ps7_questions

# ps7_questions - 14.02 Principles of Macroeconomics Problem...

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1 14.02 Principles of Macroeconomics Problem Set # 7, Questions Posted on Thursday, November 21, 2002, due on Wednesday, November 27, 2002. You must staple a copy of this frontpage on your problem set. Remember to write down your name and MIT ID and to mark the recitation at which you want to receive the problem set once it is corrected. Name: __________________________________________________ MIT ID: __________________________________________________ 10AM Samer Haj-Yehia 9AM Indradeep Ghosh 11AM Samer Haj-Yehia 11AM Oscar Landerretche 12AM Samer Haj-Yehia 1PM Indradeep Ghosh 1PM Samer Haj-Yehia 1PM Verónica Rappoport 2PM Samer Haj-Yehia 2PM Verónica Rappoport 3PM Verónica Rappoport (Table is for corrector use only) 1 2 3 4 5 6 7 Total I II III Total

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1 Economic Development and the Wage Rate (5 points each, 25 total, 5 extra points) Assume that the real wage rate (w) is determined on the labor market to equal the marginal product of labor. Assume that the interest rate (r) is determined in the capital market to equal the marginal product of capital. Assume a con- stant depreciation rate δ and a constant savings rate s. Also assume that the production function is y = AK α L 1 α (a) Calculate the real wage as a function of capital per capita. Make a graph of it against capital per capita (put capital per capita in the x axis). (b) Calculate the interest rate as a function of capital per capita. Make a graph of it against capital per capita (put capital per capita in the x axis).
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