Economic

The aggregate production function Consider an aggregate production function of the following form: Y =A x (K to power of (1/3)). where Y is output, A is technology, and K is capital.

1. Use Excel or equivalent spreadsheet software to calculate output Y for all combi- nations of A {2, 4, 8, 16}and K {0, 0.01, 0.02, 0.03, 0.04, ..., 19.99, 20}. Hint: apply mixed cell references.

2. Generate a figure with K on the horizontal axis and Y on the vertical axis. Plot 4 lines, each corresponding to one value of A.

3. Using your figure, explain how doubling technology affects the output.

4. Using your figure, explain how doubling the capital stock affects the output. Refer to the law of diminishing marginal product in your answer. 5. Using your figure and answers to the previous two questions: why can rising technology A explain sustained growth, and why can rising capital K not?