Suppose a country has a population of 120 people, a working-age population of 100 people, its labor force participation rate is 0.5 (50%), and the quantity of output is 60 units. Suppose that the production function of the economy is given by Y=2N, where Y represents the quantity of output and N represents the number of workers needed to produce the output.

Suppose the economy's production function is Y=AK0.3N0.7. If K = 2000, N = 100. Calculate the output level of the economy.

Sketch a production function relating output to labour input. Now imagine that the amount of capital per person increases, thanks to the government borrowing to invest in more capital. Use dotted lines on the same diagram to show the impact on (i) total output and (ii) the average product of labour. Explain your answer.    Imagine that the demographic response to a higher standard of living is strongly positive. Using a different colour of line on the same diagram, show how this demographic response to higher incomes would go on to affect incomes in the future.   The population is aware that the government borrowing required to finance this capital investment will need to be paid back via tax rises, so they respond by reducing their spending. Using a “Keynesian cross” framework and sketch diagram, model this response as a fall in autonomous consumption, c0.

Ecuador's economy has a production function that is as follows: Y = K2/5L3/5 The men in Ecuador generally stay home performing household chores while women work. Since the Ecuadorian state television stopped airing soap operas, many men decided to join the workforce and thus the labor force increased by 6.5%. However, recent storms have destroyed much of the capital stock of the country and thus the capital stock shrank by 2.5%. A. Assuming there is no change in total factor productivity in Ecuador, how would the output of Ecuador's economy change? B. How would labor productivity (output per worker) be affected by the increase in labor and decrease in capital stock? Explain. C. Assuming instead that Ecuador's economy grew by 4.9%, what would be the change in total factor productivity in the economy?