Economic Growth and Fluctuations
ECON 3133
Dr. Keen
Answers
1.
a. P = 1/2, D = S =4.
b. P = 1, D = S = 4.
c. Quantity demanded, D, increases by 1.
2. Yes, provided the economy grows by 2 or 3% per yea
Consumption Demand
Additional Homework Problems
ECON 3133
Dr. Keen
1. Suppose that we have a consumption function of the form
C = 220 + 0.9Yp,
where Yp is permanent disposable income. Suppose that con
Economic Growth and Fluctuations
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1.
a. P = 1/2, D = S = 4.
b. P = 1, D = S = 4.
c. Quantity demanded, D, increases by 1.
2. Yes, provided the ec
Measuring Economic Performance
Additional Homework Problems
ECON 3133
Dr. Keen
1. The following are data from the U.S. economy in billions of dollars
Rental income
Depreciation
Employee compensation
C
Long-Run Economic Growth
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1.
a. 1,000 + 12W/P = 2,000 8W/P
W/P = 50 and N = 1,600.
Yes, it exhibits diminishing marginal product.
c. N = 1,600; Y
Responding to Economic Fluctuations
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1.
a. In the year of the shock, the price level, being a predetermined variable, will stay at 1. Therefore,
The Adjustment Process
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1. This periods inflation rate is a function only of last periods output and last periods inflation
rate both of which ar
Fiscal and Monetary Policy in the Growth Model
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1. Y/Y = C/Y + I/Y + G/Y.
I/Y = 0.02R.
a. Y/Y = C/Y + I/Y + G/Y = 1.0.
Since C/Y does not depend
Unemployment, Job Creation and Job Destruction
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1.
a. Job losing rate (l) is 0.03
Job finding rate (f) is 0.40
Unemployed is 9.1 million
Labor fo
Unemployment, Job Creation and Job Destruction
Additional Homework Problems
ECON 3133
Dr. Keen
1. In a particular month, the labor force is 130 million, there are 9.1 million unemployed
workers, the j
Responding to Economic Fluctuations
Additional Homework Problems
ECON 3133
Dr. Keen
1. Suppose the economy is initially described by the following equations.
Y = C + I + G + (X IM)
C = 220 + 0.63Y
I =
Fiscal and Monetary Policy in the Growth Model
Additional Homework Problems
ECON 3133
Dr. Keen
Problems
1. Consider a closed economy in which net exports, X IM, equals 0. Suppose that
consumption is i
2Aggregate supply captures the implications of equilibrium in the labor market
Aggregate demand captures the implications of equilibrium in both the goods and
financial markets
Aggregate supply relati
Goods market and IS curve
Equilibrium in the goods market is when production Y is equal to demand Z IS Relation
Demand is the sum of consumption, investment, and government spending
Consumption was a
CH 2
GDP
Aggregate=total
Aggregate output The total amount of output produced in the economy
Gross domestic product (GDP) A measure of aggregate output in the national income account
Intermediate good
If there is an increase in demand then firms react by increasing production
o Higher production -> higher employment -> lower unemployment -> higher wages ->
increase in production costs -> firms inc
Measuring Economic Performance
Additional Homework Problems
ECON 3133
Dr. Keen
Answers
1.
a. GDP = C + I + G + X IM
= 4,378.2 + 882.0 + 1148.4 + 659.1 724.3
= $6,343.4 billion.
b. NNP = GDP + net fact
Long-Run Economic Growth
Additional Homework Problems
ECON 3133
Dr. Keen
1.
a. The labor supply function is given by N = 1,000 + 12(W/P) and labor demand is N =
2,000 8(W/P). Draw a diagram showing th
The Adjustment Process
Additional Homework Problems
ECON 3133
Dr. Keen
1. According to the equation 0.6 1 f
(Y1 Y*)
, is inflation a predetermined
Y*
variable? Explain.
2. Suppose that there is a sud
Unemployment, Job Creation and Job Destruction
ECON 3133
Dr. Keen
Answers
1.
a. Job losing rate (l) is 0.03
Job finding rate (f) is 0.40
Unemployed is 9.1 million
Labor force is 130 million
Jobs found
Long-Run Economic Growth
ECON 3133
Dr. Keen
Answers
1.
a. 1,000 + 12W/P = 2,000 8W/P
W/P = 50 and N =1,600.
Yes, it exhibits diminishing marginal product.
c. N = 1,600; Y = 4,000 in equilibrium.
2.
a.
Fiscal and Monetary Policy in the Growth Model
ECON 3133
Dr. Keen
Answers
1. Y/Y = C/Y + I/Y + G/Y.
I/Y = 0.02R.
a. Y/Y = C/Y + I/Y + G/Y = 1.0.
Since C/Y does not depend on R, I/Y must adjust enough
Growth and the World Economy
ECON 3133
Dr. Keen
Answers
1. The problem states that (K/N)US = $2,250,000 and (Y/N)US/(Y/N)I = 15.
15 = (Y/N)US/(Y/N)I = (K/N)1/2US/(K/N)1/2I
152 = 225 = (K/N)US/(K/N)I
2
Short-Run Fluctuations
ECON 3133
Dr. Keen
Answers
1. Y = 160 + 0.8(0.75Y 200) + 200 + 200
Y = 400 + 0.6Y
0.4Y = 400
Y = 1000.
a. T = 0.25Y + 200 = 450.
Sg = T G = 250.
b. Y = 480 + 0.6Y = 1200.
Lump s
The Adjustment Process
ECON 3133
Dr. Keen
Answers
1. This periods inflation rate is a function only of last periods output and last periods inflation
rate both of which are predetermined variables (as
Responding to Economic Fluctuations
ECON 3133
Dr. Keen
Answers
1.
a. In the year of the shock, the price level, being a predetermined variable, will stay at 1.
Therefore, the real money supply will al
Investment Demand
ECON 3133
Dr. Keen
Answers
1.
a. K* = 400; I = 0.25(400 400) = 0.
b. K* = 500.
Given K*, actual investment is calculated as I = s(K* K-1).
Given I, capital stock this period equals K
Foreign Trade and the Exchange Rate
ECON 3133
Dr. Keen
Answers
1.
a. Endogenous: Y, C, I, (X IM), R, E.
Exogenous: G, M, P, PW .
b. Y = C + I + G + (X IM)
= (220 + 0.63Y) + (400 2000R + 0.1Y) + G + [6