Problem 4: Production and Growth: please answer parts A, B, and C accordingly.

Problem 4: Production and Growth (20 points) (A) (4 points) New government regulations put a maximum limit on the number of hours a person can work and make it more difficult for firms to fire workers. As a consequence of this policy, workers now become more likely to shirk. Explain how it impacts the input components of the production function and the TFP. Overall, what is the contribution on GDP?In each scenario below describe the implications of the event for GDP and living standards in the long-run. Explain and make explicit use of the production function. Then compute the values of the steady state GDP and the steady state living standards in the new scenario, i.e. after the shock has taken place. ASSume in both parts of the question that the economy is characterized by a Cobb-Douglas production function: Y = AKO'L1_\" with oz = 0.6. Also, assume that the economy is characterized by the following initial values of capital K = 2, employment L = POP = 1 and A = 1. (B) (8 points) (Malthus) A plague wipes out a third of the population in a stagnant economy. You may assume TFP and capital do not change. (C) (8 points) (Solow) An economy in which no TFP growth occurs is at steady state. An earth- quake occurs destroying a ten percent of the capital stock. Miraculously, no one is hurt. Assume that the saving rate is ten percent, and that the depreciation rate is ve percent