This question aims to explore some of the points discussed about the Solow-Swan model. Consider an economy with the general Cobb-Douglas production function: Y = A* Ka L(1-a) The equation describing capital dynamics is: Kt+1 = K; + I¿ - dK; Where d is a constant parameter that captures the depreciation rate. Investment follows a behavioural equation as discussed in class, ie, a constant 's' fraction of output is invested in every period. Answer the following questions assuming that labour grows at the rate n = 0 and adopting the assumptions made in lecture. Assume: s = 0.60, d = 0.10, a = 0.5, L= 1and A= 1. Select one: O a. The level of the interest rate in steady state is 8.33% O b. The level of the interest rate in steady state is 40.82% O. The level of the interest rate in steady state is 20.41% O d. The level of the interest rate in steady state is 18% O e. More information is required to compute the interest rate in equilibrium

This question aims to explore some of the points discussed about the Solow-Swan model. Consider an economy with the general Cobb-Douglas production function: Y = A* Ka L(1-a) The equation describing capital dynamics is: Kt+1 = K; + I¿ - dK; Where d is a constant parameter that captures the depreciation rate. Investment follows a behavioural equation as discussed in class, ie, a constant 's' fraction of output is invested in every period. Answer the following questions assuming that labour grows at the rate n = 0 and adopting the assumptions made in lecture. Assume: s = 0.60, d = 0.10, a = 0.5, L= 1and A= 1. Select one: O a. The level of the interest rate in steady state is 8.33% O b. The level of the interest rate in steady state is 40.82% O. The level of the interest rate in steady state is 20.41% O d. The level of the interest rate in steady state is 18% O e. More information is required to compute the interest rate in equilibrium

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

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Consider the Ramsey-Cass-Koopmans neoclassical growth model with log utility, Cobb-Douglas production function, and 100% depreciation: Choose {c, ,k1,t > 0} to maximize EB' Inc, 't+1 t=0 subject to C, +k,1 = Ak“ , t20 ko given. 0
Given a saving rate of 6%, a depreciation rate of 1%, and a production function in which y = k0.5 where y is output per worker and k is capital per worker, calculate the steady state values for capital per worker, output per worker, consumption per worker, and Calculate the golden rule steady state level of capital Assuming an economy is at steady state, with the use of an appropriate diagram with descriptions illustrate the impact of a reduction in the saving rate on capital per worker and output per worker. In the context of the Solow model, illustrate with appropriate descriptions the impact of increased migrant workers on capital per worker and output per worker in an economy.
Consider the model of a firm that produces final goods using R&D and components as inputs, with cost dataas follows:Assembly: Total cost of production = PAQA = 400Earnings of High-Skilled Labor = WHHA = 100Earnings of Low-Skilled Labor = WLLA = 200Earnings of Capital = RKA = 100R&D: Total cost of production = PRQR = 400Earnings of High-Skilled Labor = WHHR = 175Earnings of Low-Skilled Labor = WLLR = 125Earnings of Capital = RKR = 100A) In which factor(s) is assembly intensive? In which factor(s) is R&D intensive?B) Suppose that due to the opening of trade, the price of assembly falls by ∆PAPA= −20%, the price of R&Dremains unchanged, ∆PRPR= 0%, and capital’s share earnings remains constant.C) What has happened to the relative wage of high-skilled/low-skilled labor? Does this match the predictions of the offshoring model?
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