90.2K

Verified Solution

Link Copied!

In 2020, the pandemics of Coronavirus has caused an unprecedented global economic crisis. For example, in the United States, the Covid-19 has damaged total national output of this country via several channels, including a supply shock, a demand shock and a historical financial shock. The influence of this heath crisis varied by industries and across subsectors within an industry. Suppose, we can use a Cobb-Douglas production function to estimate national output (Y) of the US economy as , where t indicates the year. Here K indicates total capital input and L is total labor, and we have = 30% or 0.3. Also, we know the coefficient of A is the total factor of productivity (TFP). As a benchmark, the value of A = 2 in 2019. Thus, the production function of real GDP in 2019 can be expressed as . Please use the following information to estimate Real GDP Growth Rate from 2021 to 2022. Note: You can use 2019s GDP as a benchmark and estimate growth rate based on the level of 2019. Here we assume has the same value ( = 0.3).

(1) Suppose in 2021, total labor stock (L) recovered to 98% of the 2019 level. And capital stock (K), after several rounds of economic stimulus packages, reached at 108% of the 2019 level. In 2022, labor stock (L) reaches to 103% of the 2019 level and capital stock (K) is 109% of 2019. Given the same total factor productivity as 2019 (factor A = 2) in 2021 and 2022, how much will be Real GDP Growth Rate from 2021 to 2022?

(2) Suppose we have yearly consumer price index (CPI) in 2021 equals 275 and CPI in 2022 is 282. Based on the Real GDP Growth Rate you get from (1), what is the value of yearly Nominal GDP Growth Rate from 2021 to 2022? Here inflation rate can be derived from yearly CPI. For classical economists, which variable the Nominal GDP or Real GDP, is affected by changes of money supply in the long-run, and why?

Answer & Explanation Solved by verified expert

See Answer