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ECO 420002 and 004, Fall 2008
Quiz 2B
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Name:___________________________________________ Section: _______________
1.
In the country of Wiknam, the velocity of money is constant. Real GDP grows by 5% per year,
the money stock grows by 12% per year, and the real interest rate is 2%. What is the
nominal
interest rate? (3 points)
% Change in M + % Change in V = % Change in P
+ % Change in Y
12% + 0 = % Change in P + 5%
% Change in P = 7% = Inflation rate
Nominal interest rate = 7%+2%=9%
2.
Consider the following production function:
Y = K
0.3
L
0.7
a.
Let K=100 and L=100, what is the equilibrium real wage?(2 points)
MPL = W/P
0.7*K
0.3
L
0.3
= W/P
W/P = 0.7
b.
If real wage is 1, what is the level of employment?(2 points)
MPL = W/P
0.7*100
0.3
L
0.3
= 1
Solve for L
0.7*K
0.3
= L
0.3
0.7*100
0.3
= L
0.3
2.78675 = L
0.3
2.78675^(10/3) = L
L = 30.5 workers
c.
If labor supply is fixed at 100, what is the level of unemployment?(2 points)
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This document was uploaded on 10/28/2011 for the course ECON 420 at UNC.
 Fall '08
 Hill

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