MNDNGO004 Grace Budiaki Tut group:8

Tutorial 10:

Question1:

1) The Solow Residual is the additional amount of productivity or marginal product the is produced
from the Cobb Douglas Functions of firms and this is shown by the error in measuring total
factor productivity. The Solow residual occurs when there is extra productivity not accounted for
in the Solow models thus getting its name.
2) Technological breakthroughs, Natural blessings (finding new a element that helps capital),
Educational and skills improvement and health breakthroughs
3) Two instances in the real business cycle model for money to be neutral is that it is exogenous
meaning that money will not move with the economic variables and is not set by the central
bank. One instance of exogenous money supply is that when output has increased with falling
interest rates has increased money demand but money supply will remain constant another
instance is that with the business cycles of the economy money remains a-cyclical which means
that money will remain neutral no matter the business cycle
QUESTION 2:
Question 3:

The main idea of the Real Business Model is that the main motivation for business cycles is that
attitude of firm owners which means that Business cycles occur mostly on the idea whether firms
are optimistic or pessimistic about the future if the economy. Relating this to South Africa during the
fall in GDP in 2014 the businesses kept on hiring workers and capital stock could be based mostly on
the reasoning that firms were optimistic about coming out of a declining of a shrinking economy
thus were preparing for output to increase. The Real business Model applies to South Africa in this
period as it is an example of how economic variables are not the only determinants of the firms
actions.