ECON-ASSIGNMENT-1 - Assignment#1 Professor Perry Sadorsky...

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Assignment #1 Professor Perry Sadorsky Section F Darien Luu, 213460092 Jennifer Wong, 213529904 David Kim, 213699202
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ECON 2000 D & F: Applied Macroeconomics Assignment #1 1. Assume that there are two factors of production, K and L and that they are both fully employed at K = ´ K and L = ´ L . Assume the economy is described by the following set of equations. Y = ´ Y = F ( ´ L, ´ K ) = 1200 Y = C + I + G C = 125 + 0.75(Y-T) I = I(r) = 200 – 20r G = ´ G = 150 T = ´ T = 100 a) Calculate consumption, the interest rate, national savings, and investment. C = 125 + 0.75 ( Y T ) ¿ 125 + 0.75 ( 1200 100 ) ¿ 125 + 0.75 ( 1100 ) C = 950 Y = C + I + G 1200 = 950 + I + 150 I = 100 b) Suppose the government raises taxes from 100 to 150. Calculate consumption, the interest rate, national savings and investment. C = 125 + 0.75 ( Y T ) ¿ 125 + 0.75 ( 1200 150 ) ¿ 125 + 0.75 ( 1050 ) C = 912.5 Y = C + I + G 1200 = 912.5 + I + 150 I = 137.5 I = 200 20 r 100 = 200 20 r 100 =− 20 r r = 5 ´ S = I ( r ) I ( r ) = 100 ´ S = 100 I = 200 20 r 137.5 = 200 20 r 62.5 =− 20 r r = 3.125 ´ S = I ( r ) I ( r ) = 137.5 ´ S = 137.5
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c) Draw a graph of savings, investment and interest rate showing the results of (a) and (b). 2. Perry’s Bakery needs to decide how many workers to hire. Consider the following data in the table below where output is measured in loaves of bread per hour.
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