Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 6, Problem 6RQ
To determine
To evaluate: Whether the given statement is false or true.
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The determinants of productivity
Consider a simple economy whose only industry is fishing. In this industry, productivity—the amount of goods and services a worker can produce per hour—is measured by the number of fish one fisherman catches per hour.
In the following table, match each example to the productivity determinant it represents.
Examples
Human Capital per Worker
Natural Resources per Worker
Physical Capital per Worker
Technological Knowledge
The fertile waters in which the fish feed and breed
An advanced mapping system that determines the likelihood of finding fish schools in different depths and locations
The skills workers develop through training before working on and piloting boats
The boats in the fishing fleet
Write the production function in its simplest form (human capital being included in TFP) and explain the nature of each factor as well the theoretical value of the parameter Alpha. In other words what does the value of Alpha represent regarding the returns of each factors of production?
Is the following statement true, false, or uncertain?
A one-time increase in the amounts of capital and labor that leaves capital per person unchanged has no effects on the levels of output or output per person in the short run or in the steady state.
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- What is the effect of an increase in total factor productivity on steady state population and consumption per worker in the Malthusian model?arrow_forwardMany countries, including Pakistan, import substantial amounts of goods and services from other countries. However, economists claim that a country can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts? (Maximum 100 words). Given the production function Y= AF (L, K, H, N), explain the determinants of productivity. ( Maximum100 words). Population growth has a variety of effects on productivity. Explain this statement and justify your answer. (Maximum 200 words).arrow_forwardGiven a closed economy where there is no public sector. Production in the economy can be described by the following production function:Y = F (K, AL) = K^α (AL)^(1−α)where Y is the productive capacity of the economy, K is the capital stock, L is the labor force, and A is knowledge. Think of AL as a single factor of production where knowledge and the amount of labor are multiplied together. Let's call the multiplier (AL) the efficiency of labor. It is given that A = 1.5 and saving is a fixed percentage of production, or s = 33%. The capital stock shrinks by 3% per year, but the population growth is zero. Finally, α = 0.4.Answer the following questions based on the above criteria. (a) Show mathematically that the marginal productivity of labor and capital is positive but diminishing. Explain in words and with a picture what the term positive but diminishing marginal productivity means. (b) Show mathematically that saving and investment are equivalent in a closed economy (c) Show…arrow_forward
- Q4: a; Many countries, including Pakistan, import substantial amounts of goods and services from other countries. However, economists claim that a country can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts? ( Maximum 100 words). b: Given the production function Y= AF (L, K, H, N), explain the determinants of productivity. ( Maximum100 words). c: Population growth has a variety of effects on productivity. Explain this statement and justify your answer. (Maximum 200 words).arrow_forwardWrite the production function in its simplest form (human capital being included in TFP) and explain the nature of each factor of production.arrow_forwardwhy the Nobel Prize in Economics in 2020 was awarded to Paul Milgrom and Robert Wilsonarrow_forward
- Which one is true? labor productivity will be higher when the capital stock is larger and the rate of change in labor productivity remains the same as capital stock goes up. labor productivity will be higher when the capital stock is larger and the rate of change in labor productivity increases as capital stock goes up. labor productivity will be lower when the capital stock is larger and the rate of change in labor productivity remains the same as capital stock goes up. labor productivity will be higher when the capital stock per worker is larger but the rate of change in labor productivity will eventually decrease as capital stock per worker goes up.arrow_forwardSpending four years in college in order to improve your employment opportunities and obtain a higher income in the future is the most comparable to producing relatively more capital goods and relatively fewer consumer goods. Explain why.arrow_forwardConsider an economy described by the production function Y=F(K, L)=?^0.4?^0.6 A) What is the per-worker production function?B) Assuming no population growth or technological progress, find the steady-state capital stock per worker, output per worker, and consumption per worker as a function of the saving rate and the depreciation rate.arrow_forward
- Why are many people now living at the highest level of material prosperity in history? Is this level of consumption sustainable? How can we consume less while improving our quality of life?arrow_forwardChoose the following option: Q#3) Consider the U.S. economy during two historical periods. The first is from 1870 to 1980 – the era of integrated steel and car production, with coal mines, steel mills and car factories. The second is from 1980 until today – 2020 – the era of computing and biotechnology, with software, artificial intelligence and lab research. A major shift in the sources of labor productivity growth occurred that reflect a greater emphasis on: (a) tangible physical capital (b) intangible knowledge capital Q#4) Consider a poor country with an under-developed economy which could invest trillions into its current capital stock – either moving “up” its current productivity “curve” (PC) or shifting to a new and higher productivity (PC) curve. Which approach is likely best for increasing the country’s living standards (Real GDP Per Person) through time?…arrow_forwardWhat happens in the steady state to the capital-labor ratio, output per worker, and consumption per worker when each of the following events occur? You should assume that the steady-state capital- labor ratio is below the Golden Rule level. k y C a) Productivity falls b) Population growth falls c) The saving rate falls d) The depreciation rate fallsarrow_forward
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