Economics

EC312_Essay 2 – Chapters 10,11,12,13   Total Points = 50             Due on Aug20, 11.59pm

Instructions: Essay 2 has two questions, each with multiple-parts, from chapters 10 through 13. Please answer both questions.  Each question is worth 25 points.

Answers must be typed in Cambria 12 pt. font, one-inch margins on all sides of the word document.

If you are drawing graphs by hand, you must scan the document and upload the word file on D2L.

Do not quote directly from the textbook. Plagiarism will be severely penalized.

Include graphs wherever necessary.  If you have hand-drawn graphs, you would need to attach them to the typed document and scan and upload the entire document on D2L.  Only one file per person is accepted.

1.Suppose that the production function is given by Y=K1/2L1/2

a. Does this production function exhibit constant returns to scale? Explain what is meant by constant returns to scale.  1+2 = 3pts.

b. Derive the steady state levels of capital per worker  and output per worker in terms of the saving rate, s, and the depreciation rate,  δ.  3+3 = 6pts

c. Suppose δ = 0.05 and s = 0.2.  Find out the steady state output per worker. 4pts

d. Suppose δ = 0.05 but s increases to 0.6. Find out the steady state output per worker and compare your result with your answer in part c. Explain the intuition behind your results. 4+4+ 4 = 12pts.

2.  a. Describe with a graph the short run and medium run effects of technological change on employment/unemployment. 5pts (for short run) + 5 pts (for medium run) = 10pts

b. Do empirical findings support the theoretical conclusion regarding the short run and medium run effects of technological change on employment/unemployment? Explain in detail these empirical findings.

5pts (for short run) +5pts (for medium run) = 10pts

c. Explain the two factors that determine spending on Research and Development, as discussed in your textbook? 2.5*2 = 5pts.

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