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hi i am having trouble responding to my problem set and i need answers today cause my assignment is due, here is

the problem set:

2 Problem 2

1. Define the concept of poverty (use your own words; no need to go to a book or encyclopedia).
2. Why do you think growth is important for poverty reduction?
3. Why do you think growth is important for inequality reduction? Do you think growth ALWAYS reduces income inequality?

3 Problem 3

1. Define the concepts of constant returns to scale.
2. Why is it sensible to assume that the production function exhibits (i) constant returns to scale and (ii) positive returns to capital?
3. Explain the concept of diminishing marginal returns to capital. Why does it make economic sense to assume that the production function exhibits diminishing marginal returns to capital?

4 Problem 4

Consider the following production functions:

1. Y = AK1/2L1/2 2. Y =AK+BL

3. Y = (AK)2/3L2/3 4. Y = AH1/3L

for each production function listed above

• Determine whether the function exhibits CRS, diminishing returns to physical capital (or human capital, when applicable), and diminishing returns to labor.
• Check whether it satisfies the Inada conditions.
• Compute the per capita production function.

• Determine whether the function exhibits CRS, diminishing returns to physical capital (or human capital, when applicable), and diminishing returns to labor.
• Check whether it satisfies the Inada conditions.
• Compute the per capita production function.

Problem 5

Consider the Solow-Swan model of growth. Imagine that the production function is

Y = AKαL1−α

1. Use the production function to compute output per capita, y = Y /L, as a function of capital per person, k = K/L.

2. Derive the fundamental equation of the Solow-Swan model. Please show all the steps.

Furthermore, imagine that the savings, depreciation, and population growth rates take the values s = 0.2, δ = 0.1 and n = 0.01. You do not know the value of A.

3. Use the fundamental equation of the Solow-Swan model to compute the growth rate of capital per person as a function of k.

2

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