The economy's output is produced using function Y = AK^0.2N^0.8. Suppose that K = 1000, N =100, and A =2, then Y = 317. If the total productivity increases by 10 %, and K decreases by 10 %, by how many percentage points (rounded) does Y change? a. 0% b. -1% C. 8% d. 10%
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- Suppose an economy begins in steady state. By what proportion does per capita GDP change in the long run in response to each of the following changes? (a) The investment rate doubles (b) the depreciation rate falls by 10% (c) The productivity level rises by 10% (d) an earthquake destroys 75% of the capital stock (e) A more generous immigration policy leads the population to double.Consider an economy with a Cobb-Douglas production function with α = 1/3 that begins in steady state with a growth rate of technological progress of g of 2 percent. Consider what happens when g increases to 3 percent. (a) What is the growth rate of output per worker before the change? What happens to this growth rate in the long run? (b) Perform a growth accounting exercise for the economy, decomposing the growth rate in output per capita into components contributed by capital per capita growth and technology growth. What is the contribution of the change in g to output per capita growth according to this formula? (c) In what sense is the growth accounting result in part b producing a misleading picture of this experiment? Explain why this is the case.Consider the simple innovation model studied in class. In this model, the society allocates a fraction "gamma" of workforce to innovation and the remaining fraction to production. Suppose that, for simplicity, total workforce is normalized to unity: L = 1. If the productivity growth rate is defined by d A t/dt = "theta"* "gamma" * A_t and real GDP per worker by yt = At* (1 - "gamma"), what is the long-run growth rate of y_t?
- 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?Say an economy begins with an initial level of capital per worker, k0, that is above its steady state level of capital per worker, k*. All else equal, what will happen to output per worker and capital per worker?Suppose that the annual rates of growth of real GDP of Econoland over a five-year period were sequentially as follows: 3 percent, 1 percent, -2 percent, 4 percent, and 5 percent. What was the average of these growth rates in Econoland over these 5 years? What term would economists use to describe what happened in year 3?
- Q7 An economy has a Cobb–Douglas production function: Y = Kα(LE)1−α The economy has a capital share of 1/3, a saving rate of 24 percent, a depreciation rate of 3 percent, a rate of population growth of 2 percent, and a rate of labor-augmenting technological change of 1 percent. It is in a steady state. a. At what rates do total output, output per worker, and output per effective worker grow?b. Solve for capital per effective worker, output per effective worker, and the marginal product of capital. c. Does the economy have more or less capital than at the Golden Rule steady state? How do you know? To reach the Golden Rule steady state, does the saving rate need to increase or decrease?d. Suppose the change in the saving rate you described in part (c) occurs. During the transition to the Golden Rule steady state, will the growth rate of output per worker be higher or lower than the rate you derived in part (a)? After the economy reaches its new steady state, will the growth rate of…Consider the economies of Hermes and Gobbledigook, both of which produce gobs of goo using only tools and workers. Suppose that, during the course of 20 years, the level of physical capital per worker rises by 4 tools per worker in each economy, but the size of each labour force remains the same. first dropdown question options are (larger or smaller), second dropdown question options are (the brain drain, inward orietned growth, diminishing returns, constant returns, increasing returns), the third dropdown question oprions are (more diffucult or easier)true or false 1. Countries like finlamd and norway are unlikely to suffere from the scarcity problem as defined in economic theory? 2. in the economic circular flow model, capital formation is a flow that is mainly linked to firms? 3. equilibrium in any market can be described as the point where demand is equal to supply.
- Consider a two-sector model of growth, with two kinds of investment opportunities—one with a diminishing marginal product and one with a constant marginal product. a. What does the production function for this problem look like? b. Characterize the set of equilibria for this model. Does output in any of the equilibria have nonzero per capita growth? c. What can this model help us explain that strict endogenous and neoclassical growth models cannot?Consider an economy with the following aggregate production function: Y = 3K1/3(AL)2/3 Capital grows through investment but also decays due to wear and tear at a constant rate δ per period. Assume that A is growing at the exogenous rate g, that L is growing at the exogenous rate n, and that households save a constant proportion s of their income. (a ) Find the steady state level of the capital per effective worker (k*), output per effective worker (y*) and consumption per effective worker (c*) - in terms of the parameters of the model. (B) What is the level of k (k**) that maximizes consumption? (C) Given a depreciation rate of 7%, population growth rate of 2%, technological progress of 1% and a saving rate of 30%, calculate the steady state levels of k, y and c. (D) To move to the level of capital that maximizes consumption, how should the saving rate be changed? Explain. (E) Calculate the saving rate needed to reach the golden rule level of capital per effective worker.The COVID-19 pandemic has caused an unprecedented increase in savings in many countries around the world. In the EU, the savings rate of households has jumped from 12.5% to 17%. In 2008-2009, it had moved from 12.5% to 14% (Dossche and Zlatanos 2020). Even if the source of 2020 surge in savings is different from the one of 2008, it is obvious that this increase does not result in more investment and growth. QUESTION: 1. With reference to the paradox of thrift discuss the appropriate approach by the government to get the economy out of economic downturn swiftly