Part II: Answer any four of the following five questions. I prefer your original
ID: 1196610 • Letter: P
Question
Part II: Answer any four of the following five questions. I prefer your originality in writing rather than reproducing memorization from the book or other sources. (15 points each times 4 = 60 marks) It may be profitable for firms to keep wages high even in the presence of a surplus of labor. Explain at least four reasons why firms want to pay higher than equilibrium wages. Assume that a country's production function is given by Y= K1/2L1/2 What is the per-worker production function y =f(k)7 Assume that the country possesses 160.000 units of capital and 40.000 units of labour. What is I? What is labour productivity computed from the per-worker production function? Is this value the same as labour productivity computed from the original production Junction? Assume that 10 percent of capital depreciates each year. What gross saving rate is necessary to make the given capital-labour ratio the steady-state capital-labour ratio? If the saving rate equals the steady-state level, what is consumption per worker? Consider Irving Fisher's two-period consumption model. Suppose y1 = 25.000. y2 = 75.000. and the interest rate r is 0.50 (50 percent). Answer the following questions: What the maximum possible consumption in period one? What the maximum possible consumption in period two? If there is a binding constraint on borrowing what the maximum possible consumption in period one? If there is a binding constraint on borrowing what the maximum possible consumption in period two? Assume you are a twenty-five year old who expects to work for 40 years and then enjoy 30 years of retirement. If you behave according to the life-cycle./.permanent-income hypothesis, how would your current consumption change if: You win $ 1.000.000 in the lottery this year. You expect to get a SI .000,000 "signing bonus" when you get a job next year. Write short notes on: Golden Rule; Sectoral shift; random walkExplanation / Answer
1. it helps the labour to be motivated and happy about the work, makes it hard to leave the job, increases the quality of labour and competition for the job
4. both the options are one time increase in income and hence does not change the permanent stream of income. Thus according to permanent income hypothesis it does not change the permanent income.
5. Golden rule - where consumption is maximised ; Sectoral shift - shift from one sector to another say from agriculture to industries or industry to services, Random wal - the movements of an object or changes in a variable that follow no discernible pattern or trend.
3. a) 25000(1.5)
b) 75000/1.5
c), d) depends on the constraints
2. a) y= k^(1/2)
b) y' = 1/2 k^(-1/2) where( k = 160000/40000= 4) = 1/4
in the original eq, dY/dL = 1/2 *K^(1/2) * L(-1/2) = 100