Economics Assignment

1) Explain how crowding out works, using the one-period model as an example.

2) If total factor productivity rises in the one-period model, explain what happens to the real wage in equilibrium, and why.

3) In the one period model, suppose, that there is a decrease in government spending, and that government spending is also productive. Explain what the effect is on employment, and explain why we get this effect.

4) Explain, mathematically, why a proportional tax on consumer's wage produces a competitive equilibrium that is not Pareto Optimum.

5) In the Solow growth model, what happens in the steady state if total factor productivity declines?

6) In the Solow growth model suppose that the economy is initially in a steady state. Then, some capital is destroyed by a major earthquake. What are the effects in the short run and in the steady state?

7) In the Solow growth model, suppose that the population growth rate declines. Explain what the steady state effects are, and why.