Re: ISI 2011 ME 2

Posted by lovekesh on May 10, 2012; 2:07pm
URL: http://discussion-forum.276.s1.nabble.com/ISI-2011-ME-2-tp7544224p7546829.html

y=AK^0.5L^0.5
MPL = y/2L
MPL=real wage
y-L = w ( read these as rates instead of absolute values)
y-k = r
w-r = k-L----(a)
from production function
y= a+1/2K+1/2L-----(b)
these are growth rates
put y=w+L in eqn b
and put k from eqn a in equation b
w+L = a+1/2(w-r+L) + 1/2L
L gets cancelled
a= (w+r)/2
w=25 real wage growth
r= 5 real rental growth rates
a= 15