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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 HajYehia
9AM Indradeep Ghosh
11AM Samer HajYehia
11AM Oscar Landerretche
12AM Samer HajYehia
1PM Indradeep Ghosh
1PM Samer HajYehia
1PM Verónica Rappoport
2PM Samer HajYehia
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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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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 Fall '09
 Geurrieri

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