1.Suppose the United States economy is represented by the following equations:

Z = C + I + G C = 100 + .5Y_DT = 200I = 30

Y_D = Y - TG = 100

a)Which variables are endogenous and which are exogenous?

b)Calculate equilibrium levels of output, consumption and disposable income

c)What is the multiplier for this economy

d)What is the effect of increasing G by $100 on Y and the deficit

2)Suppose that the wage and price setting relations are given by

W = P^e (1-u)

P = (1+) W

a.If P = P^e and the mark-up is 20% find the real wage

b.Calculate the natural rate of unemployment

c.Calculate the real wage and the natural rate of unemployment if the mark-up decreases to 10%

d.Now if P P^e and P^e =105, but markup is still 20%, what unemployment rate is compatible with the price level = 100?

e.Derive the aggregate supply if the production function is Y = N

Q3) Suppose the Okun'e law is given by

u t - u t-1 = -0.4(g yt - 3%)

Where variables are as defined in class.

1.What is the output growth needed to result in reducing unemployment by 1% in a year.

2.What is the output growth needed to reduce unemployment by 2% over the next 4 years.

3.what is your interpretation of the 3% in Okun's law above?