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MacroOne2011 HW1ANSWERS

This document contains answers to macroeconomics homework questions. 1) It summarizes the answers to 4 questions, providing mathematical equations and explanations. Country 2 is better suited to a technology with more substitutable inputs. Measured differences in total factor productivity will be lower when factors are less substitutable. 2) It derives the conditions for constant wages in the Malthusian stage and shows that the share of output accruing to land falls over time as a second technology is adopted. 3) It solves for the steady state in a matching model between buyers and sellers, showing the law of motion and steady state values for buyers and sellers.

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Kyongchae Jung
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15 views

MacroOne2011 HW1ANSWERS

This document contains answers to macroeconomics homework questions. 1) It summarizes the answers to 4 questions, providing mathematical equations and explanations. Country 2 is better suited to a technology with more substitutable inputs. Measured differences in total factor productivity will be lower when factors are less substitutable. 2) It derives the conditions for constant wages in the Malthusian stage and shows that the share of output accruing to land falls over time as a second technology is adopted. 3) It solves for the steady state in a matching model between buyers and sellers, showing the law of motion and steady state values for buyers and sellers.

Uploaded by

Kyongchae Jung
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Macro 1, Yonsei University, Spring 2011

Homework questions- ANSWERS


Q1.
(a)
.1
.2
= 3
(b)
.1
.2
= 1.
(c) Country 2 has unbalanced physical and human capital stocks, so more
appropriate to use technology where these inputs are more substituable if avail-
able. Function 2 appropriate for country 1.
(d) (i) When faced with menu of technologies poor countries maybe able to
raise gdp by choosing another technology more appropriate to its endownments.
(ii) When factors are less substitutable measured dierences in tfp are lower.
Q2.
(a) Marginal product capital and labor in initial period t = 0,
(1 0)

S,|
1
|

0
=
1

S,|
1
|

01
< c

1,|
1

c1
) 0

1
(1 0)

< c

1
1

c1
) 0
1

1
(1 0)

< c

1
1

c1
(b) Wages are constant at c

1
J

c1
. then once the condition,
(1 +)
|
0
1

1
(1 0)

1
1

c1
is satised for some t, wages grow at a constant rate . In the Malthusian stage
the share of output accruing to land is 1c. When the two technologies coexist,
the share of output accruing to land is the share of output using the Malthus
technology times 1 c.which is falling over time.
Q3.
(a)
rl
1
= :
rl
1
= 1
r1
1
(j) = j n(j) +`
Z

0
[maxf1
1
(/) . l
1
g 1
1
(j)] d1 (/)
r1
1
(j) = n(j) +`
Z

0
[maxf1
V
(/) . l
V
g 1
V
(j)] d1 (/)
1
(b)
0 = r1
1
(1) +r1
1
(1) rl
1
rl
1
= ro(1)
= 1 +`
Z

0
[maxfo (/) . 0g o (1)] d1 (/) (:+1)
(r +`) o(1) = 1 +`
Z

1
o (/) d1 (/) (:+1) .
(r +`) (o (/) o (1)) = (r +`) o (/) = / 1.
(:+1) 1 =
`
r +`
Z

1
(/ 1) d1 (/)
Yes, matches with j < :+1 still continue.
(c) Inequality inside match only arises because outside options are dierent.
A transfer upon divorce from wife to husband of
]n
2:
equalizes outside options.
Q4.
(a) Describe why the law of motion of buyers and sellers are given by
_ = r ` c
:(0)
0
.
_ n = `(1 n) c:(0)n.
(b)

ss
=
r
` +c
n(0)
0
.
n
ss
=
`
` +c:(0)
0
ss
=
r
`
` +c:(0
ss
)
` +c
n(0ss)
0ss
(c) Rearrange

`
r
0
ss
1

r =

r
`
1

c:(0
ss
)
For r` 1 RHS concave in 0
ss
and LHS linear in 0
ss
and LHS has lower
intercept so must cross once. For r` < 1 similar argument. r` = 1. 0
ss
= 1.
Without search frictions as c ! 1. 0
ss
! 1 if r` 1. 0
ss
! 0 if r` < 1
and 0
ss
= 1 when
r
X
= 1.
(d) Proof in Proposition 2 Tsunami paper.
(e) Figure 2 in Tsunami paper.
2

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