MACROECONOMICS
Week 5 Seminar Questions
2006
Questions for Review
1.
How do consumers save in the two-period model?
2.
By buying bonds
This period you save s, next period you get s(1+r)
What is the slope of a consumers lifetime budget constraint?
3.
-(1+r
If you find a mistake in these solutions, first check online to see if it has been fixed, then send me
an email.
1) When X is the sample mean taken from a Normal population distribution with known variance,
how can we write the sampling distribution of X?
Lectures 6 and 7 practice problem solutions
Ch 4, problems 1, 2, 3 (NOTE: h=16), 4, and 7 (suppose income effects are same magnitude) (starting
page 126)
Answers:
Problem 1: show that it violates monotonicity.
Problem 2a:
Problem 2b: No (why not?)
Problem
Lecture 13 practice problems
SA1. Suppose the government decided to subsidize savings and tax borrowing. The savings
subsidy is t fraction of savings, and the borrowing tax is also t fraction of borrowing. In
other words, if you saved 4, youd receive an e
Lecture 15 practice problems
SA1. Suppose the consumers utility function is
U= c + c' . The consumers discount factor is 0.5.
Part A: show that the consumers optimal consumption bundle is (8, 8) and the consumer saves 0 when
current-period endowment is 8,
Lecture 3 practice problem solutions
Ch 2 Problem 4a: Year 1 = 30,000; Year 2 = 50,700
Ch 2 Problem 4b: Base year: YR2 RGDP (YR1 base year) = 37,000; growth rate = 23.3%;
chain-weight growth rate = 23.5%, chain-weight real GDP = 37,049
Ch 2 Problem 4c: Ba
Lecture 14 practice problems
SA1. Suppose the consumers utility function is
U= c + c' . The consumers discount factor is 0.5,
current-period endowment is 12, future-period endowment is 0, and the real interest rate is 1.
Part A: Show that the consumers op
MACRO
VARIABLES &
COMOVEMENTS
Bohan Li
ECON 2152B-002 Lecture 3
Administrative item
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MACRO
VARIABLES
Bohan Li
ECON 2152B-002 Lecture 2
Quick administrative note
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The importance of data
and measurement
What we measure affects what we do; and i
Ricardian Equivalence and Credit
Market
Revisited
Ricardian Equivalence and Credit
Market
Explain the impact of a current tax
cut on the credit market and
equilibrium real interest rate
Sp represents the supply of loan
and B represents the demand for
lo
Econ 2152B-001 Lecture 1
Introduction to Macroeconomics (Ch 1)
Instructor: Wenya Wang
University of Western Ontario
1 / 18
What is Macroeconomics?
Macroeconomics: analysis of large economic questions that affect many
people and many countries
Recent News
Econ 2152B-001 Lecture 6
Credit Market Imperfection & Failure of Recardian
Equivalence (Ch 10)
Instructor: Wenya Wang
University of Western Ontario
1 / 23
In This Lecture
In Lecture 5, a perfect credit market where
1
Borrowers always repay
2
Lenders know
Explanation
These are some extra exercises, some of which were proposed during lectures. Doing them will help you
solidify your understanding of concepts covered in class. Exercises marked with a are supposed to be
difficult.
Models and Parameters
Remembe
Question 1: Bias and Efciency
Two estimators for , the population mean of X, are given by:
1 = X + 2,
2 = X + , N (0, 10)
(a)
Compute the bias for both estimators. Which has the least bias?
(b)
Compute the efficiency of both estimators (i.e. 1/E[( )2 ]).
1) When X is the sample mean taken from a Normal population distribution with known variance,
how can we write the sampling distribution of X? What is the corresponding (1 ) 100% confidence
interval for the population mean, ?
2) When X is the sample mean
Econ 2152B-001 Lecture 2
Measurement (Ch 2 & 3 )
Wenya Wang
University of Western Ontario
1 / 46
In this Lecture
Measurement of a macroeconomic variable:
starting point to understand how the economy works.
Road map:
1 Measurement in National Accounts
Thre
Econ 2152B-001 Lecture 8
A Monetary Intertemporal Model:
Money, Banking, Prices and Monetary Policy (Ch 12)
Instructor: Wenya Wang
University of Western Ontario
1 / 33
In This Lecture
Recall in the past Lecture 4-7:
no money in model
transactions are done
Econ 2152B-001 Lecture 3
One-Period Model: Consumer & Firm Behavior (Ch 4 )
Instructor: Wenya Wang
University of Western Ontario
1 / 39
In this Lecture
Individual (consumers or firms) decisions: within a period or across
multiple periods
Within a period:
Econ 2152B-001 A Two-Period Model: Consumption,
Saving and Credit Markets (Ch 9)
Instructor: Wenya Wang
University of Western Ontario
1 / 37
In This Lecture
In Lecture 4, we discuss one-period Model:
Static decisions of consumption and leisure for consume
Econ 2152B-001 Competitive Equilibrium in One-Period
Model (Ch 5)
Instructor: Wenya Wang
University of Western Ontario
1 / 33
In this Lecture
In Lecture 3, we:
C=w(h-l)+-T
described consumer behavior; derived labor supply curve
described firms behavior; d
Econ 2152B-001 Lecture 7
A Real Intertemporal Model with Investment (Ch 11)
Instructor: Wenya Wang
University of Western Ontario
1 / 40
This Lecture
We have studied:
work-leisure choice in Lecture 4
. and intertemporal consumption-saving choice in Lecture
Econ 2152B-001 Lecture 9
Economic Growth: Malthus and Solow (Ch 7)
Instructor: Wenya Wang
University of Western Ontario
1 / 38
In This Lecture
Introduction of our class:
economic growth and business cycles: two primary topics studied in
economics
This lec
Credit market uncertainty
Vertical ditance between Yd 1 and yd 2
represents the credit market default
premium. This is higher for borrowers
than the equilibrium rate so output ,
employment , investment and
consumption are all down!
Just like we saw in t
Ch 8 part 1
Two-Period Model
N consumers (not representative)
Live for two periods (current, future).
Receive endowment in each period (y, y).
Pay lump-sum tax in each period (t, t).
Decision: how much to spend as
consumption in current period, and how
mu
A TWO PERIOD MODEL
I. Description
Up to now all the action in our model economy has taken place during one period. It is
as if the economy exists for one period in time and then disappears.
Obviously this is not realistic and we need to remedy the situati
Government in the Two Period Model.
We will now place a government in our model.
There are a few preliminary points that we need to make.
1) All government decisions to use some of the production of our real economy (Y) can
be thought of as government exp