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?
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
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
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
Multiplier in Williamson
How much does the Yd curve shift
to the right?
The text says MPC = BF/AB
It should be this!
NOTE
The expenditure multiplier is 1 if we
consider ONLY the demand side !
When we consider the total effects
( demand AND supply ) the
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
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
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
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
Ch 10 supplemental
class slides
Suppose that the goal of the Central Bank
is to stabilize the price level
Suppose they are targeting the nominal
interest rate ( Remember R = r + i)
If there is a shock that is to money
demand itself then this policy wil
Solow II
Solow supplemental
Increase in saving
The effect of a higher population growth rate on the steady-state capital
labor ratio
The effect of a productivity improvement on the steady-state
capitallabor ratio
Per Capita Income between 1800 and 1950
D
Ch 10
What is money?
Monetary Intertemporal Model
Demand for Money Banks and
alternative means of payment.
Real and nominal interest rates
Neutrality of money
Monetary policy: targets and rules
Medium of exchange
Store of value
Unit of account
M
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
Ch 8 supplemental Credit Market Imperfections Asymmetric information.
The credit market imperfections in the model can be handles easily if we restrict
ourselves to a bank and two interest rates.
Let r1 = the rate the bank pays depositors
Let r2 = the rat
THE REAL INTERTEMPORAL MODEL (chapter 9)
The next step in building the model will be to construct a goods and services market. We
will call this simply the goods market for short. This is the market we are all familiar
with as consumers.
We begin by using
Productivity shocks
Change in z
Output (GDP ) increases
Real interest rate falls,
consumption rises
investment rises,
employment rises,
real wage rises.
Change in z
Output increases
Real interest rate rises
investment increases
consumption may rise or f