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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.
 Spring '08
 Staff
 Macroeconomics

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