Question
2. (30 points) Provide short answers to each question below. (a) (10 points) Which one of the three hypothesesculture, geography, or institutions has the most
2. (30 points) Provide short answers to each question below. (a) (10 points) Which one of the three hypothesesculture, geography, or institutions has the most support in the data as the main driver of economic prosperity among the world economies? Briefly explain. (b) (5 points) Suppose we observe the following growth rates in various economies. A European economy: g(w) = 0.03, g(K/Y ) = 0, g(L) = 0.01, g(Y ) = 0.04. 1 A Latin American economy: g(Y/K) = 0.01, g(L) = 0.02, g(Y ) = 0.03. An Asian economy: g(K/Y ) = 0.09, g(L) = 0.03, g(K) = 0.18. Using the data above, discuss whether or not each economy is on its balanced growth path. (c) (5 points) For each economy above compute the growth rate of TFP, assuming that the share of capital in total income equals 1/3 and production function is Cobb-Douglas with constant returns to scale in capital and labor. (d) (10 points) Let the ratio of capital per worker to output per worker in Portugal be 1 and in the U.S. 4. Assume that production function for the U.S. and Portugal is Cobb-Douglas, constant-returns-to-scale in capital and labor, with the share of capital costs in total income being equal to 1 3 . Calculate the real interest rate in Portugal and U.S. assuming the depreciation rate is 5% in both countries and the factor markets are competitive.
2. (30 points) Provide short answers to each question below. (a) (10 points) Which one of the three hypotheses - culture, geography, or institutionshas the most support in the data as the main driver of economic prosperity among the world economies? Briefly explain. (b) (5 points) Suppose we observe the following growth rates in various economies. A European economy: g(w)=0.03,g(K/Y)=0,g(L)=0.01,g(Y)=0.04. 1 A Latin American economy: g(Y/K)=0.01,g(L)=0.02,g(Y)=0.03. An Asian economy: g(K/Y)=0.09,g(L)=0.03,g(K)=0.18. Using the data above, discuss whether or not each economy is on its balanced growth path. (c) (5 points) For each economy above compute the growth rate of TFP, assuming that the share of capital in total income equals 1/3 and production function is Cobb-Douglas with constant returns to scale in capital and labor. (d) (10 points) Let the ratio of capital per worker to output per worker in Portugal be 1 and in the U.S. 4. Assume that production function for the U.S. and Portugal is Cobb-Douglas, constant-returns-to-scale in capital and labor, with the share of capital costs in total income being equal to 31. Calculate the real interest rate in Portugal and U.S. assuming the depreciation rate is 5% in both countries and the factor markets are competitive. 2. (30 points) Provide short answers to each question below. (a) (10 points) Which one of the three hypotheses - culture, geography, or institutionshas the most support in the data as the main driver of economic prosperity among the world economies? Briefly explain. (b) (5 points) Suppose we observe the following growth rates in various economies. A European economy: g(w)=0.03,g(K/Y)=0,g(L)=0.01,g(Y)=0.04. 1 A Latin American economy: g(Y/K)=0.01,g(L)=0.02,g(Y)=0.03. An Asian economy: g(K/Y)=0.09,g(L)=0.03,g(K)=0.18. Using the data above, discuss whether or not each economy is on its balanced growth path. (c) (5 points) For each economy above compute the growth rate of TFP, assuming that the share of capital in total income equals 1/3 and production function is Cobb-Douglas with constant returns to scale in capital and labor. (d) (10 points) Let the ratio of capital per worker to output per worker in Portugal be 1 and in the U.S. 4. Assume that production function for the U.S. and Portugal is Cobb-Douglas, constant-returns-to-scale in capital and labor, with the share of capital costs in total income being equal to 31. Calculate the real interest rate in Portugal and U.S. assuming the depreciation rate is 5% in both countries and the factor markets are competitive
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