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Unformatted text preview: Economics 302 Spring 2005 Answers to Practice Questions 4 1. Assume that the production function is of the form - = 1 L K A Y . a. Write productivity as a function of MPL. -- = L K A MPL ) 1 ( ) 1 ( Pr 1 - = = = =-- MPL L K A L L K A L Y oductivity b. If productivity increases does the MPL necessarily also increase? Explain using your answer to part a. By looking at Productivity as a function of MPL the only way productivity can increase is if MPL increases. 2. Again suppose that the economys production function is - = 1 L K A Y . A recession is a period in which output is decreasing. a. What would need to happen for a recession to occur in this model? Either K , L , or A would need to decrease. b. Are any of the causes above plausible explanations? None of these seems a plausible explanation for recessions. A sudden decrease in capital is only plausible if a disaster or war was responsible for its destruction. A decrease in the amount of labor is possible if people decided destruction....
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