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Using the Malthusian Model as a framework, consider the implication of Hurricane Katrina for the New Orleans region. In particular, show under what combination of circumstances it might lead to an increase in GDP per capita and/or in what circumstances it might lead to a decrease in GDP per capita. What would happen in the long run for the respective scenarios?

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Richa Arora
Richa AroraLv10
28 Sep 2019

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4. Consider a farmer who can either plant or market/consume his crop. Whatever amount he plants becomes a crop twice the size the following year. For example, if he plants seed from 2 ears of corn, he gets 4 ears of corn at harvest. Assume he starts off with 50 bushels of corn.

a. If he decides every year to market/consume half his crop and plant the rest, what will his harvest be next year? What will his consumption be? How fast will his production and consumption grow over time?

b. If he decides every year to market/consume 2/5 of his crop and plant the rest, what will his harvest be next year? What will his consumption be? How fast will his production and consumption grow over time?

c. Compare the consumption of the farmer in each of the first five years under plans a. and b.

d. Why might the results of plan b. not be realistic?

5. Imagine the following goal of Lenin/Stalin at the beginning of the Soviet regime in Russia: to overtake (i.e. equal) and surpass the world’s industrialized economies in terms of GDP per capita. To achieve this goal, the main instrument of control is the fraction of national production that is devoted to building the nation’s productive capacity: new machines, factories, transportation equipment, and roads. That is, the main instrument to achieve this goal is what fraction of GDP to devote to investment. The rest of national production is used for consumption, i.e. to produce consumer items like clothing and food. The country begins with relatively little capital, being mostly rural and non-industrialized. Assume each of the following:  GDP per capita starts in USSR at $300/year.  The world’s industrialized economies start with GDP per capita of $5000/year.  Population growth rates are 2% everywhere in the world.  All capital depreciates at 8% per year.

a. At what average annual rate will income per capita in the USSR have to grow in order to overtake (i.e. to equal) the industrialized nations’ income per capita in exactly 30 years? Assume the industrialized nations’ income per capita is growing at 2% per year.

b. If the USSR sustains the growth rate of part a., how long after it has overtaken the industrialized nations’ GDP per capita will it take for it to attain double the industrialized nations’ GDP per capita? Again, assume the industrialized nations’ GDP per capita is growing at 2% per year. For parts c.-e., assume the basic growth framework of Harrod-Domar, and that 1 ruble’s worth of capital always produces 0.5 ruble’s worth of output (i.e. A=0.5). Also, assume inputs are used more efficiently in the industrialized countries, so that A=0.6 there.

c. What fraction of national output must the USSR devote to building new capital goods in order to attain the growth rate of part a.? What fraction would be left for consumer items? [Hint: another word for the fraction of output devoted to building new capital goods is the investment rate, i.e. the ratio It/Yt. And, remember that savings equals investment, so the investment rate equals the savings rate.]

d. At what rate are the industrialized countries saving if they are growing at 2% per year? e. What would you calculate the ratio of consumption per capita in the USSR to consumption per capita in the industrialized countries when the USSR overtakes the industrialized countries (i.e. when GDP per capita is equal)? Assume the savings rates of parts c. & d. What would the ratio be when the USSR reaches double the industrialized nations’ GDP per capita?

Consider the scenario in which the Fed is implementing a contractionary monetary policy aimed at alleviating inflationary pressures.In this regard please provide an answer to the questions listed below. In order to answer, it might be a good idea to use a money market diagram and show how interest rates affect the economy using the AD/AS diagram. No need to submit the graphs, but once again drawing the two graphs (money market and AD/AS) for yourself will go a long way in guiding you towards the right answer. Note. In the static AD/AS model, initially assume that the economy is in SR equilibrium and real GDP is above potential GDP. a) As a result of the contractionary monetary policy pursued by the Fed, what would happen with the interest rate? The interest rate is going to (rise/fall/stay fixed) Blank 1 . b) What would happen with the short run aggregate supply curve? Short run aggregate supply curve will shift (left/right/stay fixed) Blank 2 . c) What would happen with the long run aggregate supply curve? Long run aggregate supply curve will shift (left/right/stay fixed) Blank 3 . d) What would happen with the aggregate demand curve? Aggregate demand curve will shift (left/right/stay fixed) Blank 4 . e) What would happen with the Real GDP level? Real GDP will (rise/fall/stay fixed) Blank 5 . f) What would happen with the employment level? Unmployment level will (rise/fall/stay fixed) Blank 6 .

