# HW4 - Homework 4 for Intermediate Macroeconomics-Due on 1...

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Homework 4 for Intermediate Macroeconomics-Due on 10/12/2010 1. Consider an economy described by the following equations: 1 3 4 4 ( , ) 10 14 3.5 0.7( ) 15 0.5 F K L K L G T C Y T I r = = = = + = The supply of labor is fixed at L =81 and the supply of capital is fixed at K =16. a) Compute the output, the real wage rate and the real rental price of capital. How much is the total labor income and capital income? What fraction of total income does each factor of production receive? b) Compute the private saving, public saving and national saving? c) Find the equilibrium interest rate and investment. d) Now suppose that G rises to 12. How does this affect total output? Compute the private saving, public saving and national saving. e) Find the new equilibrium interest rate and investment. 2. Consider the Cobb-Douglas production function with two inputs: capital K and labor L. It is 2 1 3 3 ( , ) Y F K L K L = = The firm sells its goods at price P, pays a nominal wage W to every unit of labor it hires and pays a nominal rental price R for every unit of capital it rents. a) Write down the expression for firm's profit, revenue and costs.

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