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Unformatted text preview: Solution 1 World poverty rate has steadily decreased while Africa was an ex- ception with poverty rate increased. Solution 2 Since highway requires substantial amount of &xed cost and rela- tively low marginal cost, it can considered as nonrivalrous good. Unless there is toll fee imposed for using highway(even so), it has low degree of excludability. Thus it is nonrivalrous, nonexcludable which falls into the category of public good. Solution 3 Market power entails the positive pro&t to the intermediate &rm which provides an incentive for the &rm to establish which will result in tech- nological growth and innovation. This is manifested in the size of A t in the endogenous growth model. Solution 4 1. High correlation(almost unity) between ination and money supply growth. 2. No correlation between growth rates of money supply and real output. 3. No correlation between growth rates of ination and real output. 4. Ination and money growth are higher under &at money than under stan- dard commodity. Solution 5 max p i y i & w i l i s:t:y i = & p p i & y y i = l i Solution 6 By rearranging p i = & y y i 1 & p Then max & y y i 1 & py i & w i l i = py 1 & y 1 & 1 & i & w i l i = py 1 & ( l i ) 1 & 1 & & w i l i FOC gives w i = & & 1 & 1 py 1 & l ( 1 & 1 & ) & 1 i Labor demand is l i = w i y & 1...
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- Spring '08