Modern Principles: Macroeconomics
Modern Principles: Macroeconomics
4th Edition
ISBN: 9781319098773
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
Question
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Chapter 8, Problem 19TPS

Sub part (a):

To determine

The trade-off and whether 100 percent of people who work to make new ideas is a good move.

Sub part (a):

Expert Solution
Check Mark

Explanation of Solution

The ideas comes from the inventors. They invents the new ideas and make them applicable to the producers. The producers make use of the ideas and produce higher output. When 100 percent of the people make new ideas, then there will be no one left in the economy to make them applicable and produce the output for the economy.

Thus, there should be some workers at least to operate the machineries in the factories and produce the output. Therefore, 100 percent people who work to make new ideas is not applicable in an economy.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (b):

To determine

When people are ready to wait for long periods for reward, large R or small R should be chosen.

Sub part (b):

Expert Solution
Check Mark

Explanation of Solution

The new inventions will increase the productivity of the economy. When the percentage of people working to bring new ideas increases, the output also increases but in long run. This is because, the proportion of workers who produce output becomes lower. When the portion of R is lower, there are more workers to work in factories and offices which swiftly increases the GDP of the economy.

Thus, when the people are ready to wait for long period to get their rewards, the portion of R chose will be large.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (c):

To determine

GDP of the society for 5 years.

Sub part (c):

Expert Solution
Check Mark

Explanation of Solution

The GDP is the money value of all the final goods and services produced in the economy. Here, it is given that A starts off with 100, L starts off with 100 and R is 10 percent. The formula to calculate the A value for the present year is given as follows:

At+1=(1+R)×At

Thus, by substituting the values in the equation gives the value of A in each year as follows:

A2=(1+0.10)×100=1.1×100=110

The value for A in year 2 is 110. Similarly, the value can be calculated for all other years and tabulated as follows:

Year Value of A
1 100
2 1.1×100=110
3 1.1×110=121
4 1.1×121=133
5 1.1×133=146

The equation to calculate the GDP is given as follows:

Yt=(1R)×AtL

Thus, by substituting the values in the equation, the GDP of the economy can be calculated as follows:

Y1=(10.10)×(100×100)=0.9×10,000=9,000

Thus, the GDP of the economy for the first year is 9,000. Similarly, the GDP for all other 4 years can be easily calculated by changing the values of A and L for respective years.

Year A Y Y/L
1 100 0.90×10,000=9,000 9,000100=90
2 110 0.90×11,000=9,900 9,900100=99
3 121 0.90×12,100=10,890 10,890100=109
4 133 0.90×13,310=11,980 11,980100=120
5 146 0.90×14,600=13,200 13,200100=132

The GDP values are approximate and they are rounded off to the nearest round figures.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (d):

To determine

GDP of the society for 5 years when R is 20 percent.

Sub part (d):

Expert Solution
Check Mark

Explanation of Solution

The GDP is the money value of all the final goods and services produced in the economy. Here, it is given that A starts off with 100, L starts off with 100 and R is 20 percent. The formula to calculate the A value for the present year is given as follows:

At+1=(1+R)×At

Thus, by substituting the values in the equation gives the value of A in each year as follows:

A2=(1+0.20)×100=1.2×100=120

The value for A in year 2 is 120. Similarly, the value can be calculated for all other years and tabulated as follows:

Year Value of A
1 100
2 1.2×100=120
3 1.2×120=144
4 1.2×144=173
5 1.2×173=207

The equation to calculate the GDP is given as follows:

Yt=(1R)×AtL

Thus, by substituting the values in the equation, the GDP of the economy can be calculated as follows:

Y1=(10.20)×(100×100)=0.8×10,000=8,000

Thus, the GDP of the economy for the first year is 9,000. Similarly, the GDP for all other 4 years can be easily calculated by changing the values of A and L for respective years.

Year A Y Y/L
1 100 0.80×10,000=8,000 8,000100=80
2 110 0.80×12,000=9,600 9,600100=96
3 121 0.80×14,400=11,520 11,520100=115
4 133 0.80×17,280=13,824 13,824100=138
5 146 0.80×20,736=16,600 16,588100=165

The GDP values are approximate and they are rounded off to the nearest round figures.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

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