Question

Consider a closed economy operating according to the Classical model. The production function is: Y = 40K^0:75L^0:25

Problem 1- Use the following information o answer questions 24 29 Consider a closed economy operating acoording to the Classical model. The production function is: 40K0.75し0.25 where K and L are the capital and labor used in the production of output Y The consumption and investment functions are: C 100 +0.8(Y-T) 1 = 1,450-20r where T is the amount of taxes and r is the real interest rate. You know that the stocks of the factors of production in this economy are: R 256 and τ 81. In addition, you know that taxes are T-530 and Government spending isで= 480. Recall that if an economy produces output according to the Cobb-Douglas production function 25. The share of National income paid to capital in this economy is: (a) 5,760 (b) 3,240 (c) 1,920 (d) 5,820 26. The amount of Private savings in this economy is: (a) 50 (b) 1,280 (c) 1,330 (d) 1,450 27. The equilibrium real interest rate in this economy is: (a) r= 2.5 (b) r= 3.5 (c) r=4 (d) r 10 28. Assuming that everything else remains unchanged, which of the following would deerease the equilibrium intereet rate r? (a) A change in the investment function from 1 (b) An increase in government spending from C 1.450-20r to! 180 to G 510. 1.600-20r. (d) A decrease in the stock of capital from R-256 to π 200