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(53 points) Let's continue with question 2 from end-of-chapter 7 problems and appli- cations in Mankiw. Assume that the German /Japanese economy is in the
(53 points) Let's continue with question 2 from end-of-chapter 7 problems and appli- cations in Mankiw. Assume that the German /Japanese economy is in the steady state from year 1 until year 10. Its aggregate production function is Y = F(K, L) = VKL. The growth rate in labor force equals 2%, the amount of labor at time 1 equals 500, the depreciation rate equals 10%, and the savings rate equals 12%. In year 11, a negative shock occurs to the economy so that the labor force becomes half of its size in year 10. Aggregate capital, however, in year 11 is of the same size as in year 10. Use a spreadsheet with time in the first column (record at least years 1 to 20), capital per worker (k) in the second column, aggregate labor (L) in the third column, aggregate capital (K) in the fourth column, aggregate output (Y) in the fifth column, change in capital per worker (Ak) in the sixth column, and the percentage change in aggregate output (AY/Y) in the seventh column. Submit your spreadsheet and answer the following questions. (a) (10 points) Write down the values of k, y, L, K, Y in year 10, prior to the shock. (b) (10 points) Submit a graph, using the ratio/logarithmic scale with base 5, for total output Y in periods 1 through 20 so that the minimum value on y-axis is 100. (c) (4 points) Write down the percentage change in total output in year 11, 12, 13, and 20. (d) (24 points) Assume now instead that the depreciation rate is 20% and answer questions (2b)(2c). (e) (5 points) Comment on how the growth rate of total output changes after the shock and how it compares for different depreciation rates. What will it be in the very long run for different depreciation rates? (53 points) Let's continue with question 2 from end-of-chapter 7 problems and appli- cations in Mankiw. Assume that the German /Japanese economy is in the steady state from year 1 until year 10. Its aggregate production function is Y = F(K, L) = VKL. The growth rate in labor force equals 2%, the amount of labor at time 1 equals 500, the depreciation rate equals 10%, and the savings rate equals 12%. In year 11, a negative shock occurs to the economy so that the labor force becomes half of its size in year 10. Aggregate capital, however, in year 11 is of the same size as in year 10. Use a spreadsheet with time in the first column (record at least years 1 to 20), capital per worker (k) in the second column, aggregate labor (L) in the third column, aggregate capital (K) in the fourth column, aggregate output (Y) in the fifth column, change in capital per worker (Ak) in the sixth column, and the percentage change in aggregate output (AY/Y) in the seventh column. Submit your spreadsheet and answer the following questions. (a) (10 points) Write down the values of k, y, L, K, Y in year 10, prior to the shock. (b) (10 points) Submit a graph, using the ratio/logarithmic scale with base 5, for total output Y in periods 1 through 20 so that the minimum value on y-axis is 100. (c) (4 points) Write down the percentage change in total output in year 11, 12, 13, and 20. (d) (24 points) Assume now instead that the depreciation rate is 20% and answer questions (2b)(2c). (e) (5 points) Comment on how the growth rate of total output changes after the shock and how it compares for different depreciation rates. What will it be in the very long run for different depreciation rates
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