Assignment 1

Assignment 1 - The Chinese University of Hong Kong...

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1 The Chinese University of Hong Kong 2008-2009 First Term Econ 1021A/B: Basic Macroeconomics Assignment 1 Due date: Sept 30 (Tue), 4:00 p.m ± Please put your assignment into my mailbox (facing the elevators) on the ELB 10 th floor . Late submissions will not be graded . ± Write student name(s), student number(s) and group number (if any). If questions require calculation, you need to show all steps. The notations are the same as the ones defined in the textbook, except where otherwise noted . 1. The economy of Happiness Island is represented by the equations below. Demand function: Z=C+I+G+X-IM Consumption function: C=a+bY D Tax function: T=t 0 + t 1 Y where t 0 denotes autonomous taxes (that are independent of income), and t 0 is the tax rate. (t 1 Y is called induced taxes that vary with income.) Import function: IM=mY, where m is the marginal propensity to import out of national income. Government spending(G), investment(I), and exports(X) are assumed to be exogenous variables, and we take them as given. a. Write the consumption function in terms of Y. b. Write the demand function in terms of Y. [Make sure you collect all of the autonomous terms as well as the coefficients of the Y variable.] c. Write the equilibrium condition and then solve for equilibrium output (Y). d.
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Assignment 1 - The Chinese University of Hong Kong...

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