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    US capital-labor ratio since 1948

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    1. Graph the US capital-labor ratio since 1948 (use thee sum of private equipment capital and private structures capital as the measure of capital, and civilian employment as the measure of labor). Do you see evidence of convergence to a steady state during the postwar period? Now graph output per worker for the same period. According to the Solow model, what are the two basic explanations for the upwards trends in theses two variables? Can output per worker continue to grow even if the capita-labor ratio stops growing?

    2. Note that the Cobb-Douglas Production function is: Y = A((K^0.3)(N^0.7)) where "^" indicates exponentiation.
    According to the real business cycle theory, productivity shocks are an important source of busies cycles. Using the Cobb-Douglas production function calculate and graph US total factor productivity. Use real GDP for Y, the sum of private capital structures capital for K, and civilian employment for N. Calculate the annual percentage change in total productivity. Look for periods marked by sharp changes up or down in productivity. How well do these changes match up with the dates of business cycle peaks and troughs?

    3. The problem for 2 asked you to look at the cyclical behavior of total factor productivity. You don't need to do any more data work just answer the following question: How would Keynesian interpretations of the movement of total factor productivity over the US business cycle differ from those presented by classical economists under the heading of 'real business cycles'?

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    Solution Preview

    See the attached Excel file for complete graphs and explanations.

    The output per working is increased throughout the period with some ...

    Solution Summary

    The output per working is assessed.