Consumed in ?xed proportion

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Reference no: EM131094594

Suppose people only consume bread and cheese. These are consumed in ?xed proportion: two slices of bread and one slice of cheese. Output in each sector is produced using labour only as Yb = AbLb Yc = AcLc and assume total labour in the economy is Lb +Lc = ¯ L. Initially productivity is the same in each sector so Ab = Ac = 1. Productivity grows at 2.5% per year in bread production and 0.5% per year in cheese production. Draw two graphs. In the ?rst, show the time path of the distribution of labour in each sector, bread and cheese. In the second graph, show the time path of the overall productivity growth rate for this economy. Hint: from chapter 8 recall that ˆ y= ˆ A,and considerthat the rate of productivity growth for the economy is just the sum of productivity growth by sector weighted by that sector’s share in output.

Reference no: EM131094594

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