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6. Go back to the same example from question 5, just above. Consumers in the economy like two goods: pizza and beer. Prices and quantities consumed are the same as before: Year Price of Pizza Quantity of Pizza Price of Beer Quantity of Beer 2009 $2 $1 2010 $2 ANN 2011 $4 $2 As a first step in computing the consumer price index (CPI), the Bureau of Labor Statistics surveys consumers to determine the "basket of goods" purchased by a typical consumer. Suppose that the BLS chooses 2009 as its base year and, consistent with the data shown in the table, decides that the basket of goods in this economy should consist of one pizza and two beers. a. What is the cost of the basket in each year: 2009, 2010, and 2011? b. Still using 2009 as the base year, what is the CPI in each year: 2009, 2010, and 2011? c. What is the inflation rate in 2010 and 20117 7. In the mid-1920s, the American author F. Scott Fitzgerald wrote a somewhat comical article for the Saturday Evening Post magazine titled, "How to Live on $36,000 a Year," in which he explained how he and his wife managed to spend their entire annual income of $36,000 without saving anything. a. In the mid-19205, the consumer price index was around 18; in 2010, the CPI was around 225. Using these figures, calculate how much Fitzgerald's income would be worth in 2010's dollars. b. More recently, Forbes magazine published a list of the highest paid authors, showing that J.K. Rowling, author of the Harry Potter books, earned $10 million in 2010. After adjusting for the effects of inflation, who earned more: Fitzgerald or Rowling? 8. In each case, please indicate whether the statement is true of false (you don't need to explain why).Solow-Swan Growth Model 1. Solow model as we have specified in our class: write down 5 endogenous variables, 5 equations, and exogenous variables/parameters of the Solow model. Show and explain how the system of five equations can be reduced into one equation in understanding economic growth in this model economy. (Hint: What is the equation we use to draw the Solow-diagram?) (10 points) 2. Based on the equation you got from the question 1, draw the Solow-diagram. Be sure you clearly label each axis. Be sure to clearly indicate which part of graph comes from which part of equation. (8 points)Part C Human Capital and the Romer Model Consider the following standard Homer Model and a variation that includes human capital. Human Capital Goods Production Function K: = .4th Ideas Production Function AAH1 = iAgH 1L.\" Human Capital Production Function Ht : Lb; Resource Constraint Allocation of Labour 1. Explain what using labour to produce human capital implies for the economy? 2. Solve for the balanced growth path of output per capita in both models, showing all working. 3. Does the inclusion of human capital increase the rate of growth compared to the standard model? What is the impact on output in the short and long run? 6. The Mankiw-Romer-Weil (1992) model. As mentioned in this chap- ter, the extended Solow model that we have considered differs slightly from that in Mankiw, Romer, and Weil (1992). This problem asks you to solve their model. The key difference is the treatment of human capital. Mankiw, Romer, and Weil assume that human capi- tal is accumulated just like physical capital, so that it is measured in units of output instead of years of time. Assume production is given by Y = KoHB(AL)1-@-8, where a and B are constants between zero and one whose sum is also between zero and one. Human capital is accumulated just like physical capital: H = SHY - 8H.Consider the standard Solow growth model. Let productiv'rty be denoted lay A and let the production function be Y=A F{K,N]. For Simplicity, assume that there is no population growth [n={l so that N' = N}. let depreciation be denoted by d and the savings rate by s. a] Derive the per capita capital accumulation equation for k: K! N and the steady state level of capital per worker, ??\"ss . Please show the details of your derivation to earn points. Draw the Solow model graph showing the savings line and the depreciation line and marking the steady state level of k. b] Now, consider the \"AK model\" with production function '9? = 'E'??? , where A is the exogenous productivity level. Again, assume that there is no population growth in the economy. Follow the similar steps in part a. to derive the capital accumulation equation in terms of capital per capita ??. c} Ea sed on the equations you derived in part b, draw a graph similar to that of the Solow growth model to show the steady state of the model in part b. If you cannot nd such a steady state, please explain why. d} . Recall that Solow growth model implies convergence in capital per capita. Does the model in part b has this feature? Consider the standard Solow growth model. Let productiv'rty be denoted lay A and let the production function be Y=A F{K,N]. For Simplicity, assume that there is no population growth [n={l so that N' = N}. let depreciation be denoted by d and the savings rate by s. a] Derive the per capita capital accumulation equation for k: K! N and the steady state level of capital per worker, ??\"ss . Please show the details of your derivation to earn points. Draw the Solow model graph showing the savings line and the depreciation line and marking the steady state level of k. b] Now, consider the \"AK model\" with production function '9? = 'E'??? , where A is the exogenous productivity level. Again, assume that there is no population growth in the economy. Follow the similar steps in part a. to derive the capital accumulation equation in terms of capital per capita ??. c} Ea sed on the equations you derived in part b, draw a graph similar to that of the Solow growth model to show the steady state of the model in part b. If you cannot nd such a steady state, please explain why. d} . Recall that Solow growth model implies convergence in capital per capita. Does the model in part b has this feature