Macroeconomics Answers

Given the following model:

Y = C + I + G + (X-M)

Question 1

Suppose that:

Autonomous Consumption = $500

MPC = 0.75

Taxes = $400

Investment = $500

Government Spending = $1200

Exports = $300

Imports = $500

Find the following: (2 points each)

A. Equilibrium income

B. Equilibrium consumption

C. Equilibrium saving

D. Write the savings function

E. Show that injections equal withdrawals

Question 2

Suppose that full employment GNP (FE Y) is = 4000 (2 points each)

A. Explicitly find the necessary change in G to get the economy to full employment GDP.

B. Explicitly find the necessary change in Taxes to get the economy to full employment

GDP.

Question 3

Given the position of the economy in question one and that full employment GDP = 4000

explain how the following monetary policies would get the economy to full employment GDP

(1.5 point each)

A. Open market operations

B. Discount rate

C. Federal funds rate

D. Required reserve ratio

Given the following model:

Y = C + I + G + (X-M)

Question 1

Suppose that:

Autonomous Consumption = $500

MPC = 0.75

Taxes = $400

Investment = $500

Government Spending = $1200

Exports = $300

Imports = $500

Find the following: (2 points each)

A. Equilibrium income

B. Equilibrium consumption

C. Equilibrium saving

D. Write the savings function

E. Show that injections equal withdrawals

Question 2

Suppose that full employment GNP (FE Y) is = 4000 (2 points each)

A. Explicitly find the necessary change in G to get the economy to full employment GDP.

B. Explicitly find the necessary change in Taxes to get the economy to full employment

GDP.

Question 3

Given the position of the economy in question one and that full employment GDP = 4000

explain how the following monetary policies would get the economy to full employment GDP

(1.5 point each)

A. Open market operations

B. Discount rate

C. Federal funds rate

D. Required reserve ratio

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4. Consider the following production function:

Y = K.5(AN).5,

where both the population and the pool of labor are growing at a rate n = .07, the capital stock is depreciating at a rate d = .03, and A is normalized to 1.

a. What are capital’s and labor’s shares of income?
b. What is the form of this production function?
c. Find the steady-state values of k and y when s = .20.
d. At what rate is per capita output growing at the steady state? At what rate is total output growing? What if total factor productivity is increasing at a rate of 2 percent per year (g = .02)?

2. In a simple scenario with only two factors of production, suppose that capital’s share of income is .4 and labor’s share is .6 and the annual growth rates of capital and labor are 6 and 2 percent, respectively. Assume there is no technical change.
a. At what rate does output grow?
b. How long will it take for output to double?
c. Now suppose that technology grows at a rate of 2 percent. Recalculate your answers to parts a and b.

5. If both the demand and supply of loanable funds in the market decrease, with the decrease in supply larger than the demand impact, then the real interest rate will ___ and investment will ___.

3. If GDP is 10 000, with a negative trade balance of 3 000, a government deficit of 2 500 and household savings of 2 000, investment is ___.

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