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6. (25 points) Assume that the Ukrainian economy is in the steady state from year 1 until year 10. Its aggregate production function is
6. (25 points) Assume that the "Ukrainian" economy is in the steady state from year 1 until year 10. Its aggregate production function is Y = F(K,L) = KL. The growth rate in labor force equals 10%, the amount of labor at time 1 equals 500, the depreciation rate equals 10%, and the savings rate equals 20%. In year 11, due to of a war the capital stock drops to half of its size in year 10. Assume that the war does not affect the size working population and its growth. 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) (1 point) Comment on how the growth rate of total output changes after the shock and state what it will be in the very long run.
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