401ps3answers-10 - ECON 401A Autumn 2010 ANSWERS FOR...

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ECON 401A Hartman Autumn 2010 ANSWERS FOR PROBLEM SET III 1.a. The labor demand is 2 25 NP and the supply of output is 100 YP . 1.b The IS relationship is 3 46 0 44 Y rT G  and the LM relationship is 8 2 YM r P  . The AD relationship is 3 120 2 2 M YT G P  . If 60 GT and 100 M , then the AD relationship simplifies to 100 150 Y P  . Set Y from the AD relationship equal to Y from the AS relationship in part 1a to get 100 150 100 P P  which simplifies to 2 23 2 0 PP . The two solutions to this quadratic equation are 2 P and 1/2 P  . Only the positive solution makes economic sense, and it is the equilibrium price level. If 2 P , then the AS relationship or the AD relationship give 200 Y and the LM relationship is 100 85 0 22 Y r . Substitute for Y to see that 6.25% r . 115 C and 25 I . 1.c. 100 N and unemployment is 50.
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This note was uploaded on 04/04/2011 for the course ECON 401 taught by Professor Staff during the Spring '08 term at University of Washington.

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