### Portion of his income from his holdings of interest-bearing

##### Reference no: EM131007756

Gilberto receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 20%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario.

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Using the same production function as in question 4 {ie: q = (K^1/2 + L^1/2)^2} suppose that the firm is now operating in the long-run. Solve for the long-run cost function (i

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