Answer:
1. Consider the following situation.
You are told that real GDP has grown 5% between 2021 and 2022. From this information, what can you say about what happened to inflation between 2021 and 2022 (in this case, measured as the change in the GDP deflator across the two years)? What additional information, if any, do you need to determine what happened to inflation?
Please provide an answer as well as a 2-3 sentence explanation for it.
2. Consider the production model that we have seen in class with a production function for final output specified as
=5K^0.25^0.75.Y=5K^0.25L^0.75.
Capital and labor available in the economy are, respectively, K¯=256K¯=256 and ¯=81L¯=81.
a)Explain intuitively why MPK = r describes the firm's optimal choice of capital
b)What would happen to the rental rate of capital if K¯K¯ increased to some number above 256? Please provide an intuitive explanation to your answer in 2-3 sentences.
Step-by-step explanation:
hope it helps ......