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I am posting the answers to a macro assiognment someone tried answering, but did it incomplete. Attached is the questions for the assigment, the answers that person gave me and the answer for part 3 B which I need made into graphs. I mainly just need answers for #3, 7, 8 and anything in red. Any takers? I would like to receive an a good greade and most of the work is already done so it isn’t too complicated. Need detailed answers as you see onones that have been done. Please correct any you catch has a mistake as well.
Welcome to Macroeconomics in Middle Earth!
Part 1*
The Shire, a country inhabited by hobbits, has a simple life and a simple economy. Life is based on the good earth and there, gardeners are held in high esteem. Forty leagues it stretches from the Fox Downs to the Brandywine Bridge, and fifty from the western moors to the marshes in the south. There in that pleasant corner of the world they ply their well-ordered business of living, and they heed less and less the world outside where dark things move. They have come to think that peace and plenty are the rule in Middle-Earth and the right of all sensible folk.
Section 1
a) The Shire produces two goods—taters and pipeweed. If all resources are used to produce taters, 1,000 tons per day can be produced. If all resources are used to produce pipeweed (a unique plant used for smoking in pipes and producing great smoke rings), 100 barrels per day can be produced. Draw the shire’s PPF for taters and pipeweed. Show the slope of the PPF. Calculate the opportunity costs for both taters and pipeweed.
Page 3 of 9 1/30/13
*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questions—it’s there just for Tolkien fun. Go forth and read!!!
b) Lady Galadriel the Elf makes magic soil available which increases the production of both taters and pipeweed by 50 percent. Draw the new PPF for the Shire. Show the slope of the PPF. Calculate the new opportunity costs for both taters and pipeweed. Make your changes from the prior question.
c)
Gandalf the wizard enjoys smoking pipeweed so much he puts a spell on the tobacco plants so that they double in size and produce twice as much. Draw the new PPF for the Shire. Show the slope of the PPF. Calculate the new opportunity costs for both taters and pipeweed. Make your changes from the prior question.
d) Saruman’s Uruk-Hai invade the Shire and destroy half the arable land. The uruks are finally driven out of the Shire by the very large (for hobbits) Meriadoc Brandybuck and Peregrin Took. Draw the new PPF for the Shire. Show the slope of the PPF. Calculate the new opportunity costs for both taters and pipeweed. Make your changes from the prior question.
Section 2
Hobbits love to eat and smoke their pipes. As for the hobbits of the Shire, … in the days of their peace and prosperity they were a merry folk. They dressed in bright colours, being notably fond of yellow and green; but they seldom wore shoes, since their feet had tough leathery soles and were clad in a thick curling hair, much like the hair of their heads, which was commonly brown….Their faces were as a rule good-natured rather than beautiful, broad, bright-eyed, red-cheeked, with mouths apt to laughter, and to eating and drinking. And laugh they did, and eat, and drink, often and heartily…..
There they saw close beside them a great rubble-heap; and suddenly they were aware of two small figures lying on it at their ease….One seemed asleep; the other, with crossed legs and arms behind his head, leaned back against a broken rock and sent from his mouth long wisps and little rings of thin blue smoke.
The Shire would like to consume more taters and pipeweed than it currently has. Farmer Cotton and old Gaffer Gamgee are two of the best farmers in the Shire (the Gaffer taught his son Samwise everything he knows). Farmer Cotton can produce 2 barrels of pipeweed a day or 3 tons of taters. The Gaffer can produce 2 barrels of pipeweed or 4 tons of taters (he is regarded as an expert in the matter of the growing of roots, especially potatoes).
a) Calculate the opportunity costs for each farmer for each product (need 4 answers).
b) Draw the PPFs for Farmer Cotton and Gaffer Gamgee. Show the slope of each PPF.
c) Should either farmer specialize, and if so, in what product? Why?
d) What will be the terms of trade for taters in terms of pipeweed? For pipeweed in terms of taters?
