Question one

1. Suppose the production function is Cobb Douglas with parameter α=.3.

What fractions of income do capital and labour receive? Suppose that immigration raises the labour force by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?

Question two

What would have happened to the money supply if the currency-deposit ration had risen but the reserve-deposit ratio had remained the same? What does a rise in the reserve-currency ratio indicate?