THE PARTS IN BOLD ARE MARKED AS THE PARTS NEEDED HELP. ATTACHED IS THE ENTIRE ASSIGNMENT FOR ONLY PURPOSE THAT ALL INFORMATION IS INCLUDED. IF YOU COULD PLEASE ONLY HELP WITH PART 15 AND 17. PE=? QE=? AND PART 17 SITUATIONS OCCURING SIMULTANEOUSLY! THANK YOU!

Consider the market for new, single-family homes in New Orleans. The general demand function for new housing in New Orleans is estimated to be

Qd =15-2P+0.05M+0.10R

where Qd is the monthly quantity demanded, P is the price per square foot, M is average monthly income in New Orleans, and R is the average monthly rent for a three-bedroom apartment in New Orleans. Qd is measured in units of 1,000 square feet per month.

New housing in New Orleans is a(n) __________________ (normal, inferior) good. How can you tell from the general demand function?

New housing and three-bedroom apartments are _________________ (substitutes, comple- ments) in New Orleans. How can you tell from the general demand function?

If average monthly income is $1,500 and the monthly rental rate for three-bedroom apart- ments is $700, then the demand function for new housing in New Orleans is

Qd = _____________________________________.

Graph the demand curve for new housing in New Orleans on the axes provided below. Label

the demand curve D0.

What happens to demand when the following changes occur?

a. b. c. d. e.

The price of the commodity rises.
Income decreases and the commodity is normal. Income decreases and the commodity is inferior.

The price of a complement good increases. The price of a substitute good decreases.

The general supply function for new housing in New Orleans is estimated to be Qs =96+2P-10PL -4PK

where P is the price per square foot of new housing in New Orleans, PL is the average hourly wage rate for construction workers, and PK is the price of capital (as measured by the average rate of interest paid on loans to home builders). Qs is measured in units of 1,000 square feet per month.

Does it make sense for PL and PK to have negative coefficients in the general supply func- tion? Explain why or why not.

If the average hourly wage rate for construction workers is $10 per hour and the average rate of interest on loans to builders is 9 percent (i.e., PK = 9), then the supply function for new housing is

Qs = ______________________.

Graph the supply curve for new housing in the graph below. Label supply S0.

Other things remaining the same, what would happen to the supply of a particular commodity if the following changes occur?

The price of the commodity increases.

Government regulators outlaw the use of a technology that enables the good to be

produced at a significantly lower cost.

The prices of inputs used to produce the commodity decrease.

The price of a commodity that is a substitute in production increases.

Managers expect the price of the good to fall in the near future.

As the cost of capital rises, firms in the industry stop purchasing plant and equip-

ment, which allows depreciation to diminish the productive capacity in the indus- try.

Solve mathematically for equilibrium price and quantity. Show your work:

PE = $__________ per square foot.
QE = __________ square feet per month (in 1,000s).

Do your supply and demand curves intersect at PE and QE found in question 8 above? Should they?

In equilibrium found in question 8, compute total consumer, producer, and social surpluses:

CS = $____________ PS = $____________ SS = $____________

13. Suppose New Orleans suffers a serious recession that causes average monthly income to fall from $1,500 to $1,100 per month. If other things remain the same, the demand for new hous- ing in New Orleans is now:

Qd = _______________________. Plot this new demand curve in the figure below. Label it D'.

Suppose that because of the recession in New Orleans, the wage rate for construction workers falls to $8 per hour. If other things remain the same, the supply of new housing in New Orle- ans is now:

Qs = _______________________.
Plot this new supply curve in the figure. Label the new supply curve S'.

After income falls to $1,100 and wages fall to $8, new equilibrium price and quantity are PE = $__________ per square foot
QE = __________ square feet per month (in 1,000s)

Determine the effect upon equilibrium price and quantity sold if the following events occur in a particular market:

The price of a substitute good (in consumption) decreases.

Consumers’ income increases and the good is inferior.

Government regulators decide to outlaw a cost-reducing technological

process in order to protect the environment.

The price of a complement good (in production) increases.

The price of inputs used to produce the good decrease.

Consumers expect that the price of the good will fall in the near future.

It is widely publicized that consumption of the good is helpful in prevent-

ing cancer.

The price of a substitute good (in production) decreases.

17. Suppose that a pair of events from problem 15 occur simultaneously. For each of the pairs of events indicated below, perform a qualitative analysis to predict the direction of change in either the equilibrium price or the equilibrium quantity. Explain why the change in one of these two variables is indeterminate.

Both a and h in problem 15 occur simultaneously.

Both b and e in problem 15 occur simultaneously.

Both d and g in problem 15 occur simultaneously.

Both f and c in problem 15 occur simultaneously.

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