Alwyn Young wrote a paper published in 2005 in which he studies the macroeconomic consequences of the horrible tragedy of AIDS in sub-Saharan Africa. Answer the following questions, motivated by his research (there is no need to read the paper in order to complete this exercise).

1. In the production function approach we studied in class, we noted that the wage rate is equal to the marginal product of labor. Write the mathematical expression of this statement. That is, write the wage as a function of capital, labor, and the TFP parameter.

2. Young estimates that AIDS may eventually kill 25 percent of the population in some of the poorest countries of the world. Assuming TFP and the amount of capital are unchanged by the epidemic, by how much would the wage rate change as a consequence of AIDS.

3. Discuss your result. Why does the wage rate change? Why is the effect larger or smaller in magnitude than 25 percent? In what sense is there a “gift of the dying,” to use Young’s evocative title?

4. In a paragraph or less, discuss any questions you may have regarding this result.