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Student Number:250721755
Econ Assignment #4
Question 1
1.
2.
3.
4.
5.
True
True
True
True
False : If the government where to institute something like the one-child-only
policy introduced in China, this would have the effect of reducing the rate of
population growth for each level of consumption per worker. The function
G1(c) shifts down to G2(c) as the result of the population control policy In the
stead state consumption per worker increases from C1 to C2
G1(c)
G2(c)
1
N/N
C1
6.
Student Number:250721755
Econ Assignment #4
Question 2
i.
em ( xQ , xA )=xem ( Q , A )
em (Q , A )=0.8Q 0.5 A 0.5
0.5
0.5
em ( xQ , xA )=0.8 ( xQ ) ( xA ) =x0.8 Q
0.5
0.5
j= A / Q
Pc
M
=e j 1 y =Pc . Labor market tightness is therefore positively related to the
Q
probability of a working finding a job. As j increases, so does Pc, the
probability of finding a job.
iii.
Match surplus is the total gain from coming to an agreement on the wage
bargaining. The surplus is defined to be the difference between the benefit
they achieve in agreement and the alternative they have when they cannot
agree.
The total match surplus is the sum of the worker-side match surplus and the
firm-side match surplus:
( wb ) + ( zw ) =zb
Let a represents the bargaining power of the worker, then
w b=a (zb)
Solving this equation for the wage
w =az+ ( 1a ) b
iv.
v.
pf =
M
Q
=e
A
A
A
A
1 y
( )( )
=e
1
j
()
vi.
Student Number:250721755
When forming a job match, the firm produces the output z from the filled
vacancy while paying the wage w to the worker and the vacancy cost k. If
firms are unsuccessful in filling a vacancy, the firms produce nothing and just
pay the vacancy cost k. Therefore, the expected profit from posting a job
vacancy is given by:
pf ( zwk ) + ( 1 p f ) (k )= p f ( zw ) k=e
vii.
Econ Assignment #4
1 (
zw )k
j
()
condition which is
1 y
k
=
j
( 1a ) ( zb )
()
After finding j one can determine Q, the number of job searchers, using the
consumer optimality condition.
( 1, j ) a(z b)
V (Q )=b+ em To solve for Q we fix j and
viii.
1 y
k
e
=
j
( 1a ) ( zb )
1 Y
k
=
j
e ( 1a )( zb )
()
k
j=
e ( 1a )( zb )
()
] [
1
y
e ( 1a )( zb )
=
k
1
k
=
j e ( 1a )( zb )
1
y
1
y
( 1, j ) a( z b)
V (Q )=b+em ,
Now fixing j and taking the inverse we have
Q=v1 [ be j 1 y a ( zb ) ]
u=
Q ( 1Pc )
Q
=1P c =1e j 1 y
Student Number:250721755
Econ Assignment #4
Question 3
i.
'
K szF ( K , N ) ( 1d ) K
=
+
N
N
N
k ' ( 1+ n )=szf ( k ) + ( 1d ) k
k=
szf ( k ) ( 1d ) k
+
1+ n
1+n
k'=
0.1 k
0.92 k
+
1.02
1.02
'
0.4
Capital per capita evolves over time according the formula in bold above
based on the assumptions that z=1,s=0.1,n=0.02, and d=0.08, eventually
resulting in a steady state.
i.
ii.
iii.
Yes there is a tendency for convergence. The initial difference in capital per
worker is 1, however at period 100 the difference is less than 0.0024. This
suggests that in the long run, if z, n, d and s are the same for rich and poor
countries, they will eventually end up with the same capita per worker.
iv.
szf ( k )=( n+ d ) k
k =1
0.1 f ( k ) =0.1 k
0.4
0.1 k =0.1 k
v.
vi.
Student Number:250721755
0.31f ( k ) =0.1 k
Econ Assignment #4
0.4
0.3 k =0.1 k
0.4