Consider a Dominant Firm-Competitive Fringe model with the following assumptions. There are 100 rms that behave in a competitive manner and have
October 10, 2020
1. (18 points) In a two-commodity world, suppose that Winnie’s preference can be characterized by the utility function, UW(X, Y) = ln X + lnY + 2018,…
October 10, 2020
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One view of the consumption function is that workers have high propensities to consume and capitalists have low propensities to consume.

One view of the consumption function is that workers have high propensitiesto consume and capitalists have low propensities to consume. To explore theimplications of this view, suppose that an economy consumes all wageincome and saves all capital income. Show that if the factors of productionearn their marginal product, this economy reaches the Golden Rule level ofcapital. (Hint: Begin with the identity that saving equals investment. Thenuse the steady-state conditions that investment is just enough to keep up withdepreciations and population growth and the fact that saving equals incomein this economy.)

 

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