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15. "The amount of labor supplied can be reduced when the real wage
increases." Do you agree? how?
Consider a hypothetical closed economy with the following functions: C = 50 + 0.75(Y-T); I = 100 – 2r; G = 120; T = 140; Ms = 440; P = 2; (M/P)d = 0.5Y – 1.5r;
A. Write down the IS function.
B. Write down the LM function.
C. Determine the equilibrium levels of income and interest rate.
D. What happens to equilibrium r if money supply is raised from 1,000 to 1,200?
E. If the central bank wishes to raise the interest rate to 7 percent, what money supply should it set? F. If government purchases increase by 224, what is the impact of this change on the IS curve? and What is the impact of the change on the equilibrium level of income?
Under what circumstances might it be possible to reduce inflation without causing a recession?
Quantity Demanded 1200 1100 1000 900 800 700 600 500 400 300 200 100 0
a. Compute each seller’s total cost and average total cost for selling 1 to 6 durians.
b. The price of a durian is now RM11. How many durians are sold in the market?
c. How many durians does each seller sell and how much profit does he earn?
d. How many sellers are there in the market?
e. Is the situation described in above a long-run equilibrium? Explain why?
f. Suppose that in the long run there is free entry and exit. How much profit does each seller earn in the long run equilibrium?
g. What is the market price and number of durians each seller sells? How many durians are sold? How many durians’ sellers are operating in the market?
Each seller in the market has fixed costs of RM9 and the following marginal cost:
Quantity Marginal Cost (MC) (RM)
1 2
2 4
3 6
4 8
5 10
6 12
- Use your knowledge of externality and relevant models to examine the impact of inadequacies of the vaccine on the market outcomes.
- Discuss appropriate government intervention to achieve a socially efficient vaccination volume.
In problem 5, Max’s sister gives him euros20 to spend on his leisure pursuits, so he now has euros55.
a) Draw a graph that shows Max’s consumption possibilities.
b) How many hours does Max choose to windsurf and how many hours does he choose to snorkel now that he has euro55 to spend?
Max enjoys windsurfing and snorkelling. He obtains
the following utility from each of these sports:
Hours Utility from Utility from
per day windsurfing snorkelling
1 120 40
2 220 76
3 300 106
4 360 128
5 400 140
6 412 150
7 422 158
Max has a35 to spend and he can spend as much time
as he likes on his leisure pursuits. Windsurfing equipment rents for a10 an hour, and snorkelling equipment
rents for a5 an hour.
a) Draw a graph that shows Max’s budget line.
b )How long does he spend windsurfing and how long
does he spend snorkelling?
4. Suppose that in Case B in Table 2.5 the United
States exchanges 4W for 4C with the United
Kingdom.
(a) How much does the United States gain in
terms of cloth?
(b) How much does the United Kingdom gain in
terms of cloth?
(c) What is the range for mutually beneficial
trade?
(d) How much would each nation gain if they
exchanged 4W for 6C instead?
Cold Drink and pizza are complements because they
are often enjoyed together. When the price of
Cold Drink rises, what happens to the supply, demand,
quantity supplied, quantity demanded, and the
price in the market for pizza?
Choose the best answer to each
question.
Consider a Solow growth model with the
following production function:
Y-FiX.L) - K0.3 (AL) 0.7
(1) If A = 2, L= 20.000, and K = 400, what is output?
(2) Does this production function have constant
returns to scale? Explain.
(3) Suppose the labor force grows by 5% so that it is
now 21.000. By how
much does output increase?
(4) Starting again with the conditions in part (1),
what if capital increases by
5%, so that it is now 420. By how much does
output increase?
For each pair listed below, i) explain the meaning
and significance of both terms, and il) briefly
explain the relationship between the two terms.
(1) the center; the periphery
(2) steady state, Golden-rule steady state
(3) convergence; conditional convergence
(4) TP; growth accounting equation
Discuss some limitations of the following three
models
(1) the Lewis model
(2) Dependency theory
(3) Slow model
