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Unformatted text preview: University of Minnesota Econ 3102: Intermediate Macroeconomics Practice Midterm 1 De&nitions (10 points) 2 Short Answers (20 points) 3 Consumer¡s problem (10 points) Consider a representative consumer whose preferences over consumption and leisure are given by the utility function U ( C;‘ ) = C 1 = 2 ‘ 1 = 2 . Assume that she has a total of & h = 18 hours which she can use for leisure or she can work for the wage rate w = 6 . Finally, assume that she enjoys a dividend income & = 30 and has to pay lump-sum taxes T = 20 . (a) Determine the optimal consumption bundle ( C & ;‘ & ) . (b) Determine the optimal consumption bundle ( C & ;‘ & ) if wages drop to w = 1 = 2 . How does the consumer change her labor supply? 4 The one-period, closed-economy model (25 points) Consider a simple one-period, closed-economy model where the representative consumer has utility function U ( C;‘ ) and has & h available hours to divide between work and leisure. The representative &rm has technology given byavailable hours to divide between work and leisure....
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This note was uploaded on 10/05/2011 for the course ECON 3101 taught by Professor Staff during the Summer '08 term at Minnesota.
- Summer '08