Section 3
The town of Bree is the center for pipeweed trade in the northwest of Middle Earth. Trading is conducted at the Inn of the Prancing Pony, specializing in the high quality Longbottom Leaf from the South Farthing.
For Bree stood at an old meeting of ways; another ancient road crossed the East Road just outside the dike at the western end of the village, and in former days Men and other folk of various sorts had travelled much on it.
The Prancing Pony was a meeting place for the idle, talkative, and inquisitive among the inhabitants, large and small, of the four villages; and a resort of Rangers and other wanderers, and for such travellers (mostly dwarves) as still journeyed on the East Road, to and from the Mountains.
a) Draw demand and supply for the Bree pipeweed market. Show the equilibrium price and quantity.
b) A large party comes up from Isengard in the south to participate in the pipeweed market. Draw what happens in the Bree market. Show three separate pipeweed market scenarios—one with a higher equilibrium price, one with a lower equilibrium price and one with the same equilibrium price. What is the determinant in each case? Do 3 graphs. Don’t make up determinants.
c) Nine nasty black horsemen trample most of the pipeweed crop in the South Farthing of the Shire, the main growing center for tobacco leaf. Draw what happens in the Bree pipeweed market. What happens to the equilibrium price and quantity?
d) The Thain of the Shire placed a price ceiling on pipeweed below the equilibrium price. Draw the pipeweed market showing market price, equilibrium price, quantity demanded and quantity supplied. What condition in the market results from the price ceiling and how would you calculate it? How much is actually exchanged in the market?
e) Draw what happens in the market for pipes as a result of c). What happens to the equilibrium price and quantity of pipes? Explain why with precise determinant.
f)
Section 4
Grima Wormtongue is the Accounting Master for the kingdom of Rohan, reporting to Theoden the King. Rohan’s economy is based mainly on horses. Wormtongue has gathered the following information (by devious means) on prices and consumption levels in Rohan for the last five years of the Third Age.
Rohan Market Basket Good
3015 Price (marks)
3015 Quantity
3016 Price (marks)
3016 Quantity
3017 Price (marks)
3017 Quantity
3018 Price (marks)
3018 Quantity
3019 Price (marks)
3019 Quantity
War Horse
$100.00
2
$105.00
2
$106.00
2
$110.00
3
$120.00
3
Armor
$20.00
1
$21.00
1
$22.00
1
$23.00
2
$28.00
1
Helm
$5.00
1
$5.50
1
$6.00
1
$6.50
1
$8.00
1
Sword
$15.00
1
$16.00
1
$17.00
2
$18.00
1
$22.00
1
Spear
$10.00
1
$10.50
1
$11.00
1
$10.50
1
$15.00
1
Saddle
$15.00
2
$15.00
2
$15.00
2
$15.00
3
$15.00
3
Bridle
$5.00
2
$5.00
2
$5.00
2
$5.00
3
$5.00
3
Hay
$1.50/
bale
15
bales
$2.00/
bale
17
bales
$2.50/
bale
16
bales
$3.00/
bale
18
bales
$3.50/
bale
20
bales
Oats
$2.50/
bushel
5 bushels
$3.50/
bushel
4 bushels
$4.50/
bushel
5 bushels
$5.50/
bushel
6 bushels
$7.50/
bushel
4 bushels
Stabling
$50.00
year
1
year
$48.00/
year
1
year
$46.00/
year
1
year
$44.00/
year
1
year
$44.00/
year
2
year
Vet Services
$50.00
year
1
year
$50.00/
year
3
year
$50.00/
year
3
year
$50.00/
year
2
year
$50.00/
year
1
year
a)
b)
c) Construct the CPI for Rohan for each year 3015 through 3019. Use 3015 for your base year. Show your work.
d)
e) Calculate the inflation rate between 3016 and 3019. Show your work.
f) What is the 3019 price of horses in 3015 marks? Show your work.
g) Which goods are priced lower in real terms in 3018 than in 3015? Show your work.
h) Calculate nominal GDP and real GDP for each year 3015 through 3019 (base year of 3015)? Show your work.
