44Econ help.
3} Consider a twoperiod small open endowment economy populated by a large number of households with preferences described by the lifetime utility function U[Cl., Cg} = lnCl + lan where C1 and 132 denote consmnption in periods 1 and 2. Suppose that households receive exogenous endowments of goods given by Q1 = Q3 = ll] in periods 1 and 2. Every household enters period 1 with some debt. denoted by HE, inherited from the past. Let B; be equal to 5. The interest rate on these liabilities, denoted m, is 20%. Finally1 suppose that the country enjoys free capital mobility and that the world interest rate on assets held bet-ween periods 1 and 2, denoted r\". is 10%. a. Compute the equilibrium levels of consumption1 trade balance, and current account in periods 1 and 2. b. Assume now that the endowment in period 2 is expected to increase from ll} to 15. Calculate the effect of this anticipated output increase on consumption1 trade balance. and current account in both periods. Compare your answer to that you gave for item a. and provide intuition. Homework: Macroeconomic Measurements, Part II: GDP and Real GDP (Ch 07) 7. Economic fluctuations and growth The following table shows data on a hypothetical country's Real GDP from 2000 through 2008: Real GDP Year (Billions of Dollars) 2000 372 2001 376 2002 380 2003 388 200 408 2005 404 2006 396 2007 392 2008 400 The green line on the following graph shows the economy's long-term growth trend. Use the blue points (circle symbol) to plot the Real GDP in each of the years listed. (Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.) Next, place the black point (plus symbol) on the graph to indicate the point on the Real GDP curve that definitely represents a peak. Finally, place the grey point (star symbol) on the graph to indicate the point on the Real GDP curve that definitely represents a trough. ? 440 432 424 Real GDP Peak REAL GDP (Billions of dollars) Trough Growth trend 368 360Suppose the economy is in a recession. The economy needs to expand by at least $300 billion, and the marginal propensity to consume is 0.6. What is the least amount the government can spend to overcome the $300 billion gap?Calculate the percentage change in Real GDP in each of the years shown. (Hint: The percentage change in Real GDP captures the change in GDP from the previous year to the current year. For example, you can calculate the percentage change for 2001 by finding the change in GDP from 2000 to 2001, dividing this change by the level of GDP in 2000, and then multiplying the result by 100.) Once you've calculated the percentage change for each of the years, use the orange points (square symbol) to plot your results on the following graph, rounded to the nearest percent. For each year, plot the percentage change from the year before. (Hint: For example, you should plot the growth rate from 2000 to 2001 with a horizontal coordinate of 2001.) ? O Annual Change ANNUAL CHANGE IN REAL GDP (Percent) 5 2001 2002 2003 2004 2006 2007 2008 YEAR This economy experienced a contraction in the years . On the first graph (showing Real GDP), this contraction is seen as a period in which the level of Real GDP . On the second graph (showing annual change in Real GDP), this contraction is seen as a period in which the growth rate of Real GDP In 2002, which of the following phases in the business cycle could this economy have been experiencing? Check all that apply. Expansion O Trough Recovery Contraction Peak1st attempt The multiplier effect of fiscal policy predicts that an increase in government spending of $100 billion will increase total income by $500.00 billion if the marginal propensity to consume is 0.80. If we account for crowding-out, then the increase in aggregate demand will be
