In the economy of Cape Despair, the subsistence real wage rate is$15 an hour. whenever real GDP per hour rises above $15,t hepopulation grows, and whenever the GDP per hour of labor fallsbelow this level, the population falls. The table shows CapeDespair's production function:
Labor Real GDP
billions of hr per yr billions of 2000 dollars
_____________________________________________
0.5 8
1.0 15
1.5 21
2.0 26
2.5 30
3.0 33
3.5 35
Initially, the population of Cape Despair is constant and real GDPper hour of labor is at the subsistence level of $15. Then atechnological advance shifts the production function upward by 50percent at each level of labor.
a) What are the initial levels of real GDP and laborproductivity?
b) What happens to labor productivity immediately following thetechnological advance?
c) What happens to the population growth rate following thetechnological advance?
d) What are the eventual levels of real GDP and real GDP per hourof labor?
In the economy of Cape Despair, the subsistence real wage rate is$15 an hour. whenever real GDP per hour rises above $15,t hepopulation grows, and whenever the GDP per hour of labor fallsbelow this level, the population falls. The table shows CapeDespair's production function:
Labor Real GDP
billions of hr per yr billions of 2000 dollars
_____________________________________________
0.5 8
1.0 15
1.5 21
2.0 26
2.5 30
3.0 33
3.5 35
Initially, the population of Cape Despair is constant and real GDPper hour of labor is at the subsistence level of $15. Then atechnological advance shifts the production function upward by 50percent at each level of labor.
a) What are the initial levels of real GDP and laborproductivity?
b) What happens to labor productivity immediately following thetechnological advance?
c) What happens to the population growth rate following thetechnological advance?
d) What are the eventual levels of real GDP and real GDP per hourof labor?
