1. Suppose the share of GDP that goes to capital is 0.30 while the share that goes to labour is 0.70.

Total factor productivity grows at a rate of 1.5 percent per year, population grows at a rate of 1.1

percent per year and total output grows at a rate of 4.3 percent per year. What is the rate of capital

per worker?

2. Why does the Federal Bank increase the supply of reserves when output rises if it is targeting the

federal fund rate? What would happen to the federal fund rate if output rose and the Federal Bank

held the supply of reserves fixed?