Macro Assignment 3
Jeff Frey
1. The following equations describe an economy. (think of C, I, G, etc., as being measured in
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C = 0.8(1-t)Y
T = 0.25
I = 900-50i
G = 800
L = 0.25Y 62.5i
Intermediate Microeconomics
Fall 2016
Problem Set 1
Multiple Choices
1.
Which of the following would shift the demand curve for new textbooks to the right?
a) A fall in the price of paper used in publishing texts.
b) A fall in the price of equivalent used
Assignment 3
2 Continue with the same equations.
a) What is the value of G which corresponds to the simple multiplier (with taxes) of chapter 9?
b) By how much does an increase in government spending of G (300) increase the level of
income in this model,
Here we investigate a particular example of the model studied in Sections 9-2 and 9-3with no
government. Suppose the consumption function is given by C = 100 + 0.8Y,while investment is given
by I = 50.
(a) What is the equilibrium level of income in this c
Question 5
Suppose Congress decides to reduce transfer payments (such as welfare) but to increasegovernment
purchases of goods and services by an equal amount. That is, it undertakes achange in fiscal policy
such that
G TR
.
(a) Would you expect equilib
Intermediate Microeconomics
Fall 2016
2) A firm's total cost function is given by the equation:
TC = 4000 + 5Q + 10Q2
(1) Write an expression for each of the following cost concepts:
a) Total Fixed Cost = 4000
b) Average Fixed Cost = 4000/Q
c) Total Varia
Question 2
Suppose consumption behavior were to change in problem 1 so that C = 100 + 0.9Y,while I remained
at 50.
(a) Would you expect the equilibrium level of income to be higher or lower than in 1a)? Calculate the
new equilibrium level, Y, to verify th
Intermediate Microeconomics
Fall 2016
1) Marges Hair Salon production function is y(K, L) = KL where K is the number of hair dryers and
L is the number of labor hours she employs. a) Does this production function exhibit increasing,
decreasing, or constan
Question 3
Now we look at the role taxes play in determining equilibrium income. Suppose we havean economy
of the type in Sections 9-4 and 9-5, described by the following functions:
C = 50 + 0.8YD
I = 70
G = 200
TR = 100
T = 0.20
(a) Calculate the equilib
Assignment 3
1. The following equations describe an economy. (think of C, I, G, etc., as being measured in
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C = 0.8(1-t)Y
T = 0.25
I = 900-50i
G = 800
L = 0.25Y 62.5i
M/P = 500
a)
b)