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Consider the following Solow model of growth. Both population and work force grow at the rate of n=1% per year in a closed economy.
Consumption is given by
C=.5(1-t) Y
Where t is the tax rate on income and Y is total output. The per worker production function is
y = 8 √k
Where y is output per worker and k is the capital-labor ratio. The depreciation rate is δ = 9% per year. Suppose for now that there are no government purchases and that tax rate on income is t=0.
a) In steady state, what are the values of the capital-labor ratio, output per worker, consumption per worker, and investment per worker?
b) Suppose that the government purchases goods each year and pays for these using taxes on income. The government runs a balanced budget in each period and the tax rate on income is t=.5. Repeat part (a) and comment on the differences.
The kinked-demand schedule that an oligopolist believes confronts the firm is given in the table below. Compute the oligopolist's total revenue at each of the nine prices
Shelly's preferences for consumption and leisure can be expressed as. This utility function implies that shelly's marginal utility of leisure is C-200 and her marginal utility of consumption is L-80.
Suppose that in response to learning that some sick individuals were denied health insurance, the government mandates that insurance companies must offer insurance to everyone at unregulated rates.
In the country of Wiknam, the velocity of money is constant. Real GDP grows by 5 percent per year, the money stock grows by 14 percent per year, and the nominal interest rate is 11 percent. What is the real interest rate?
For each of the following concepts provide a definition, a complete explanation as to their significance, and a practical example.
Find the velocity given that the market is in equilibrium. MD1 is the relevant curve and it is given that the real GDP is 30,000.
Find the optimal level of inputs L* and K* that minimize the cost of producing Q0. What is the cost of production associated to L* and K*?
Engineers at national research laboratory built a prototype automobile which could be driven 180 miles on single gallon of unleaded gasoline. They estimated that in the mass production the care would cost 40k for each unit to build.
A Monopolist is deciding how to allocate output between two markets. The two markets are separated geographically. Demand and marginal revenue for the two markets are given by:
Dr Leona Williams a well know Plastic Surgeon, has reputation for being one of best surgeons for reconstructive nose surgery. Dr Williams enjoys a rather substantial degree of market power in this market. She has estimated demand for her work to b..
Describe how a change in investment can have big impact on GDP causing a nationwide slump. Recall that investment is "small" relative to the entire economy.
Prepare a demand schedule for both demand curves and prepare them on an Excel graph. Calculate the marginal revenue for each.
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