Handout2

# Handout2 - investment demand will a have no effect on the...

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ECON 102 . S 00. Prof. E. McDevitt TA Sara Wong Office Hours: Th 5-7pm. Bunche 2263 HANDOUT #2 Discussion Section. Week 2 OUTLINE: - THE CLASSICAL MACRO MODEL I) Multiple choice questions II) Problem I. Select the best answer for each question below. 1. A profit-maximizing firm will hire labor up to the point where: a. the marginal product of labor equals the marginal product of capital b. the marginal product of labor equals the real wage c. marginal revenue equals zero d. the real wage equals the real rental price of capital. 2. The FALSE statement about national saving is: 3. If national saving is positively related to the interest rate, a technological advance that increases
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Unformatted text preview: investment demand will a. have no effect on the amount of national saving b. shift the investment demand curve to the left c. increase both investment and the equilibrium interest rate d. have no effect on consumption. II. A Classical Macro Model Using the Classical Macro Model as framework (if needed, assume a two-period economy) analyze the effects of a technological improvement on the main variables of the model. Fill out in the following with (+) if the variable increases, (-) if the variable decreases, and (?) if the variable could either increase or decrease. You must explain your answer. VARIABLE AT EQUILIBRIUM PERMANENT TECHNOLOGICAL IMPROVEMENT TEMPORARY TECHNOLOGICAL IMPROVEMENT Output (Y) Employment (L) Real Wage (W/P) Investment (I) Real Interest Rate (r) Recall that: L s = L s (W/P ; (W/P) e , Wealth, …) L d = L d (W/P ; A, K) S s = S s (r ; (Y-T), (Y-T) e , Wealth, fiscal policy) I d = I d (r ; MPK f , t)...
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