Intermediate Microeconomics Test - Biker 191* c 5 THE...

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Unformatted text preview: \ Biker 191*»: c! 5 THE UNIVERSITY OF NORTH CAROLINA AT WILMINGTON Spring 2013: Intermediate Macroeconomics Read each question carefully and answer on the paper provided. EXPLAIN your answers; the quality of your reasoning will determine your points. Also remember, however, that long-winded answers are not needed (it probably means you’re wrong if the answer is super long). Give a numerical answer when appropriate. 1. [15 points] Suppose that the production function for an economy is Cobb-Douglas and is given by: Y = 50K~3L7 a. Suppose also that K = 1000 and L = 1000. Calculate GDP. This should be EASY. Plug in the numbers and look carefully. V; Johny?” yfi (mags)? ; fi'oO-‘l‘li’fl <12€,ifi2:’\ qéér'flifilfiifimqg “‘~\\ / b. Calculate the real wage and the real rental rate of capital. Solve it and then plug in the numbers and look carefully. ,7 r“ g u. ok - \/= S'th'ZL La 9451' (FOCAL L ’L 1V1 Pp: a. l¢"" L Q l’l?K_:;->3}S-Oz_-,7 ((-7 :61\ Sub \L-3L 3; I ~ — — “\i r . R'? \. 1:3) {i’fmw’i .7 (100037 ‘ ’159{‘9°°t‘ (1°09) - _ (“l P .: " .f" H‘lcv l3 j ‘* Li’erif“\ 94/9331” c.\1-low much output do workers get? How much output do the owners of capital receive? (Don’t just give the proportion). W “in! ' 36:1" ? 5:; ML"; «3 «wnvtli‘ ‘3 (goo \I (6&5 A d ., t 3 g . ‘ t) J U) I/ 7 «\(}E “W M 0‘99 ‘ ,.\\ 2. [20] Refer back to (1) and assume that your economy is closed. Suppose that C = 100 + .9(Y — T), l = 10,000 — 1,000r, and G =d1,750. (There is no foreign segor.) Suppose further that T = 1,500. Calculate private/publicdand national savings. Calculate the real interest rate that puts this economy in equilibrium. Draw a graph that represents your equilibrium answer. . PPM/Art Saw N; s, : 47 mi fl‘l}: C:lOQ+=fiL\/'T) 5-: {k/~C’T)+(T_63f.1 '4‘ r’iil‘g" .N iauirfi"; Z-‘YS‘U ' "-—~i-~——' Lg”; ‘ J 1 : lo;ooo — (0001' pray” (“Ln I p 0 he“ V; 39"}? g ("I quqlqflg [:7 : \7s-D , r ‘ S 1116,11?! n‘b - H 3,714 anal — 1500) 9 Q 51» — was) Ww-'”~“'-M~W “— T: l‘g'eu , , fl \f N T (’L' 7‘l‘l «95:34 1..“ ‘34:") \/ , ‘ , , ‘-_ I r ’ ‘6 “h I, W (I! f; “3.? L {Mfg 5h» '50' ‘ N 9 ‘ K 4 'fi ' x K ‘ q! cl ‘1 ‘l .4177 C ~ w H i. : “3,74%.45t IALLMEX' Nari Kl \OuoL ‘ A. “Laws-d 3. [15] Suppose now that the government pursues a balanced budget by increasing T to 1,750. Recalculate the equilibrium reallate of interest, private saving, public saving, national saving, and investment. Show how the increase in T impacts your graph from (2). t; , f \I _ C ,T) 4, CT, (.8 _. ; Q:loo+la(\/,T> I j; , Myriam;=5-Lt3,g'zbl.°rsto—t7<0) *- (NCO ~ i750} — ‘00 L .6! (4144.143— £75.73) :£3?.~»»;:.\t..a.,.. pu- 472me + <3 5: 4174.417: \, : C , 1 + {3 flags. ECM‘ Kvig a: HQflqfl‘tx 2 Q's/{HAM l—(lopw “(0000+ O Prwale, sfivir-JQ. 14/ 724373 Ple-‘r, Saute-73 ‘, O Mu‘i‘lor‘u; Sp! ifjfi. -r LAMtiNn‘l’, 9374,77? Q), “THEM? :(opou-tomr P: 3,315" & 4,617.17? WM??? 5"" increased. Explain, using graphs, what would happen to the cal rate of interest, private saving, , _ I ‘ _‘__- natio g, investment, the real exchange rate and net e orts. How does the answer compare to the answer to m M question (3) above. , F 5 {be “‘4 \J Priva§?