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Unformatted text preview: 1 Economics 102 Midterm Exam Spring 2003 Professor Lee Ohanian Answer Key Question 1: GDP=100, GNP=100, NNP=90, NI=80 Question 2: Y,C,G,T,I stays constant, r goes up. Question 3: a) Constant returns to scale implies zF(K,L)=F(zK,zL) In this case F(zK,zL)=z .25 K .25 z .50 L .50 =z .75 K .25 L .50 zF(K,L) =z . K .25 L .50 Hence, this function is NOT constant returns to scale b) MPL= .5*K .25 L-.50 =W/P MPK= .5*K-.75 L .50 =R/P c) Share of labor: (w/p*L)/Y=MPL*L/Y=.5*K .25 L-.50 *L/ K .25 L .50 = 0.5 Share of capital: (r/p*K)/Y=MPK*K/Y=.25*K-.75 L .50 *K/ K .25 L .50 = 0.25 S I 1 I I r r r 1 2 Share of profits: =Y-MPL*L-MPK*K /Y =Y/Y-MPL*L/Y-MPK*K/Y=1-0.50-0.25=0.25 Question 4: S OLOW M ODEL Equations: state steady in , ) ( ) ( = + + = + + = = = = t t t t t t t t t k g n sAk k g n i k sAk sy i Ak y Steady state value for capital stock: + + = + + = + + = + + = 1 1 1 ) ( g...
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- Spring '08