ECO100Y5 Chapter Notes - Chapter 5: Nominal Interest Rate, Real Interest Rate, Factors Of Production

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Labour force paricipaion rate percentage of the populaion 15+ that is in the labour force. Unemployment rate - % of labour force that"s unemployed. Real interest rate = nominal interest rate inflation rate. Rule of 70 the number of years it takes for a variable to double. Aggregate production function y = a x f(k, l, h) The per worker production function shows how productivity depends on the quantities of physical capital per worker and human capital per worker. Gdp = c + i + g + x im. G = government spending on goods and services. Sprivate (savings by households) = gdp + tr t c. Spublic (savings by government) = t tr g. National savings = investment spending in a closed economy. Net foreign investment (nfi) the total outflows of funds out of a country minus the total inflows of funds into that country.

Related Questions

Suppose the output per effective worker is production function is y=10k^1/2, where k equals the amount of capital per effective worker and the capital lasts an average of 10 years. Assume that the saving rate is 32 percent, the rate of growth of population is 4 percent and the rate of technological growth is 2 percent.

a) Solve for the steady state levels of capital per effective worker, output per effective worker, investment per effective worker and consumption per effective worker.

b) Calculate the growth rate of total capital income and the growth rate of total labor income at the steady state.(Hint: Capital and labor each earn a constant share of the economy's income ).

c) Prove, at the steady state, (i) the capital-output ratio is constant;(ii) the real wage grows at the rate of 2 percent.

d) Calculate all of the following at their Golden Rule levels: Capital per effective worker, output per effective worker, saving and investment per effective worker, and the consumption per effective worker.

e) Whether the saving rate is too high or too low?

crimsonhound401

Consider an economy with the following production function:

Y = AK.5L.5
The labor force is constant. The rate of depreciation is Î´ = .1, the savings rate is s = .3.

a. Has this production function constant returns to scale? Why?

b. Write the production function in per worker variables.

c. Does the per worker production function have diminishing marginal returns to capital? Why?

d. Write the fundamental Solow equation in per worker variables.

e. Depict the steady state of this economy.

f. What are the growth rates of per worker output and capital in steady state?

g. Calculate the steady state level of capital, output, consumption and savings.

h. Redraw the initial equilibrium and show what happens when the savings rate increases. Do the growth

rates change?

i. Redraw the initial equilibrium and show what happens when there is a one time increase in population.

. Do the growth rates change?

j. Redraw the initial equilibrium and show what happens when there is a one time innovation that increases

productivity. Do the growth rates change?

k. Redraw the initial equilibrium and show what happens when there is constant productivity growth. Do

the growth rates change?

Consider an economy with the following production function:

Y = AK^0.5 L^0.5

The labor force is constant. The rate of depreciation is Î´=0.1, the savings rate is s=0.3

a) Has this production function constant returns to scale? Why?

b) Write the production function in per worker variables.

c) Does the per worker production function have diminishing marginal returns to capital? Why?

d)Write the fundamental Solow equation in per worker variables.

e) Depict the steady state of this economy.

f) What are the growth rates of per worker output and capital in steady state?

g) Calculate the steady state level of capital, output, consumption, and savings.

h) Redraw the initial equilibrium and show what happens when the savings rate increases. Do the growth rates change?

i) Redraw the initial equilibrium and show what happens when there is a one time increase in populatikon. Do the growth rates change?

j) Redraw the initial equilibrium and show what happens when there is a one time innovation that increases productivity. Do the growth rates change?

k) Redraw the initial equilibrium and show what happens when there is constant productivity growth. Do the growth rates change?

ECO100Y5 Chapter Notes - Chapter 5: Nominal Interest Rate, Real Interest Rate, Factors Of Production

ECO100Y5 Full Course Notes

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