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# Ateneo de Zamboanga University

## School of Liberal Arts

Social Sciences Department
Economics 112 (Macroeconomic Theory and Practice)
Exam#3: Summer 2017

The following contain possible questions for the third long exam. On that day, we will randomly pick two(2)
questions to answer. For each answer, you are allowed a maximum of 2- page or 200 words, whichever is
less. Any answer in excess, the checker will ignore. In order of importance the checker looks for your
intuitive (30pts.), graphical and or mathematical (10 pts.) understanding of the subject.

1. Given the Cobb Douglas Production function Y= AKN1-, explain the effect of technology(A) on output (Y)
keeping other variables constant, the effect of capital (K) to output (Y) ceteris paribus, and the effect of
population (N) on output (Y) ceteris paribus. Explain if the function exhibits CRS, DRS, or IRS.

## 2. Suppose an economy has a Cobb-Douglas production function: Y = AK L(1 ), where = 0.65

a. Suppose technology is constant, discuss the effect of 3.7% growth of population and 2.5% growth of capital
accumulation on capital labor ratio. Discuss its implications.
b. Discuss the effects on the growth rate of output per person if technology grows by 2%, population grows by
3.7% while capital accumulation is constant. Discuss the implications.
c. Suppose capital labor ratio increases by 3%, technology increases by 1.3%, discuss the effect of these
changes to growth rate of output per person. Discuss the implications.

3. Suppose the production function is Y= AK0.55N0.45. Explain the effect of technology on GDP, capital on GDP, and
population on GDP. Explain the effect of 2.5% growth of capital accumulation on GDP growth rate. Explain the
effect of a 2.5% growth of population on GDP growth rate. Explain the effect of a 2.5% growth for each capital
and labor on GDP growth rate.

4. Suppose the production function implies Y= AK0.4N0.6, thus, dY/Y=dA/A + 0.4dK/K + 0.6 dN/N. Mathematically
and intuitively derive the growth rate of output per person. Discuss its implications.

5. Discuss the importance of technology in affecting economic growth. Discuss Solow residual. Provide numerical
example.

## 6. An economy has a Cobb-Douglas production function: Y = AK L(1 ), where = 0.45

a. If the technology level increases 6%, what is the increase in aggregate income? Discuss its implications.
b. If capital increases 6%, what is the increase in aggregate income? Discuss its implications.
c. If labor increases 6%, what is the increase in aggregate income? Discuss its implications.
d. If the technology level, capital, and labor all increases 6%, what is the increase in aggregate income? Discuss
its implications.

7. Discuss capital labor ratio. Explain why capital labor ratio is subject to diminishing marginal product. Provide
numerical example and discuss the implications.

8. Discuss Convergence.

9. Given the Cobb-Douglas production function Y= AKN1-, discuss the difference between Y and y and Y/Y
andy/y. Provide numerical example. Discuss the implications.

End of Exam