Section 5
Eowyn, niece of King Theoden, is a shieldmaiden of Rohan.
The rider was a woman with long braided hair gleaming in the twilight, yet she wore a helm and was clad to the waist like a warrior and girded with a sword.
Eowyn thinks that more people in Rohan seem to be idle and not working. She requests that Wormtongue provide her with statistics on unemployment in the Riddermark (Rohan). Wormtongue provides these numbers to her:
3018
Rohan’s Population – 25,000
Persons under 16 – 8,000
Persons in Institutions – 500
Persons in Military – 9,000
Persons Working – 3,500
Unemployed Persons – 1,500
3019
Rohan’s Population – 25,750
Persons under 16 – 8,250
Persons in Institutions – 500
Persons in Military – 11,000
Persons Working – 3,200
Unemployed Persons – 1,000
a) What is Rohan’s current (3019) labor force? Show your work.
b) How many persons in Rohan are unwilling to work in 3019 even though they could? Show your work.
c) What is the 3019 employment rate, unemployment rate, and labor force participation rate in Rohan? Show your work.
d) Is the unemployment rate higher or lower in 3019 than in 3018? How does this relate to Eowyn’s observation? Explain.
a)
e) If frictional unemployment in 3019 for Rohan is 420 and structural unemployment is 210, what is the natural unemployment rate? Is there cyclical unemployment? If so, what is the cyclical unemployment rate?
Section 6
Theoden King wants to know the total value of output (GDP) in Rohan in 3019 (Third Age). He demands that Wormtongue provide this information. Wormtongue gives him the following statistics for the year, but claims not to be able to determine GDP.
Consumption expenditures
$ 1,750
Edoras government purchases of goods and services
200
Westfold and Helm’s Deep government purchases (local)
331
Proprietors income
150
Compensation of employees
1,680
Corporate profits
188
Corporate profit taxes
23
Rental income
31
Capital consumption allowance (depreciation)
295
Indirect business taxes
146
Net interest
147
Exports to Gondor and Mirkwood
299
Imports from Saruman and Rivendell
355
Undistributed corporate profits
111
Transfer payments
66
Personal taxes
45
Social Security taxes (Social Insurance taxes)
222
Net foreign income from and to the rest of Middle Earth
0
Statistical discrepancy
0
a)
a) What is national income for Rohan in 3019? Show your formula.
b) What is personal income for Rohan in 3019? Show your formula.
c) What is disposable personal income for Rohan in 3019? Show your formula.
d) Is Wormtongue correct or lying to Theoden? If correct, explain why he can’t answer Theoden’s question. If lying, what is GDP for 3019? Show your formula.
e)
‘The wise speak only of what they know, Gríma son of Gálmod. A witless worm you have become. Therefore be silent, and keep your forked tongue behind your teeth. I have not passed through fire and death to bandy crooked words with a serving-man till the lightning falls.’
Section 7
Galadriel of Lothlorien is very concerned with economic growth in Middle Earth because she realizes that economic growth will give all the inhabitants a better standard of living. She collects real GDP data from all the Accounting Masters in the various realms (like Wormtongue). The collected data shows the following:
3015
3016
3017
3018
3019
Real GDP
$295,000
$317,000
$342,000
$376,000
$380,000
Population
99,135
102,109
105,172
108,327
111,577
a) Calculate per capita real GDP each year for Middle Earth.
b) Calculate the annual real GDP, population, and per-capita real GDP growth rates for each year. Need 12 answers.
