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Unformatted text preview: ECON 311 Intermediate Macro Winter 2008 Prof. Marty Eichenbaum TA Tim Lin Assignment 3 Solutions Question 1 (a) In equilibrium, national saving S = Y- C- G = 5000- [250 + 0 . 75(5000- 1000)]- 1000 = 750 Investment, I = 1000- 50(5) = 750. Net exports, NX = 750- 750 = 0. This implies ε = 1. (b) Carrying out the same calculations, we get S = 500, I = 750, and NX =- 250. Using the net export function, we can solve for ε and get ε = 1 . 5. (c) If we take the same steps as above, we get the same S , I , and NX . But if we use the new export function to solve for ε , we get ε = 0 . 9. Question 2 (a) Firms choose the optimal amount of labor by setting the real wage, w , to the marginal product of labor. w = MPL w = 309- 2 L. Rearrange and we get the labor demand function: L D = 154 . 5- w 2 . (b) In equilibrium, labor demand equals labor supply, L D = L S 154 . 5- w 2 = 22 + 12 w + 2(35) . Solve for w we get w = 5 and L = 152....
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This homework help was uploaded on 04/18/2008 for the course ECON 311 taught by Professor Gordon during the Winter '08 term at Northwestern.
- Winter '08