Question 1,2 and 3

1. Use the following version of Model 1 to address parts a -e. Showyour work. W/P = d0 -d1*L + d2*K + d3*RM (1) Endogenous Exogenous Ls = so + s1*(W/P) - $2*T W. P. L, Ls, Y K, RM, T L = Ls AD, C, I M. k. G Y = 100*L.7K.3 AD =k*M/P AD =C+I+G C =.8* (Y-T) Y = AD a. (6) Determine the reduced form equation for employment. b. (4) Determine the reduced form equation for output (income). (4) Identify the Aggregate Supply curve. d. (8) In this model, how would an earthquake that destroyed a major nuclear power plant affect employment, output, real wages, and the price level? e. (8) In this model, determine how a fall in taxes (T) would affect employment, output, real wages, and the price level. 2. Use the data in the table below to answer parts a - c. (15 points) a. Use a CPI type index (Laspeyres) to determine how much prices have changed from year 1 to year 2. b. Use a GDP current weight deflator index (Paasche) to determine how much prices have changed from year 1 to year 2. c. Use a chain weighted index to determine how much prices have changed from year 1 to year 2. Year Cell Phones Computers Cars Price Quantity Price Quantity Price Quantity 1 100 100 1000 50 5000 10 2 80 150 600 100 8000 123. Exchange rates are expressed in per Euro terms. {15 points) a. {3) Based on the data in the table below, calculate the trade weighted exchange rate for the Eurozone countries for 21311 based on a 2WD year base of 1m. How much has it changed since 2333'? b. (T) Assuming that the price index for Europe in 21301:} was 93.2 and that it presently stands at l l 1.5= how much has the real exchange rate between the USA and Europe changed between 20430 and 2131 1. Country Share of Exchange Rate Exchange Rate Price Index Price Index Trade 2WD 2131 l 2WD ED] 1 mass 121.95 um 1T13 221.3