1.8 Suppose that investment as a fraction of output in the United States rises permanently from 0.15 to 0.18. Assume that capital’s share is 1/3
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The initial investment as a fraction of output is 0.15, and the new investment as a fraction of output is 0.18. Show more…
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Suppose that investment as a fraction of output in the United States rises permanently from 0.15 to $0.18 .$ Assume that capital's share is $\frac{1}{3}$ (a) By about how much does output eventually rise relative to what it would have been without the rise in investment? (b) By about how much does consumption rise relative to what it would have been without the rise in investment?
Suppose that an economy's production function is Cobb-Douglas with parameter α = 0.3. a. What fractions of income do capital and labor receive? b. Suppose that immigration increases the labor force by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? c. Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? d. Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?
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In Country 1 the rate of investment is 5%, and in Country 2 it is 20%. The two countries have the same levels of productivity, A, and the same rate of depreciation, d. Assuming that the value of a is 1/3, what is the ratio of steady-state output per worker in Country 1 to steady-state output per worker in Country 2? What would the ratio be if the value of a were 2/3?
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