Galadriel was the greatest of the Noldor, except Fëanor maybe, though she was wiser than he, and her wisdom increased with the long years. –
c)
d) Calculate the average annual growth in real GDP for the period between 3015 to 3019 [don’t do this by averaging your answer in b)]. With this average long term growth rate, how long would it take for the economy of Middle Earth to double in size?
e)
Galadriel learns that the key to economic growth is labor since it is the only variable factor of production on any given day.
f) Draw the labor market and the aggregate production function for Middle Earth together (2 graphs). Show how they relate to each other. What is the level of real GDP?
g) Draw what would happen to the labor market and aggregate production function between 3015 and 3019 (2 graphs). Explain why this occurs. What is the result for Real GDP?
h)
i) Technological advances increase the efficiency of the capital stock in Middle Earth so that more output can be produced from the same resources. Draw what would happen to the labor market and aggregate production function as a result (2 graphs). Explain why this occurs. What is the result for Real GDP?
j)
Section 8
The market for loanable funds in Middle Earth finances investment in capital goods like new sawmills in the Shire, new bridges in Moria and Gimli’s development of the Glittering Caves of Aglarond.
a) Sam Gamgee, who bought the old mill from Ted Sandyman, is spending $500 on new equipment this year. The old equipment worth $400 had been just torn down by a mob of hobbits. What is the Shire’s net investment?
b) Draw a graph of the Middle Earth loanable funds market in equilibrium. Be sure to label correctly.
c)
d) Gorthmog is planning to invest in developing Mount Doom as a source of energy for Middle Earth. He is informed by the Orc Union that they will not work in the future without being paid so his expected costs will increase. What happens to his expected profit? Draw what happens in the loanable funds market. What happens to the real interest rate? Explain the dynamics of exactly how the change in expected future costs feeds through to the loanable funds market.
e) With the return of the king, Osgiliath is being restored to its former glory. Such a level of spending causes a budget deficit in Gondor. Draw what happens in the loanable funds market.
f) Moria’s exports increase so that net exports are positive. What will happen to the demand and supply for loanable funds and the real interest rate in Moria? Draw and explain precisely how this works.
Then Círdan led them to the Havens, and there was a white ship lying, and upon the quay beside a great grey horse stood a figure robed all in white awaiting them. As he turned and came towards them Frodo saw that Gandalf now wore openly on his hand the Third Ring, Narya the Great, and the stone upon it was red as fire. Then those who were to go were glad, for they knew that Gandalf would also take ship with them….
Then Frodo kissed Merry and Pippin, and last of all Sam, and went aboard; and the sails were drawn up, and the wind blew, and slowly the ship slipped away down the long grey firth; and the light of the glass of Galadriel that Frodo bore glimmered and was lost. And the ship went out into the High Sea and passed on into the West, until at last on a night of rain Frodo smelled a sweet fragrance on the air and heard the sound of singing that came over the water. And then it seemed to him that as in his dream in the house of Bombadil, the grey rain-curtain turned all to silver glass and was rolled back, and he beheld white shores and beyond them a far green country under a swift sunrise.
Section1
A)
The Slope of the PPF would be (-100/1000) or (-1/10)
The opportunity cost for producing 1000 tons of Taters/Day is 100 barrels of Pipeweed and the opportunity cost of producing 100 barrels/day of Pipeweed is 1000 Tons of Taters
B)
The Slope of the PPF would be (-
150
/1500) or (-1/10)
The opportunity cost for producing 1500 tons of Taters/Day is 150 barrels of Pipeweed and the opportunity cost of producing 150 barrels/day of Pipeweed is 1500 Tons of Taters.
C)
The Slope of the PPF would be (-300/1500) or (-1/5)
The opportunity cost for producing 1500 tons of Taters/Day is 300 barrels of Pipeweed and the opportunity cost of producing 300 barrels/day of Pipeweed is 1500 Tons of Taters.
D)
The Slope of t
he PPF would be (-150/750
) or (-1/5)
The opportunity cost for producing 750 tons of Taters/Day is 150 barrels of Pipeweed and the opportunity cost of producing 150 barrels/day of Pipeweed is 750 Tons of Taters.
Section 2
A) The opportunity cost for Farmer Cotton for producing 1 barrel ofpipeweed is 1.5 tons of Taters.
The opportunity cost for Farmer Cotton for producing 1 ton of Taters is 2/3 barrels of Pipeweed.
