ECO102 Tutorial 09

#tk these two long answers will be on the midterm

ECO102 - Week 08.pdf
Part 2

• Potentially ae and nx shift
• long run aggregate supply
• Solow growth
• 1 (2 on the pdf)
  • Break-even
    • $\sigma k^{\alpha }=(\delta +LFG+TP)k$
    • $\sigma =0.6$
    • $\alpha =\frac{1}{2}$
    • $(0.6)k^{\frac{1}{2}}=(0.05+0.1+0.15)k$
    • $0.6k^{\frac{1}{2}}=0.3k$
    • $k=4.0$
  • GDP Per Effective Worker
    • $y=k^{\alpha }$
    • $y=(4.0{)}^{\frac{1}{2}}=2.0$
    • Answer 1
  • GDP grows at $x$ percent per year
    • When we're at steady state, GDP can grow by:
      • Technological progress $TP$
      • Labour force growth $LFG$
    • $TP+LFG=0.15+0.1=0.25$
    • Answer 2
  • GDP per capita grows at $x$ percent per year
    • Solow says GDP per worker can only grow at the rate of technological progress $TP$
    • $TP=0.15$
    • Answer 3
  • GDP per effective worker grows at $x$ percent per year
    • It will grow at steady state at 0 percent per year always.
    • Answer 4
  • Savings:
    • $S=0.6\sqrt{k}$
    • $S=0.6\sqrt{4}=1.2$ is our savings
  • Assume $A$ is one in the production function, then $Y=K^{\alpha }{L}^{1-\alpha }$
• 2 (6 on the pdf)

  • (ECO102 - Week 08, p.4)

  • An AS/AD economy is in long-run equilibrium with w0 = 200, AD = 300 – 0.25p and AS0 = 0.25p – w + 200. Net immigration increases and AS1 = 0.75p – w + 200. Provide an AS/AD/LAS diagram that illustrate and quantify the impact of this shock as a file upload. Show equilibria A, C and D.

  • A initial,
  • C short run
  • D long run
  • Basically ECO101 supply and demand.
  • Bundle A:
    • $AS=AD$
    • $0.25p-w+200=300-0.25p$
    • With $w_0=200$
    • $0.25p-200+200=300-0.25p$
    • $p=600.0$
    • $y=0.25(600)=150.0$
  • Bundle C:
    • New supply.
    • $AS=AD$
    • $0.75p-w+200=300-0.25p$
    • With $w_0=200$
    • $0.75p-200+200=300-0.25p$
    • $p=300.0$
    • $y=0.75(300)=225.0$
  • Bundle D:
    • A little different.
    • Make the output $p=600$ by shifting new aggregate supply curve using $w$
    • Set $AS=AD$
    • Bundle A: $y=150$ and $p=600$
    • $300-(0.25)(600)=(0.75)(600)-w+200$
    • $w=500.0$
    • $A{S}_2=0.75p-500+200=0.75p-300$