ECO325H1 Study Guide - Midterm Guide: Production Function, Tjalling Koopmans, Diminishing Returns

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29 Apr 2015

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Note to student: enter your name and student number on each examination book that you use. There are four questions on this test for a total of 120 marks. Read each question carefully and note the number of points allocated to each part. 2. (total 20 points) assume that the final output of the economy is defined by. Y t k t a t l t 1 a. b. c. d. e. (6 points) derive the growth rate of total output in terms of the growth rates of. K t ,a t and l t . (note: just writing down the final equation will only give you 3 points) Justify your answer. (4 points) assume that in addition to the assumptions made above, the growth rate of capital per worker is 5%, and the growth rate of output per worker is 7%. 3. (total 30 points) assume that households have the following lifetime utility function.

Related Questions

12. Economists are often very critical of rent controls. Which of the following statements are likely to be supported by economists who do not like rent controls? I) rent controls cause the construction of lots of new rental units in the long run II) rent controls reduce the incentive for landlords to maintain their apartments III) rent controls lead to short run shortages of rental units, and hence to black markets IV) rent controls drive up the price of apartments in the short run A) only 1 B) only 11 C) only III D) only IV E) I & II F) I & III G)I & IV H) II & III 1) II & IV J) III & IV K) 1, II & III L) I, II & IV M) I, III & IV N) II, III & IV O) all four P) none of the four

18. Which of the following statements about the elasticity of demand are likely to be true? 1) the elasticity of demand is generally larger in the long run than in the short run II) the elasticity of demand is generally larger in the short run than in the long run III) if the elasticity of demand is perfectly elastic, the buyer bears all of the burden of a tax IV) if the elasticity of demand is perfectly inelastic, the buyer bears all of the burden of a tax A) only! B) only 11 C) only III D) only IV E) I & II F) I & III G)I & IV H) II & III 1) II & IV J) III & IV K) I, II & III L) I, II & IV M) I, III & IV N) II, III & IV O) all four P) none of the four

Question

IS Function

C=600 + (.7)(1-t)Y

t=.15

I=1500-75(i)

I=6(6%)

G=1000

LM Function

L=.3 Y-65(i)

M/P=900

a. What is the equilibrium income level and interest rate

b. Suppose there is an increase in t from .15 to .20. What will be the change in the equilibrium level of income and interest rate?

c. Suppose there is a decrease in government expenditures (G) from 1000 to 800 what will be the change in the equilibriu, income level and interest rate?

d. Suppose there is an increase in the money supply from 900 to 1200 what will be the change in the equilibrium level on income and interest rate?

e. Today Congress and the President are debating the correct economic policy to raise the debt limit by trying to balance the budget. Here are 3 proposals:

i Cut government expenditures (G) while keeping taxes fixed

ii Increase the tax rate t while keeping government spending G fixed

iii Increase the tax rate t and decrease government spending G

Given your answers in a-e above what policy would you support be implemented. Explain

ECO325H1 Study Guide - Midterm Guide: Production Function, Tjalling Koopmans, Diminishing Returns

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