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The Chinese University of Hong Kong
20082009 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+XIM
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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 Fall '08
 KOKWANWAI
 Macroeconomics

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