The opportunity cost for Gaffer for producing 1 barrel ofpipeweed is 2 tons of Taters.
The opportunity cost for Gaffer for producing 1 ton of Taters is 1/2 barrels of Pipeweed.
B)
The slope of the PPF is -2/3
The slope of the PPF is -2/4 or -1/2
C) Yes Gaffer should specialize in the production of Taters as either he can produce 4 tons of Taters or he can produce 2 Barrels of Pipeweed, whereas Farmer Cotton can either produce 3 tons of Taters or 2 Barrels of Pipeweed. Thus we know that Gaffer is in an advantageous position in the production of Taters and thus he should specialize in that and Farmer Cotton should produce Pipeweed and they both can enter into a barter agreement.
D) The terms of trade for Pipeweed would be1 barrel of Pipeweed would be exchanged for 2 tons of Taters and 1 tons of Tater would be exchanged for ½ barrel of Pipeweed.
Section 3
A) ?????
B)?????
C)?????
Section 4
A) The CPI Basket for Rohan for the base
year
can be calculated as
Summation of all the different commodities (Price of Commodity in 3015*Quantity of the Commodity in 3016)/ Summation of all the different commodities (Price of Commodity in 3015 *Quantity of the Commodity in 3015)*100
Thus by using the above formula we have CPI for Rohan for 3015 as 100 as 3015 is the base year.
Similarly the CPI for 3016 will be calculated as
Summation of all the different commodities (Price of Commodity in 3016*Quantity of the Commodity in 3015)/ Summation of all the different commodities (Price of Commodity in 3015 *Quantity of the Commodity in 3015)*100
Thus in this case the CPI would be 105.53
Similarly the CPI for 3017 will be calculated as
Summation of all the different commodities (Price of Commodity in 3017*Quantity of the Commodity in 3015)/ Summation of all the different commodities (Price of Commodity in 3015 *Quantity of the Commodity in 3015)*100
Thus the CPI for 3017 is 109.18
Similarly the CPI for 3018 will be calculated as
Summation of all the different commodities (Price of Commodity in 3018*Quantity of the Commodity in 3015)/ Summation of all the different commodities (Price of Commodity in 3015 *Quantity of the Commodity in 3015)*100
Thus the CPI for 3018 is 114
Similarly the CPI for 3019 will be calculated as
Summation of all the different commodities (Price of Commodity in 3019*Quantity of the Commodity in 3015)/ Summation of all the different commodities (Price of Commodity in 3015 *Quantity of the Commodity in 3015)*100
Thus the CPI for 3019 is 126.35
B) The inflation rate between 3016 and 3019 would be
C) ?????????
D) The Inflation rate between 3015 and 3018 would be (114-100)/100*100 or 14%
Thus the prices of commodities on real terms would be
$15.00
$17.10
$15.00
$5.00
$5.70
$5.00
bale
bale
bushel
bushel
year
year
$50.00
$57.00
$50.00
year
year
year
|
Rohan Market Basket Good |
3015 Price (marks) |
3018 Real Price (marks) |
3018 Nominal Prices |
|||
|
War Horse |
$100.00 |
$114.00 |
$110.00 |
|||
|
Armor |
$20.00 |
$22.80 |
$23.00 |
|||
|
Helm |
$5.00 |
$5.70 |
$6.50 |
|||
|
Sword |
$15.00 |
$17.10 |
$18.00 |
|||
|
Spear |
$10.00 |
$11.40 |
$10.50 |
|||
|
Saddle |
||||||
|
Bridle |
||||||
|
Hay |
$1.50 |
$1.71 |
$3.00 |
|||
|
bale |
||||||
|
Oats |
$2.50 |
$2.85 |
$5.50 |
|||
|
bushel |
||||||
|
Stabling |
$50.00 |
$57.00 |
$44.00 |
|||
| year | ||||||
|
Vet Services |
Thus we can see that in real terms Armor, Helm, Sword, Hay, Oats are prices lower as compared to 3015.
