{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

mt2ans - Economics 202 Spring 2008 Name_KEY Professor...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 202 Name: __KEY__________ Spring 2008 Professor Melick Second Midterm 1. In the labs of General Electric, researchers discover that in fact it is possible to produce energy through the process known as “cold fusion”. It is now clear that energy can be relatively cheaply produced without using dangerous technologies. In the two attached graphs labeled 1a and 1b, illustrate the effect of this discovery on the economy using the classical model with misperceptions. In each panel of each graph show a point B that represents short-run equilibrium and a point C that represents long-run equilibrium. In Graph 1a, illustrate the effect with the end result that the price level falls , while in Graph 1b illustrate the effect with the end result that the price level rises . Please use a few sentences to answer the following questions. A. Explain the immediate or impact effect of the discovery in the labor market. The change in technology will have an immediate impact on the demand for labor. We have the equation for the marginal product of labor, ( ) 1 K MPN A N α α = - . The increase in technology directly boosts A and will also (see below) boost the capital stock. Both of these work to increase MPN and shift out ND. B. Explain the immediate or impact effect of the discovery in the goods market. The change in technology will have an immediate impact on desired investment, d I . We have the equation for the marginal product of capital, 1 f N MPK A K α α - = . The increase in technology directly boosts A and will also (see above) boost the labor force. Both of these work to increase f MPK . This will lead to an increase in the desired stock of capital * 1 t K + which will
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern