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Economics assignment

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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.

factors that influence total productivity according to the Solow Growth Model.

In the endogenous growth model however, two identical countries that differ

only in their initial incomes will never converge.

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

ii.

to potential employees Q.

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.

The job filling probability is

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

Finally, for unemployment, either an individual finds a job or they do not. The

sum of who do find a job, divided by all individuals in the labor force gives up

the unemployment rate.

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

Consumption has increased. The increase in the savings rate is improving.

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