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2) Suppose your economy reports the following capital (K) and labor (N) inputs for four years. 250 300 1,200 b The production function in this

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2) Suppose your economy reports the following capital (K) and labor (N) inputs for four years. 250 300 1,200 b The production function in this economy is given as Y = K0'3NU'7 where Y is total output. Use algebra to check whether this economy has constant, increasing, or decreasing returns to scale. (6 points) Calculate total output, the capital-labor ratio, and output per worker in each year. (6 points} What is the average annual growth rate of capital, labor, and total output? (6points) Derive an expression for the per worker form of the production function. (6 points) What is the average annual growth rate of the real wage and of total payments to labor? Is this fair according to the classical model? Explain! (6 points) Derive the capital demand schedule. (6 points) Now assume in year 1 that the price level is equal to 1 and the government imposes a tax on capital earnings of 25%. Calculate what happens to capital, output and the earnings of labor. ls income distribution affected? (6 points)

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