{ Sflvtf(g Ii D£CW‘5€‘ J t M», gmy \ “bxlafiyi gyviuzz :nLflQV’S'4 InmsA-winjl' OX, Um.” ,‘ti , , g f I Léflww. H XI jv‘t,t‘4,{4’;,€ {omfgncg 4,0 MW tum. :n in. My lw +Lw3t balk @A i n Mans Q \n, ilk-acts $2.4 a1. At)me 'i'l’mL-t I t; ac, (595g 55 {CDMDML/ .métnés‘t . r984: (On Liaoxrje Uk'.(€ I‘VI 4LTS (ll-k “(‘44 L‘A .ofcv‘ {Lemmy HALL/1.5+ r off?» Mufi‘é‘. Marcy \IV‘ 4.3;} LMrJeJ ,' 5. [15] Consrder a small open economy. A number of much larger economies decrde to reduce their budget deficrts. Explain, using graphs, what would happen to the world real rate of interest, domestic private saving, public saving, national savin , investment, the real exchan e rate, and net ex orts. , g g P r p . CL . r 3 :Z(// r a fiz’gat Cowl/fl- 15):: {LEfiLVfi‘t-w t i ‘J N (JJOKJL adv/1rd; ', U0 Chm.»ng , A V J 4 r HD}tjf"l 5*‘5’] VJ; C‘V‘.,0~V‘§L iV‘W—Si'W—Lr‘é' f P)» {/Lyyxjg f ‘1 Du, (by/5L \ K ‘ A // “l? eleolgg . 9(J/(fiov5L 6 [10] Carefully explain the quantity theory of money using the equation of exchange. In the Classical model, prove that if the money supply increases by 4%, prices will increase by the same amount. What will happen to other nominal economic variables? Will any real variables change? What must happen to change any real variables in the classical model? Assuming that purchasing power parity holds, what will happen to the nominal exchange rate if foreign prices are constant while the domestic money supply increases by 4%? ‘ ‘ k m t , 1 t . t r (w - , ,i “(L-L Qq:.wl\.i-J -aixxuczrw 4‘ 1; 6V “’5’ 11‘9"“? ( '7“ ’7‘ “‘4'!” J‘vtv‘ 'i ‘r , 4 i.\ /v L,,—(‘:-P ~,-{_ , f a ll. . Ufiimiiv e; Vibvt’;'V:i i2 “Dbl i0 iiva Kali“? Level (Y) N°"'Pi‘{J Mat) : 9 ROWAN-r 4"4 'HA-N is w: Maser ‘l‘o iaiféw Ugmi'v's’luy’é‘i' RiSO 5"r'e LB“? 0» ' L 7‘ O Lil/“ant; i‘t” ’ q 2' tr 35':"’; L “wary F‘ :f {we} kifiv / a 1‘) by A ,. ("it i ‘_ r . e , “‘5‘ wk! U : ?¥/ 9 I ’ 0/ I) ‘ 6 ‘ So .uea. 1» . «awe a r r «L 4 915’“ V) ' /» l: (9") ‘1 t r u/ e a " O "' F .F l . WC 09¢) a f»; iem.“ abide-‘- DBV; ZA‘; i%t~¢_1§.r-L it“ ’LQM.» 1‘5; a “it. v p t ¢ LL Hex l A u/ r triw A & / Vi,4,l~t' mu” X; 9. Lin inLMa-jg ~ "N @r gut. GM‘ . M I’M-r,‘ K340? \‘P F i\ n ‘ u w ' c - Q t 1.. l .vy- g ‘ 2 w z w wLM 54 Y /- Vow/*1» a We whee; N‘H‘ (James): K" k I . ’4" 1”; O! a rrarat Nr ‘ cxrssax Lia's”! ! I TM Nafllr‘i érlfciwnr-vt Fa-«i'é have.pr 7. [l 0] Suppose a country has a money demand function MD=l<Y where k is a constant. uppose that Y grows by 3% (because technology grows by 3%). a. Suppose that the money supply and k are constant. What would happen to ices in this economy? Be precise (give a number). , ._ v 453’” + 795‘.) ; ’7. A? + ,75 M \l '37. A379 / b. What would be the costs associated with this movement in prices if the movement was unexpected? 1" "L. ; n .. . (AL, u. ‘l' lbsfitfi-C‘j/ 0‘? Evin», . ( ~5r I r 4 t r (A a. cavmer win. (gush-"'H Lino. in t mg, 1, J 7 7’ NJ '3 P s a». l :r M1: 3 c. How could the Fed ensure that prices don’t move in this direction? 4\ yr ; . . . fl 5 , .' 'LIIFL Timex/I ‘gud Alba,“ M :lrv‘ rbla‘,” l’lnroolih game) 54} Gog-cir‘gfs’ «My «'5’; 4) “$6 \ Lia. Seie ALOI~$¢eun‘-' loprg \LL.,,,.; "’JMKine, kalrzg/ Haj; L°u\cj louL/ BonC‘S Ham,qu 3?“ M.r£u~ ‘i'r"‘n»gl'i W5, 9(./ we, (natal luau“ art-M 5i” ra‘i’L (Mid an lmsla‘c'ry s d. If the Fed targets 2% inflation, by how much ( which ' ction) should the money supply be changed? Si'nbv‘i J b‘{ in gr (“$4.15. ...
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