation (i.e. δ=0). a. What fractions of income do capital and labor receive? b. For the following parts, describe what happens to output (in percent), the rental price of capital and the real wage from: i) Suppose that immigration increases the labor force by 10 percent. ii) Suppose that a gift of capital from abroad raises the capital stock by 10 percent. iii) Suppose that a technological advancement raises the value of the parameter A by 10 percent. Type out the correct answer ASAP with proper explanation