401ps5answers-10 - ECON 401A Autumn 2010 ANSWERS FOR...

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ECON 401A Hartman Autumn 2010 ANSWERS FOR PROBLEM SET V 1.a. Labor demanded is given by 2 16 NP and output supplied is given by 32 YP . 1.b.i. Since r is determined by the world interest rate, the LM relationship gives Y in terms of P and the exogenously given values of M and r ; it acts as the AD relationship in this case. In equilibrium 2 P , 64 Y , 4 r , 44 C , 8 I , 4 Q , and 4 NX   . 1.b.ii An increase in G (with no change in T or M ) has no effect on Y. 1.b.iii. An increase in M (with no change in G or T ) increases Y . 1.c.i. Substitute 43
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