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solhmk4 - Econ 73-200 Fall 2008 Prof Daniele Coen-Pirani...

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Econ 73-200 Fall 2008 Prof. Daniele Coen-Pirani Suggested Solution to Problem Set #4 As indicated on Blackboard, this problem set is due on Friday, October 31, at the end of your recitation session. Please consult the syllabus on the policy for homework assignments handed in late. There are four questions on the homework worth a total of 100 points. The points assigned to each part of each question are indicated in brackets. Please staple the sheets of your homework together (I decline responsibility for missing homework sheets, if not stapled). You may work together to solve the exercises, but must write your own answers (in your own words) to each problem. Exercise #1 [25 pts.]. Exercise #3, page 209 of the textbook. (a) All numbers (except the interest rate) are billions. National saving is: S = 10 + 100 × 0 . 03 = 13 . Investment is: I = 15 100 × 0 . 03 = 12 . Net exports (NFP are zero): NX = S I = 1 . Consumption: C = Y S G = 50 13 10 = 27 . Absorption is de fi ned as A = C + I + G = 27 + 12 + 10 = 49 .
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