Consider the simple (one-period) production model. The production function is Cobb-Douglas, exhibits constant returns to scale, and the exponent on capital equals 0.50. Suppose also that all households in the economy are composed of two adults so that household income is the sum of the wages received by both adults in the family. Suppose also that all households have young children.

In year 2019 (initial equilibrium), the economy's parameter values were A=500, K=600 and L=300? Compute the equilibrium wage and household income. Pick the correct statement below.

Household income will be roughly equal to 708.

Household income will be roughly equal to 354.

Household income will be roughly equal to 250.

Household income will be roughly equal to 488.

In year 2020 (final equilibrium), the government shuts down in-person schools and all children have to stay home and switch to remote learning. As a result, one parent in each household with young children quits the labor force to care for his/her children. Suppose that the economy's parameter values are now A=500, K=600 and L=250. Compute the equilibrium wage and pick the correct statement below.

Household income will be roughly equal to 387.

Household income will be roughly equal to 554.

Household income will be roughly equal to 775.

Household income will be roughly equal to 262.

What is the change in overall GDP between the two years?

An 8% reduction.

A 5% reduction.

A 5% increase.

An 8% increase.

Draw diagram for the capital market. Depict the initial equilibrium as point A and the final equilibrium as point B. Make sure you label the curves and axes carefully. Which of the statements below is correct?

The demand for capital will shift to the right and the supply will stay the same.

Both the supply and the demand will shift to the left.

The demand for capital will shift to the left and the supply will stay the same.

Both the demand and the supply will shift to the right.

PAGE 4. Draw the diagram corresponding to the questions in this section. Make sure you label equilibrium points A (year 2019) and B (year 2020). Include also a short written description . Initialize and upload a picture.

Explain the Diagram please.