FinalExam2012_Answers

Does the answer depend on chalfinias current

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Unformatted text preview: r to provide the manpower needed for our military, we should encourage greater immigration. The immigrants can either be recruited directly into our armed services or can replace current residents of our new country who leave the civilian workforce and join the military. This policy can increase the size of the military without affecting our ability to purchase weapons out of our surplus. A leading think tank on the island disagrees, putting out the following press release: “Proposal A does not make economic sense. There is a tradeoff between maximizing the population size and maximizing surplus that is needed to purchase weapons and other capital equipment necessary for Chalfinia’s defense. More immigrants will simply reduce the wage in Chalfinia and, accordingly, will reduce the amount of resources that we have available to purchase weapons.” 3 Name (Last, First): SID: Who is right: the think tank or the government economists? Does the answer depend on Chalfinia’s current population size? Briefly explain. Answer: At a population that is larger than the point where s=MPL, the think tank is correct. Past this point, recruiting more people means there is less surplus available to purchase capital equipment. This is because some of the surplus must be redistributed to workers in order to pull the wage back above the subsistence level. However, if the population is below the point at which s=MPL, more people will mean both more surplus and more manpower. If this is the case, the government economists are correct. 4 Name (Last, First): SID: SECTION 2: PENSION THEORY [24 POINTS] Imagine a world in which: • People work from age 30 until age 60, retire at 60 and no one dies before age 90, when everyone dies. • The population is neither growing nor shrinking. • Workers produce 400 units of a perishable good over their working lives. Retirees do not work at all. In the questions that follow, be sure to show your work and clearly label all of the terms that you use in constructing your answer (for example, let Wt = workers, Rt = Retirees and Yt = young people). 1. What is the dependency ratio, excluding young people? [2 points] Rt = the number of retirees, Wt = the number of wor...
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