To obtain a somewhat deeper understanding of the results in Jones and Klenow’s analysis of welfare across countries, let us consider how they actually compute welfare of the citizens in a country, to be distinguished from mere GDP/capita. Jones and Klenow take into account life expectancy, the consumption/output ratio, leisure, and inequality; we will illustrate how they deal with three of these four. The general idea is to use a utility function—an idea borrowed from microeconomics— and to assume that all consumers in the country have a specific such function u(c,l),where c is consumption and l is leisure. The empirical literature has offered estimates of what such u functions look like in real life: functions that well approximate how people actually behave.
(a) We begin with consumption only and the function that is most often used: u(c) = log c (again we encounter the log!). First plot this function in a diagram. With this function, consider the following data: total GDP in countries 1 and 2 is 100 and 140, respectively, the population size is 8 and 10, respectively, and the consumption-output ratios are 0.25 and 0.2, respectively. Which country’s citizens have higher utility per person?
(b) Now people enjoy leisure too so let us extend the utility function above to u(c,l) = log c + ψlog l. The parameter ψ can be estimated from individual data; let us say ψ= 0.5. Now add to the information above about the two countries that country 1 on average has 6 hours of leisure per day whereas country 2 has 10. Which country has higher utility per citizen?
(c) To understand the role of inequality, let us abstract from leisure and just consider consumption. The idea here is that a country with higher inequality will be “riskier” to live in for an average citizen if this citizen is rich with some probability and poor with some other probability. So suppose that there are only two levels of consumption in each country and that the ratio of the high to the low consumption level is 5 in country 1 and 10 in country 2. Moreover, suppose that you become poor or rich as a result of an even coin flip; i.e., half the population is rich and half is poor in each country. Using the data on average consumption per capita above, and the information here, in which country would you prefer to live? Hint: To answer this question you need to calculate expected utility (Eu):
To obtain a somewhat deeper understanding of the results in Jones and Klenow’s analysis of welfare...
The TANF program was created in 1996 by a major overhaul of the cash welfare system in the United States. The cash welfare system distributes money from taxpayers to low-income families. TANF provides a monthly support check to families with incomes below a threshold level that is set by each state (read section 2.2.). Suppose that a single mother called Lisa, with two children and no other source of income, receive a monthly check for $425 from TANF. Assume further...
2. Consider the Solow growth model. Suppose that the production function is constant returns to scale and it is explicitly given by: Y = K L l-a a. What is the level of output per capita, y, where y = Y/L? b. Individuals in this economy save s fraction of their income. If there is population growth, denoted by n, and capital depreciates at the rate of d over time, write down an equation for the evolution of capital per...
4. A recurring idea in Congress is to move the United States further away from a system of income taxes and towards a system of consumption taxes. A nationwide consumption tax would essentially be a national sales tax, a system that many Western European countries have. It is often referred to as a value-added tax or a VAT Negative consumption is ruled out because it makes no 'economic sense. Zero consumption would be subop timal behavior with either of these...
Please I need today answer for This question and it is very important and I need solution for this issue with all the details , and help me with all the details.Please write your answer to me by typing, not by handwriting, so that I can read and understand your answer clearly.BR/Hassan a. Consider the bathtub model of unemployment. Let L denote the constant labour force, let E denote employment and let U denote unemployment. Assume that the job- finding...
2. Consider two citizens, Bill and Ted, who live in the fictional country of "Econoland". Bill works as a lawyer and eams $50 per hour. Ted works at Meijer and earns $6 per hour. Both Bill and Ted have identical utility functions equal tou=y"(which is the same as U=JT)where yìs take-home pay (which also equals consumption, if neither Bill nor Ted save). The govemment of Econoland is concemed about i President of Econoland wants you to evaluate three policy options...
1. (45 points) Consider the closed-economy one-period macroeconomic model developed in class. The consumer is endowed with h units of time, and chooses consumption C and leisure ` to maximize U = log(C) + θlog(`), subject to the budget constraint C = wNs + π. Production is described by Y = zNd . Government spending G is financed with a proportional revenue tax (tax rate τ ) on the firm. (a) (10) Find the firm’s optimal demand for labor Nd...
Why Malaysians need a well-comprehensive social safety nets program? Achieving high growth while ignoring the welfare of the lower income group is an unwarranted act. Like the rest of the world, Malaysia suffers from the increasing gap between the rich and the poor despite the low incidence of absolute poverty today compared to in 1970s. Urban poverty is rising too together with the relative poverty due to income inequalities within and among the ethnic groups and the different social sectors....
Please help me answer theses practice questions QUESTION 2 Which of the following can a country implement to protect local industries (e.g. bicycles) according to the video on the deceptive promise of free trade? Border walls local training programs to strengthen local industries protectionist policies such as tarrifs creating a high minimum wage locally governments can't do anything QUESTION 3 Which of the following European countries has a trade surpluse with the US as well as most other European countries...
Ante tolikowing Us Towy w Et Questo 39 Gradesh 1. The western component DD 2. An increase in real GDP of the UNE output of goods and services U 3. Economists use the termino debe overall production levels rising 4. Suppose that a borrower and and then on a loan. Then nation turns out to be the one that the real interest rate on this loans lower than 6. The catch-up effect is deed the property where rich more rapidly...
hi! this question including the solution. My question is in part(6), how does reduction in offshoring costs leads to fewer low skill intensive activities being performed in France? Could you explain more details in part(6) answer? thank you! Question 1: Offshoring with Leontief Technology. Suppose that there is a continuum 10,1] of production activities (intermediate goods) in which different countries specialize depending on their wages and the costs of offshoring. Let a e [0, 1] represent the degree of skill...