Microeconomics questions
Part I. (40 points) 1. Use the following algebraic model of an economy to answer parts ad. You may use graphical versions of this model to answer pans e and f. {1] Labor Demand: La = no- n1*(WfP) + n2*K + n3*RM {2] Labor Supply: L: = so + s1\"foP) {3] Labor Market Position: U = (L: - URL: + U\"' {4] Production: v = Tech'La' *K'RRM' {5] Consumption: C = o. + c'd +c:*NW c3\"P [NW = net worth] {6] Investment: I = d - e\"r {7] Governmental Expenditures G = Go + t"\"(Y'1 Y] (El) Net Exports: X = g: - gI*Yd - g2*r (9] Disposable Income Yd = Y - T (10) Taxes: T = t.I + t-I'IIIIr (11) Aggregate Expenditure: AB = C + I + G + X {12) Goods Market Equilibrium: 'I" = AD {13) Money Demand: Md - P = hlw - h2*i {14) Money Supply: M = mo + mi*i {15) Money Market Equilibrium: Md = M (16) Nominal Interest Rate: i = r + ItE Endogenous Variables Exogenous Variables Ld.P.u.Ls.v,c,a.ch,T.i w.I<.rm. m tech. uw vp in and i various autonomous terms tag. niir a. derive the is curve. b. lm c. aggregate demand curve indicate its slope. d. supply determine sign of slope e. effect an imam potential gdp on output. prices. real interest rates employment. show graphics based above model f. showr how protease raw materials affects rates. model. j points consider following version except where indicated. variables are expressed current year thus subscript has been suppressed. be sure to your work for all parts. curve: y="YPo(rp}+NX+s" net exports n xii xve fisher equation: r="i" rte phillips it="n'+" rp v ination expectations: monetary rule: p b d s endogenous variables: nx. rt exogenous pr xa dynamic paul krugman. olivier blanchard others have suggested that inflation target he raised what would happen paths output if policy reflected this new results change expectations were rational part ii each answer three questions. any noteworthy assumptions. evaluate quotation at beginning exam. you believe true. provide evidence support assertion. false. statement make true claim. use increase gdp. p. l. u. imp r. assume e . there a positive shock period t v. taking consideration human capital growth with representative consumer. efciency parameter accumulation technologyr la. total productivity factor given by z="1.5." denote ht accumulated u time spent working t. initial h0="1." now consumer choose between loll="{0.9," b2 using predictions consumption path set will recommend long term. after manyr years recommendation valid currently krona no compensation scheme workers infected disease advising government introduction such exercise other unemployment or sick benefits most likely concern future economy identical individuals who earn wage while when disease. probability q get cannot work. receive sickness from government. finance pay lax tax rate. c1 denotes utility c state. write down individual expected as function marks budget constraint actuarially fair balanced find value maximizes assuming budget. rate required maintaining discuss very briefly intuition sentences merits specific including brief discussion moral hazard.>