E) The real GDP for any year is calculated as
Summation of all commodities (Quantity Produced in that year*Prices for Base Year)
The Nominal GDP is calculated as
Summation of all commodities (Quantity produced in that year*Prices of that year)
Thus the below table shows the Real and Nominal GDP for different years
|
Year |
Real GDP |
Nominal GDP |
||||
|
3015 |
$ 425.00 |
$ 425.00 |
||||
|
3016 |
$ 525.50 |
$ 549.00 |
||||
|
3017 |
$ 541.50 |
$ 583.50 |
||||
|
3018 |
$ 622.00 |
$ 702.00 |
||||
|
3019 |
$ 600.00 |
$ 7 31 .00 |
Section 5
A) Labor force includes employed and unemployed persons i.e. persons working, unemployed persons
In 3019 labor force = 3200 + 1000= 4200
B) People who are unwilling to work will be total population – (person under 16 + Person in institutions + persons in military + persons working + unemployed persons)
25750 – (8250+500 + 11000 + 3200+1000)
= 1800
C) Employment rate = Employed / civilian non-institutional population
= 3200/(3200+1000+1800) = 53.33%
Unemployment rate = unemployed / Labor force
= 1000/4200 = 23.81%
Participation rate = (employed + unemployed)/ civilian non-institutional population
= 4200/6000 = 70%
D) Unemployment rate in 3018 = 1500 / Labor force = 1500 / (3500 + 1500) = 70%
Unemployment rate is exactly same in 3019 and 3018. Hence Eowyn’s observation of increase in unemployment does not hold good. Though the unemployed persons have increased in absolute terms in 3019, the unemployed persons to labor force has remained constant.
E) Fictional unemployment (FU)
Structural unemployment (SU)
Fictional unemployment Rate (FUR)
Structural unemployment Rate (SUR)
Natural unemployment Rate (NUR)
Cyclical unemployment Rate (CR)
Unemployment Rate (UR)
FU = 420 so FUR = 420/ 4200 = 10%
SU = 210 so SUR = 210/4200 = 5%
NUR = FUR + SUR = 15%
As UR is not equal to NUR
UR = NUR + CR
23.81% = 15% + CR
CR = 8.81%
Section 6
A) National income = Employee compensation +
Corporate profits
+ Proprietors’ income +
Rental income
of persons +
Net interest
|
Compensation of employees |
1,680 |
||
| Corporate profits |
188 |
||
|
Proprietors income |
150 | ||
| Rental income | 31 | ||
| Net interest |
147 |
||
|
National Income |
2,196 |
Thus the National Income is $ 2196
B) Personal income = National income – Contribution for social insurance – Corporate retained earnings + Non business interest +
Transfer payments
from government and business
National Income
2,196
|
|
|||||
|
Less |
Social Security taxes (Social Insurance taxes) |
222 |
|||
|
Undistributed corporate profits |
111 |
||||
|
Add |
Transfer payments |
66 |
|||
|
Personal Income |
1,929 |
C) Disposable income = Personal income – Personal income taxes
Or (1929-45) or $ 1884
Gross domestic product = Gross national product – Net factor payments from abroad
Where Gross national product = Net national product + Depreciation
Net national product = National income + Sales and excise taxes + Business transfers – Net subsidies to government businesses + Statistical discrepancy
Net national product = (2196 + 146) or 2342
Gross national product= (2342+295) or 2637
Gross domestic product= (2637 + 0) or 2637
D) ?????
?
??
