Question

# 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 **

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

**3 ****Problem 3 **

- Define the concepts of constant returns to scale.
- Why is it sensible to assume that the production function exhibits (i) constant returns to scale and (ii) positive returns to capital?
- 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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