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Explain why this is true.
In the one period model we assume that the representative agent can only spend its time (h) in two ways: 1)leisure, 2)hours worked. Now assume that we introduce time spent on building human capital.
i) If the representative agent choses to invest in human capital, supply labour and enjoy leisure how will this impact the budget constraint of the representative consumer? Draw the initial and new budget constraint. (3 marks)
ii) What is the impact of positive human capital on consumption, leisure, employment, output and the real wage? (6 marks)
iii) Application: How does investing in human capital benefit the economy? If income inequality increases over time how will this impact the investment people make in human capital? (3 marks)
What happens to income Y if investors become more optimistic snd increase investment by 20?
Looking for an explanation with the answer as to Y moves in the direction it does.
A. What is Mexico’s equilibrium capital-output ratio? What was the value of efficiency in 2000?
B. What is your forecast of output per worker in Mexico for 2040?
C. Suppose instead the labor-force growth rate fell to 1 percent per year in 2000 and remained at 1 percent. What is your new forecast of output per worker in Mexico for 2040?
D. In words, not equations, explain why your forecasted level of the standard of living changed as a result of the lower labor-force growth rate.
PRODUCT YEAR 1 YEAR 2 YEAR 3 YEAR 4
Good X 5.5 6.7 14.9 18.2
Good Y 1.1 7.0 3.5 16.4