Q 1. Given the following production function Where; Y is the total output of the economy K is the amount of land, and L is the labor force of the economy Assume A=1 and = 0.5 The initial values of K and L is 100 units. a. How much output does the economy produce? b. What are the wage and rental price of land? c. What share of output does land receive? d. If a flood damaged half of the land, what is the new level of output in the economy? e. What is the new level of wage and rent? f. What share of output does land receiving now?
Q 1. Given the following production function
Where;
Y is the total output of the economy
K is the amount of land, and
L is the labor force of the economy
Assume A=1 and = 0.5
The initial values of K and L is 100 units.
a. How much output does the economy produce?
b. What are the wage and rental price of land?
c. What share of output does land receive?
d. If a flood damaged half of the land, what is the new level of output in the economy?
e. What is the new level of wage and rent?
f. What share of output does land receiving now?
Q 2. Suppose in an economy, people hold currency worth of 10,000 Rs and 4000 Rs worth of
demand deposits in the only bank. The reserve-deposit ratio is 20%.
a. What is money supply, monetary base and money multiplier?
b. Suppose the economy only bank is a simple bank. It takes deposits and make loans and has no capital. Show the balance sheet of the bank.
c. The central bank wants to increase the money supply. Should it buy or sell the Govt bonds in the open market operation?
Step by step
Solved in 4 steps
