Midterm2_S10_Solution

Midterm2_S10_Solution - 73-200 Spring 201073-200 MIDTERM...

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Unformatted text preview: 73-200 Spring 201073-200 MIDTERM 2March 24 2010Guidelines:No calculator / phone is needed: bring all bags and material to the front of the class-room before startingRead through the exam before starting: you have 50 minutes, get a sense of theimportant sectionsMidterm 1 : March 24 20101Prof. Nicolas Petrosky-Nadeau73-200 Spring 2010Problem 1 - Economic concepts (30 points)1. Explain the difference between models of exogenous and models of endogenous growth(10 points)In models of exogenous growth, long run growth is not explained by the model itselfbut given. Models of endogenous growth, however, the process of productivity growthis determined within the model as the result of choices made by economic agents,households, firms or the government for example.2. Define the Solow residual (10 points)The Solow residual measures increases in real GDP that are not accounted for byincreases in capital and labor. If the production function is a Cobb-Douglas, than wecan compute its value from the data aszt=YtKtN1-tat each datet, where 0< <1.3. Explain, in your words, the differences between the Malthus and Solow models ofeconomic growth (10 points)Malthus: fixed factor of land and population growth increasing in wealth leads todeclines in living standards. Policy prescription: population controlsSolow: use of a reproducible factor: capital; long run growth in living standards pos-sible only through technological innovationMidterm 1 : March 24 20102Prof. Nicolas Petrosky-Nadeau73-200 Spring 2010Problem 2 - Labor Markets (35 points)Suppose the government taxes wages are the rate 0< <1 when workers earn the wagew.1. CallE(w) the value of employment,Uthe value of unemployment, 0< <1 the timediscount factor and 0< s <1 the job separation rate. Write and describe the value ofemployment to a worker when there is a tax on wage income: (5 points)E(w) = (1-)w+[(1-s)E(w) +sU]the earnings from employment are reduced by the tax on wages and so is, conse-quently, the value of employment which depends on the net wage earnings....
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Midterm2_S10_Solution - 73-200 Spring 201073-200 MIDTERM...

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