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Home Work # 6 - Assignment Example

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On the long run, the quantity of the capital per worker and the output per worker which had undergone changes during the natural disaster finally go back to normal, at their levels before the occurrence of the natural disaster. This is because, during the reconstruction…
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Home Work # 6
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Home Work # 6

Download file to see previous pages... Therefore, an economy undergoes a rapid recovery period which is accompanied by technological advancement. Resources are allocated towards the reconstruction of the damaged capital stock such as foreign aid and human capital. In the short run the aggregate output will grow at a higher rate than the growth rate of the labour force due to the increased savings and foreign aid which pushes the recovery of the capital growth rate back to normal.
d) After world war two, the real GDP in Germany and Japan grew steadily due to the period of technological advancement and reconstruction. During the recovery period, the technology in these countries grew at a faster rate leading to the faster growth of effective labour which is translated into their real GDP.
6. With the rise in depreciation, the equilibrium steady-state capital-labour ratio declines.as a result, output per worker becomes lower and that leads to lower consumption of the same worker. This is based on the assumption that the capital-labour ratio is not very high in that an increase in k can reduce consumption of the worker. On the long run, there are no effects on the growth rate of the total capital stock. This is due to the fact that, in the long run, the capital stock should grow at the same rate as the labor rate growth is and therefore the capital-labour ratio remains constant.
7a) The government purchases per worker are indicated by IS at the inintial time, as the government purchases more, the IS curve shifts to IS2 curve which goes up and further to the right of the curve. This shows the increase in both the government spending and also the increase in the interest rate of the government revenue.
b). if the government increases g, it will lead to reduction in the savings of the government and therefore capital per worker increases due to increased savings, output per ...Download file to see next pagesRead More
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