Problem Set 1

Macroeconomics, ECON 2123

(Instructor: Partha Sen; TA: Peter Tsui)

------------------------------------------------------------------------------------------------------------------------------------

Posted: Friday, 19 September 2014

Due: 5:00 PM Friday, 26 September 2014

(Submit your homework into the homework collection box outside the department office)

100 marks total

Part I: True/False/Uncertain (20 marks, 4 marks each)

1. GDP is the value of all goods and services produced in the economy during a given period.

2. When disposable income equals zero, consumption equals zero.

3. The multiplier is greater than 1 if T = 0 and G = 0.

4. Paradox of saving occurs when the attempts by people to save more lead to a decline
*…show more content…*

What was the rate of inflation in the year of 2010? (8 marks)

Part III: The Goods Market (55 marks)

Note Questions 2(c), 3(c) and 4(c) require short answers—no more than 5 sentences each.

1. Suppose that the economy is characterized by the following behavioral equations: (16 marks) C = 16 + 0.6 YD I = 15 G = 15 T = 10

Solve for the following variables:

(a) Equilibrium GDP (Y)

(b) Disposable income (YD)

(c) Consumption spending (C)

(d) What is the value of marginal propensity to consume (MPC)?

(e) What is the value of marginal propensity to save (MPS)?

(f) Find the multiplier and autonomous spending.

(g) What are private saving and public saving?

2. Use the economy described in problem 1 in Part III. (9 marks)

(a) Solve for equilibrium output. Compute total demand. Is it equal to production?

(b) Assume that G is now equal to 11. Solve for equilibrium output. Compute total demand. Is it equal to production?

(c) Assume that G is now equal to 11, so output is given by your answer to (b). Compute private plus public saving. Is the sum of private and public saving equal to investment? Briefly explain.

3. Consider the following behavioral equations: (15 marks) C = c0 + c1 YD T = t0 + t1 Y YD = Y – T

G and I are both constant. Assume that t1 is between 0 and 1.

(a) Solve for equilibrium output and equilibrium taxes.

(b) What is the multiplier?

(c) Does the economy respond more to changes in autonomous spending when t1 is 0 or when t1

Related

- Decent Essays
## Econ 214 Exam 1 Complete Solutions Correct Answers Key

- 1890 Words
- 8 Pages

Question 33 Consider the following data that gives the quantity produced and unit price for three different goods across two different years to answer the questions that follow: Assume that the base year is 2012. What was the real GDP in 2013?

- 1890 Words
- 8 Pages

Decent Essays - Good Essays
## Essay on Gb540 Unit 1 Assignment

- 1482 Words
- 6 Pages

Problem #1: Using either a graph or table (Refer to page 22 for help with graphs and tables) use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve expand or contract? Why is efficiency lost at the extremes, as when substantially more of one good and very little of another is produced?

- 1482 Words
- 6 Pages

Good Essays - Good Essays
## Essay on Assignment 1

- 1298 Words
- 6 Pages

For Investment B: (40 – 5)/ 30= 1.16 standard units= close to 88% to get the 40 million in

- 1298 Words
- 6 Pages

Good Essays - Decent Essays
## Essay on Problem Set 2

- 961 Words
- 4 Pages

b. Again analyzing his past data, Larry does a runs test. He finds the following results.

- 961 Words
- 4 Pages

Decent Essays - Better Essays
## The Federal Reserve Is The Central Banking Institution Of The United States Of America

- 1725 Words
- 7 Pages

GDP, or gross domestic product, is the sum total value of all goods and services produced by a country within a given year. To achieve this sum, everything produced and exported, all of the money spent by consumers and government, investments, and many other contributing factors are calculated and combined. A nation’s GDP is used as the main indicator of the economic status of that nation. In general, the higher a country’s GDP is, the greater the health of that country’s economy. However, GDP is not as helpful or accurate a calculation as “real GDP”. Real GDP is a term that refers

- 1725 Words
- 7 Pages

Better Essays - Decent Essays
## Brs Mdm3 Tif Ch04

- 4341 Words
- 18 Pages

12) Suppose that we force the production of one unit of product A. The new objective function value will be

- 4341 Words
- 18 Pages

Decent Essays - Decent Essays
## Ap Economics Assignment

- 1202 Words
- 5 Pages

-The nation’s GDP is a good measure of its economic well being and progress because it represents the total value of all goods and services produced in an economy, and what a country produces and what it consumes are nearly identical.

- 1202 Words
- 5 Pages

Decent Essays - Decent Essays
## Gdp Paper

- 753 Words
- 4 Pages

Gross Domestic Product, also known as GDP, is defined as the dollar value of all final goods and service produced within the border of a country during a specific period of time, typically in one year. GDP measures the value for the whole country, and it also changes quickly. We can take a look at the trends of US GDP in the website of the U.S. Bureau of Economic Analysis.

- 753 Words
- 4 Pages

Decent Essays - Better Essays
## Bernanke on Bernanke Essay

- 1417 Words
- 6 Pages
- 4 Works Cited

GDP is the market value of all final goods and services produced within a country in a given period of time. GDP is basically the measure of a nation's total income and is an important tool in explaining a single society's economic well-being (Mankiw, 2009).

- 1417 Words
- 6 Pages
- 4 Works Cited

Better Essays - Decent Essays
## Asset and General Fund

- 2037 Words
- 9 Pages

13) Assume that a government purchases $85,000 of inventory for the General Fund during the year. The General Fund began the year with an inventory balance of $15,000 and ended the year with a balance of $35,000. The General Fund uses the consumption method of inventory accounting and a perpetual inventory system. The General Fund should report

- 2037 Words
- 9 Pages

Decent Essays - Satisfactory Essays
## Assignment 2a Assignment

- 527 Words
- 3 Pages

c) The main problem is the relationship between spending and M1. This created conflict for a policy targeting on M1 growth because as we know, M2 velocity is more stable. With this, targeting on M2 instead of M1 will should the situation.

- 527 Words
- 3 Pages

Satisfactory Essays - Decent Essays
## Gdp Essay

- 986 Words
- 4 Pages

GDP consists of Gross (before taking into consideration the depreciation in the value of the product), Domestic (within the borders of a country) and Product which simply means a good or service. So what does it all mean when all these three factors are interlinked? GDP is simply the market value of all the final goods and services produced within a country in a given time period – usually a year (Parkin et al. 2005: 438).

- 986 Words
- 4 Pages

Decent Essays - Decent Essays
## Macroeconomics

- 3435 Words
- 14 Pages

6. Why do economists use real GDP rather than nominal GDP to gauge economic well-being?

- 3435 Words
- 14 Pages

Decent Essays - Decent Essays
Question 1: How can governments influence the long run rate at which the economy grows?

- 1429 Words
- 6 Pages

Decent Essays