Assignment Solution

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ECON112 Macroeconomics Problem Set 1 *Solution* By Yao Amber Li Fall 2010 (Instructor: Li, Yao; TA: Fok Pik Lin, Astor)
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40 marks total

Part I: True/False/Uncertain Please justify your answer with a short argument. (10 marks, 2 marks each) One mark is for correct judgment. One mark is for correct argument. 1. GDP is the value of all goods and services produced in the economy during a given period. False.

GDP = Value of * FINAL* goods & services produced in the economy during a given period.

2. When disposable income equals zero, consumption equals zero. False. When disposable income equals
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If we had used more decimals for the index of 2001, it would had been the same. (Note: the student could indicate that because there is only one good in this economy, the two ways eventually give the same answer. This is a bonus point (1 mark) if the student indicates that. However, the statement before the brackets is sufficient for this question.)

Part III: The Goods Market (Chapter 3) (16 marks)
1. Answer the end-of-chapter Question 2 in Chapter 3. (4 marks) 2. Use the economy described in the end-of-chapter Question 2 in Chapter 3, answer the following: (6 marks) (a) What is the value of marginal propensity to consume (MPC)? (b) What is the value of marginal propensity to save (MPS)? (c) Find the multiplier and autonomous spending. (d) Solve for private saving and public saving. 3. Answer the end-of-chapter Question 3 in Chapter 3. (6 marks) [the textbook should be the 5th international edition updated. However, as for Problem Set1, if the student uses the 5th edition or other editions, as long as the student answers the questions using correct methods, it is fine. But in future, we only use the 5th international updated edition.]
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Version 1: (5th edition updated version) C = 160+0.6 YD I = 150 G = 150 T = 100 1, Question 2 in Chapter 3: (a) 2 marks, (b) 1 mark, (c) 1 mark

(a) equilibrium GDP (Y) = 160+0.6(Y-100)+150+150

Y=1000 (b) YD=Y-T=1000-100=900 (c)
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