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hw solution - 06E:002:SCA Principles of Macroeconomics...

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06E:002:SCA Principles of Macroeconomics Homework 4 Due 25 March, 6:00 pm 1. (a) We know that Y/Pop = Average Labor Productivity x Share of the population employed. Then since the employment share is constant, for two consecutive years, t+1 and t we have: Real GDP per person grows at the same rate as average labor productivity, that is 6%. (b) Nominal GDP growth rate would be 6% + 10% = 16% (c) We know that real GDP per capita grows at 6%, so we can compute it in the following table: Year GDP per person 1987 6000.00 1988 6360.00 1989 6741.60 1990 7146.10 1991 7574.86 1992 8029.35 1993 8511.11 1994 9021.78 1995 9563.09 1996 10136.87 1997 10745.09 1998 11389.79 1999 12073.18 2000 12797.57 2001 13565.42 2002 14379.35 2003 15242.11 2004 16156.64 2005 17126.03 2006 18153.60 2007 19242.81 (d) GDP per person doubles in between 11 and 12 years, which is consistent with the rule of 70 which implies that it would double in 70/6 = 11.67 years. (e) Average Labor productivity = (Y/Pop)/Employment share, therefore: ALP 1987 = 6000/0.45 = 13,333.33 1.06 ALP ALP ALP Emp. Share ALP Emp. Share (Y/Pop) (Y/Pop) t 1 t 1 t t
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t 1 t 1 t t 1 = = = + + + + + ALP grows at 6%, therefore ALP 2007 = ALP 1987 x (1.06) 20 = 13,333.33 x 3.2 = 42,761.81 (Y/Pop) 2007 = ALP 2007 x Emp.Share 2007 = 42,761.81 x 0.55 = 23,518.99 2. Part a
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