Question
(a) Oil prices have fallen by about a third since December of last year. Is this a positive or a negative aggregate supply shock for
(a) Oil prices have fallen by about a third since December of last year. Is this a positive or a negative aggregate supply shock for China, a net importer of oil? Use the labor market and the production function to predict the effects of lower oil prices on employment, output, and the real wage in China. (b) Because of a decrease in the working-age population, Chinese labor force is now shrinking (The Economist, Feb 23, 2019). How does this change your answers in (a) if at all? 2)In 1990, Costa Rica and Jamaica had similar saving rates (around 20% of GDP) and similar levels of income per capita (around $8,000 in 2005 dollars). In the 1990-2017 period, Costa Ricas saving rate remained around 20%, whereas Jamaicas fell below 5%. Assume that multifactor productivity increased the same in both countries over this period. (a) Use the Solow model to predict the effects on the steady-state income per capita for both countries and compare. (b) In 2017, income per capita had risen to around $15,500 in Costa Rica, but was still $8,000 in Jamaica. Is this consistent with your theoretical predictions from (a)?
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