Econ#

Question 1

Cobb Douglas Production Function

Answer 1

Y = (A)[(K)^(alpha)][(L)^(1-alpha)]

A: TFP
K: qty of capital
L:qty of labor
alpha: %share of GDP paid out to capital

Question 2

Cobb Douglas Production Function:

Output per worker (Labor Productivity)

Answer 2

Y/L = (A)[(K/L)^(alpha)][(L/L)^(1-alpha)]

where K/L is the capital per worker or capital-labor ratio

Question 3

CDP: Profit Maximization

Answer 3

occurs when:
MPk = real IR, and
MPL = real wage rate

Question 4

Marginal product of capital

Answer 4

= (alpha)*(Y/K)

Question 5

Solow’s growth acctg equation

Answer 5

Output(g) = Technological chg(g) + (alpha)(Capital(g)) +(1-alpha)(labor productivity(g))

Elasticity of output with respect to capital & labor

Question 6

Growth rate in Potential GDP (Labor productivity method)

Answer 6

Potential GDP(g) = LT labour force(g) + LT labor productivity(g)

Question 7

Labour Supply

Answer 7

Total #hrs available for work = (Labor force)*(avg hrs worked per worker)

Question 8

Neoclassical model

Answer 8

(Y/K) output-capital is constant

(Y/K) = (1/s)(&/(1-alpha))+(@)+n

s: % of income saved
&: TFP(g)
alpha: elasticity of output to capital
@: constant rate of depreciation on physical stock
n: labor supply(g)

Question 9

Neoclassical model (steady state growth in outputs)

Answer 9

[&/(1-alpha)] + n

&: TFP(g)

alpha: elasticity of output to capital
n: labor supply(g)

Question 10

Neoclassical model (savings per worker)

Answer 10

= {[&/(1-alpha)] + @ + n}*k

Question 11

Steady state in Neoclassical Model over time

Answer 11

k and y grows at &/(1-alpha)

TFP grows at &