Section 7:
A) Real GDP per capita = Real GDP/Population
Thus,
3015
3016
3017
3018
3019
Real GDP|
$295,000 |
$317,000 |
$342,000 |
$376,000 |
$380,000 |
|||||||||||||||||||
|
Population |
99,135 |
102,109 |
105,172 |
108,327 |
111,577 |
||||||||||||||||||
|
Real GDP per capita |
$2.98 |
$3.10 |
$3.25 |
$3.47 |
$3.41 |
B) Annual Real GDP growth rate = (This year’s GDP – Last year’s GDP)/Last years GDP
Thus,
3015
3016
3017
3018
3019
Real GDP
$295,000
$317,000
$342,000
$376,000
$380,000
Population
99,135
102,109
105,172
108,327
111,577
|
Annual Real GDP growth rate |
7.46% |
7.89% |
9.94% |
1.06% |
Population growth rate = (Last year’s population – this year’s population) / Last year’s population
3015
3016
3017
3018
3019
Real GDP
$295,000
$317,000
$342,000
$376,000
$380,000
Population
99,135
102,109
105,172
108,327
111,577
3.00%
3.00%
3.00%
|
Population growth rate |
3.00% |
Per-capita real GDP growth rate = (Last year’s per-capita real GDP – This year’s per-capita real GDP) / Last year’s per-capita real GDP
3015
3016
3017
3018
3019
Real GDP
$295,000
$317,000
$342,000
$376,000
$380,000
Population
99,135
102,109
105,172
108,327
111,577
Real GDP per capita
$2.98
$3.10
$3.25
$3.47
$3.41
|
Real GDP per capita growth rate |
4.33% |
4.74% |
6.74% |
-1.88% |
C) Average annual growth in real GDP for the period between 3015 to 3019 = ((Real GDP in 3019 – Real GDP in 3015) / Real GDP in 3015)/5
= ((380,000-295,000)/295,000)/5 = 28.81/5 = 5.76%
To double the economy size:
Current GDP *((1+ Average annual growth in real GDP) ^ N) = New GDP
1.0576 ^ N = 2
N log (1.0576) = log 2
N = Log 2 / Log (1.0576)
N = 12.377 years
D) ??????
The labor market and the production function determine the position of the full employment (FE) line. The equilibrium level of employment is determined in the labor market. Plugging the equilibrium level of employment into the production function gives the full-employment level of output. The FE line is vertical at that point. The FE line shifts to the right if there is an increase in labor supply, an increase in the capital stock or if there is a beneficial supply shock.
Not able to draw labor market as the wage rate is not given. We need to find the demand and supply in the labor market. Then the equilibrium of labor market is mapped to Aggregate production function to find the real GDP value at equilibrium.
E) ?????
???
F) Technological advances increase the efficiency of the capital stock in Middle Earth so that more output can be produced from the same resources. Thus, the production function in Labor market graph shifts up. Because it reflects greater productivity of labor, firms will increase their demand for labor, and the demand curve for labor shifts to new equilibrium in aggregate production function. With the improvement in technology, employment and potential output rise.
Section 8
A) In economics, net investment refers to an activity of spending which increases the availability of fixed capital goods or means of production. It is the total spending on new fixed investment minus replacement investment, which simply replaces depreciated capital goods.
Thus in the given question the Net Investment would be (500-400) or $ 100
B) ?????
C) ?????
D) ?????
E) ?????
Production Possibility Frontier
of Farmer Cotton
3 0 0 2
Quantity of Taters/Day (3 Tonnes)
Quantity of Pipeweed/Day (2 Barells)
Production Possibility Frontier of Gaffer
4 0 0 2 Quantity of Taters/Day (3 Tonnes)
Quantity of Pipeweed/Day (2 Barells)
Aggregrate production function
Real GDP 99135 102109 105172 108327 111577 295000 317000 342000 376000 380000 Production Possibility Frontier
1000 0 0 100
Quantity of Taters/Day (1000 Tonnes)
Quantity of Pipeweed/Day (100 Barells)
Production Possibility Frontier
1500 0 0 150 Quantity of Taters/Day (1000 Tonnes)
Quantity of Pipeweed/Day (100 Barells)
Production Possibility Frontier
1500 0 0 300 Quantity of Taters/Day (1000 Tonnes)
Quantity of Pipeweed/Day (100 Barells)
Production Possibility Frontier
750 0 0 150 Quantity of Taters/Day (1000 Tonnes)
Quantity of Pipeweed/Day (100 Barells)
