Question

6. Consider a closed-economy market-clearing model with the following pro-\duction function: $F(K, L) = AK^{1/4}L^{3/4}$, where $K$ denotes capital, $L$ denotes labor, and $A > 0$ is referred to as total\factor productivity. Assume the supply of capital increases by 20%. Calculate\the resulting percentage change in the output, in the real wage, and in the real\rental rate. [In answering this question, you are allowed to use the approxima-\tions regarding percentage changes; see slide 4 of the math review (slide set\2)]. 7. Consider the following closed-economy market-clearing model (notation\as in class).

          6. Consider a closed-economy market-clearing model with the following pro-\duction function:
\(F(K, L) = AK^{1/4}L^{3/4}\),
where \(K\) denotes capital, \(L\) denotes labor, and \(A > 0\) is referred to as total\factor productivity. Assume the supply of capital increases by 20%. Calculate\the resulting percentage change in the output, in the real wage, and in the real\rental rate. [In answering this question, you are allowed to use the approxima-\tions regarding percentage changes; see slide 4 of the math review (slide set\2)].
7. Consider the following closed-economy market-clearing model (notation\as in class).

$6. Consider a closed-economy market-clearing model with the following pro-function: F(K, L) = AK^1/4L^3/4, where K denotes capital, L denotes labor, and A > 0 is referred to as totalproductivity. Assume the supply of capital increases by 20%. Calculate\the resulting percentage change in the output, in the real wage, and in the real\rental rate. [In answering this question, you are allowed to use the approxima-\tions regarding percentage changes; see slide 4 of the math review (slide set\2)]. 7. Consider the following closed-economy market-clearing model (notationin class).$

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