Hint: Do not forget that there is a
- Analyze the case of Switzerland and state the assumptions in terms of AD-AS model.
source of funding that is needed to provide basic income
- Analyze the policy from the point of view of AD-AS model
- Look over pilot project in Netherlands, would the predictions from the model be different? Hint: Analyze the policy and state the assumptions to answer the question
(30 points) Problem 2:
There is an empirical evidence that before re-elections governors prefer to increase the budget deficit.
- State the assumptions under which it can be beneficial for the governor in terms of AD-AS model and Phillips Curve Model?
- Analyze from the point of view of AD-AS model?
- Analyze from the point of view if Phillips Curve Model?
(40 points) Problem 3:
Assume production function is Y = Ka(AL)1−a, where Y = output, K = capital, L = labor, A = technology level and a ∈ (0;1).
- Assume the depreciation rate = δ, saving rate = s, A and L are fixed. Find the K∗, i.e. the steady state level of capital and the equilibrium level of output
- Assume that s0 = 3s and δ0 = 4δ new saving and depreciation rates. Find new equilibrium level of capital and output. Show change on graphs.
- Assume now that gL > 0 is the growth rate of labor units and gA > 0 is the growth rate of technology. Find new steady state capital amount and output amount (s and δ are as in (a)) and illustrate the steady state on the graph.
- Assume and gA0 = 3gA are the new levels of growth of labor units and technology find the new steady state capital and output. Show the change on the graph.