this to affect short run output when defined as i output gap and ii percent age

# This to affect short run output when defined as i

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this to affect short run output when defined as (i) output gap, and (ii) percent- age change? Provide economic intuition for each definition. Now consider the case of capital augmenting technology, so that the produc- tion function becomes, Y t = L 1 - α t ( AK t ) α , (2) How does this change your analysis? 1 A function exhibits constant returns to scale if scaling up the inputs by factor λ leads to an equivalent increase in output 1
3 Log-Differences In the lecture notes it is claimed that, Y t - Y t Y t ln Y t - ln Y t = y t - y t (3) The Taylor expansion of a function f () around a point a is given by, f ( x ) = f ( a ) + ∂f ∂x | a ( x - a ) + 1 2! 2 f ∂x 2 | a ( x - a ) 2 + ... + 1 n ! n f ∂x n | a ( x - a ) n + ... (4) where n f ∂x n | a stands for the partial derivative evaluated at the point a . 1. Find the Taylor Series expansion of ln ( x ) around the point x 2. Hence, or otherwise, show that to the first order (i.e. cut the series off after the first partial derivative) that Y t - Y t Y t ln Y t - ln Y t 4 IS Curve Intuition - THIS QUESTION TO BE SUBMITTED FRIDAY WEEK 1 Consider the following macroeconomic changes.