(a) Consider the following production function: Y=K0.5 (AN) 0.5, where both the population and the pool...

  

Transcribed Image Text:

(a) Consider the following production function: Y=K0.5 (AN) 0.5, where both the population and the pool of labor are growing at a rate n=0.07, the capital stock is depreciating at a rate d=0.03, and A is normalized to 1. (1) What are capital's and labor's shares of income? 2mks (ii) Find the steady-state values of k and y when s=0.20. 3mks (iii) What rate is per capita output growing at the steady state? 2mks (iv) Given total factor productivity is increasing at a rate of 2 percent per year (g=0.02), what is the rate of total output growth? 2mks (b) The following equations describe an economy being measured in billions and I as a 5 percent interest rate. C=0.8(1-t)Y, t=0.25, 1=900-50i, G=800, L=0.25Y-62.5i, M/P=500. (1) What is the equation that describes the IS curve. 2mks (ii) What is the equation that describes the LM curve? 2mks (iii) By how much does a change in government spending affect the equilibrium interest rate. 2mks (a) Consider the following production function: Y=K0.5 (AN) 0.5, where both the population and the pool of labor are growing at a rate n=0.07, the capital stock is depreciating at a rate d=0.03, and A is normalized to 1. (1) What are capital's and labor's shares of income? 2mks (ii) Find the steady-state values of k and y when s=0.20. 3mks (iii) What rate is per capita output growing at the steady state? 2mks (iv) Given total factor productivity is increasing at a rate of 2 percent per year (g=0.02), what is the rate of total output growth? 2mks (b) The following equations describe an economy being measured in billions and I as a 5 percent interest rate. C=0.8(1-t)Y, t=0.25, 1=900-50i, G=800, L=0.25Y-62.5i, M/P=500. (1) What is the equation that describes the IS curve. 2mks (ii) What is the equation that describes the LM curve? 2mks (iii) By how much does a change in government spending affect the equilibrium interest rate. 2mks

Answer rating: 100% (QA)

a Consider the following production function Y K05AN05 where both the population and the pool of labor are growing at a rate n 007 the capital stock i... View the full answer