Advanced Macroeconomic Theory

HOME WORK 1

Econ 6306 – Advanced Macroeconomic Theory

Student name: BUI THU TRANG

Student ID: 988246

Email/ Phone: trang.bt179@gmail.com / 806 410 9449

Exercise 1

1. Calculate GDP, real GDP in year 2015 prices, GDP price deflator

1. Relationship between GDP & real GDP between the years 2014 & 2015

Real GDP for 2015 and 2014 are equal because there are not any change in the quantities in this two years with the price based on year 2015.

Whereas GDP in 2015 is higher than the one in 2014 because despite the fact that the quantities produced constant, there are a slight increase in prices of A, B in 2015 compared to 2014.

1. Relationship between GDP & real GDP between the years 2015 & 2016

By holding the prices in 2016 constant at the same level as the one in 2015 we can see that:

GDP and real GDP in 2016 are equal (same quantities and same prices)

GDP and real GDP in 2016 is higher than the one in 2015 because of the growth in quantities in 2016

Exercise 3

1. F(K, L) = 2K.3L.7

F(2K, 2L) = 2. (2K).3. (2L).7 = 2. 2.3. 2.7. K.3. L.7 = 21+.3+.7. K.3. L.7 = 2. F(K, L)

• A production function exhibits constant returns to scale

1. F (K, L) = [pic 3]

F (2K, 2L) =  == 2  = 2 F(K, L)[pic 4][pic 5][pic 6]

• A production function exhibits constant returns to scale

1. F (K, L) = [pic 7]

F (2K, 2L) =  = =  F (K, L) <  F (K, L)[pic 8][pic 9][pic 10]

• A production function exhibits decreasing returns to scale

Exercise 4

1. Graph production as a function of capital given some fixed level of labor (Graphing F (K, )[pic 11]

Note: Labor (L) = 100 million workers, while capital can be varied