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##### Econ 104 HW 2 -Calculate the impact of a 1% increase in A on Y/L in 2011

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Question;Homework 2 Name;PSU;E-Mail;Purpose: The;homework gives you further practice with the topics of Section 2. All the;problems involve actual countries experiencing economic growth.;Directions;Be sure to show your calculations and to;briefly yet carefully explain your answers.;There are 10 questions. To make this a 20 point homework each question;is worth 2 points.;You?ll need this;data for questions 1 and 2. In class we had the following table that described portions;of the U.S. economy for 1959 and 2011. These data include labor productivity;(Y/L), total factor productivity (we use the symbol ?A? for TFP, recall is;measures technology), and the capital to labor ratio (K/L). Recall that they?re;all related by this equation: Y/L = A ? (K/L).3, thus, labor;productivity is explained by technology and the capital to labor ratio. As in;class, as labor productivity, Y/L rises, real per capita GDP does as well.;year Y/L A K/L;1959;$45,100 1,515 $81,700;2011;$111,050 2,837 $203,700;1. Calculate;the impact of a 1% increase in A on Y/L in 2011. That is, by what percentage;does Y/L change due to a 1% change in A? Now, do the same thing for a 1%;increase in K/L for the same year. Which has the most impact on labor;productivity?;2. In class on;Friday, 10/10, we described how 76% of the increase in labor productivity over;these years came from the increase in technology (i.e. A) and that 24% came;from increases in K/L. Clearly, this says that the key to U.S. economic growth;is increases in technology. How does this fact connect to what you calculated;in the last question?;The next two;questions are based on ?Making It in America? by Adam Davidson in our;?Macroeconomics Supplement.?;3. Please;explain all the factors that are causing the per-worker production function, as;applied to U.S. manufacturing, to shift up.;4. The article describes how capital in;factories is changing. These changes are designed so that each individual;worker needs less human capital than factory workers in years past. True or;false? Please explain your answer.;On a worksheet you;calculated that over the last 150 years U.S. growth rate was about 2%. This was;also about the rate seen since the late 1950s, which connects to the survey of;the oldest person you could find. That is, after taking away inflation (?real?);GDP per person grew at this rate on average per year. Meanwhile, former President George W. Bush is;promoting changes that he argues will increase the growth rate to 4%. This is the basis for the next two questions.;5. Let?s;assume that like the average Penn State grad that you make $50,000 at your;initial job. We?ll also assume that you?ll work for 45 years and that your real;pay grows at the same rate as real per capita income in the U.S. If the U.S.;growth rate does indeed change from 2% to 4%, how much more would you earn per;year in your last year of work? Hint: the formula you need here was mentioned;when we developed the formula to measure average annual rates of growth.;6. Do you;think you would notice this (if indeed you could see both outcomes)?;South;Korea is one of four so-called ?Asian Tigers.? The other three are Taiwan, Hong;Kong, and Singapore. In class we?ve touched on Hong Kong (as an example of a;rich place with few natural resources) and S. Korea (in a comparison to N.;Korea ? recall the picture from space at night). These four have grown very;quickly in the last few decades and now have per capita GDPs near or even;greater than that of the U.S. To the;right is map of the region with these four marked in red.;Please use this;table for S. Korea the following the next three questions.;7. What was;the average annual growth rate in income per person? Is it about what you would;expect?;8. Compute;the capital to labor ratio for both years. By what percentage did it increase;between 1960 and 2010?;9. Compute;total factor productivity (sometimes called ?A,? which measures technology) for;both years. First, recall the formula for labor productivity, Y/L = A ? (K/L).3;and then recall the definition of technology: something that can increase Y/L;with no change in K/L. Given the available data, compute A for both years. By;what percentage did it increase between 1960 and 2010?;10. From your;answers to 9 and 10, what seems to be the major reason for Korean economic;growth?

Paper#55402 | Written in 18-Jul-2015

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