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Macroeconomics Previous Term Paper (ch-1 To 5)

This document contains questions from macroeconomics chapters 1-5 regarding the effects of a one-time increase in the number of workers on an economy's output per unit of effective labor. It also includes questions about estimating the rate of convergence between countries' incomes and the elasticity of substitution between consumption periods for an individual with constant relative risk aversion utility.

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Adnan Khurshid Tanoli
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53 views

Macroeconomics Previous Term Paper (ch-1 To 5)

This document contains questions from macroeconomics chapters 1-5 regarding the effects of a one-time increase in the number of workers on an economy's output per unit of effective labor. It also includes questions about estimating the rate of convergence between countries' incomes and the elasticity of substitution between consumption periods for an individual with constant relative risk aversion utility.

Uploaded by

Adnan Khurshid Tanoli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Macroeconomics previous term paper (ch-1 to 5)

Question 1.4. Consider an economy with technological progress but without


population growth that is one on its balance growth path. Now suppose there
is one-time jump in number of workers.
(a) At the time of the jump, does output per unit of effective labor rise, fall,
or stay the same? Why?
(b) After the initial change (if any) in output per unit of effective labor
when the new workers appear, is there any further change in output
per unit of effective labor? If so, does it rise or fall? Why?
(c) Once the economy has again reached a balance growth path, is output
per unit of effective labor higher, lower, or the same as it was before
the new workers appeared? Why?

1.13. (a) in the model of convergence and measurement error in equation


(1.33)-(1.34), suppose the true value of b is -1. Does a regression of ln(Y/N)1979
ln(Y/N)1870 on a constant and ln(Y/N)1870 yield a biased estimate of b? Explain.
(b) Suppose there is measurement error is measured 1979 income per
capita but not in 1870 income per capita. Does a regression of ln(Y/N)1979
ln(Y/N)1870 on a constant and ln(Y/N)1870 yield a biased estimate of b?

2.1. Consider N firms each with the constant returns to scale production
function Y = F (K, AL), or Y = Alf(k). Assume
0. Assume that all
firms can hire labor at wage wA and rent capital at cost r, and that all firms
have the same value of A.
(a) Consider the problem firm trying to produce Y unit of output at
minimum cost. Show that the cost-minimizing level of k is uniquely
defined and is independent of Y, and that all firms therefore choose the
same value of k.
(b) Show that the total output of the N cost-minimizing firms equal the
output that a single firm with the same production function has if it
uses all of the labor and capital used by the N firms.

2.2. The elasticity of substitution with constant-relative-risk-aversion utility.


Consider an individual who lives for two periods and whose utility is given by
equation (2.46). Let P1 and P2 donates the prices of consumption in the two
periods, and let W denote the value of individuals lifetime income; thus the
budget constraint is P1C1 + P2C2 = W.
(a) What are the individuals utility- maximizing choices of C 1 and C2 given
P1, P2, and W?
(b) The elasticity of substitution between consumption in the two periods is
-

[(P1 /P2) / (C1/C2)][ (C1/C2)/ (P1/P2)] or ln(C1/C2)/ ln(P1/P2). Show that with
the utility function (2.46), the elasticity of substitution between C1 and C2 is
1/.

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