I already have the answer for Q*3&4 I just need help with Q*5

3) Assume that the production function is given byY = A K.4L.6Where Y = National Income = GDP, K = 100, L= 400 and A = 10.

Assume that both capital (K) and labor (L) are paid their marginal products.

1. What is National Income (Y)?
2. Derive the equation for the marginal product of labor (MPL).
3. What is the numerical value of the real wage rate?
4. Derive the equation for the marginal product of capital (MPK). What is the
5. numerical value of the real rental price of capital?
6. Calculate total labor income and what share of output does this represent?
7. Calculate total capital income and what share of output does this represent?

Response:

a)

Y=2,297.4

b)

MPL=6 K^0.4L^-0.4

c)

Real wage rate=$3.45

d)

MPK=4K^-0.6L^0.6

Real rental price=$9.19

e)

Total labour income=$1,380

Share of output=60%

f)

Total capital income=$919

Share of output=40%

4)Using the information presented in question No.3, suppose a plague kills half of the population.

a. What is the new level of output?

b. What are the new real wage rate and real rental price of capital? c. What share of output does labor receive now?

Response:

a) New Y=1,515.72

b)

Real wage rate=$4.55

Real rental price=$6.06

c)

Share of output of labour=60%

**5) Referring to question No. 4

(a) What will be the impact on private saving (Sprivate), public saving (Spub), national saving (S), and the equilibrium interest rate?NO Math. Use diagrams of the appropriate markets to support your answer-a MUST on the exam.

(b) What will be the impact on real interest rate and investment?No Math. Use diagrams of the appropriate markets to support your answer-a MUST on the exam.