Solve the questions.
Problem Set #4 As indicated on the course syllabus, this problem set is due at the beginning of your recitation section on Friday, March 23. There are four questions on the homework worth a total of 100 points. The points assigned to each part of each question are indicated in brackets. Exercise #1. [25 pts.] Do Problem 18.0 in the Workouts book. Do not hand in the sheets from the Workouts book; write your answers instead on a separate sheet to be handed in. Be sure to show your work. Notice that the exercise has two parts (pages 226-228). Exercise #2. [25 pts.] Do Problem 18.4 in the Workouts book. Do not hand in the sheets from the Workouts book; write your answers instead on a separate sheet to be handed in. Be sure to show your work. Exercise #3. [25 pts.] Do Problem 19.2 in the Workouts book. Do not hand in the sheets from the Workouts book; write your answers instead on a separate sheet to be handed in. Be sure to show your work. Exercise #4. [25 pts.] Do Problem 19.9, questions (a), (c), (d), and (e), in the Workouts book. Do not hand in the sheets from the Workouts book; write your answers instead on a separate sheet to be handed in. Be sure to show your work.Assume a small, open economy under flexible exchange rates. Using an appropriate geometric argument, explain the impact of an expansionary monetary policy on real income and the exchange rate in the short-run. What change in the exchange rate would you expect and why?QUESTION 3 i) Explain how the savings rate influences the steady-state level of the capital stock. 1i) Does the steady-state rate of economic growth of output increase when s increases? (Explain your answer!)(i) Using a geometric argument, illustrate what economists mean by a steady-state capital stock in a growing economy. (ii) Is labour productivity in such a steady-state constant? (Explain your answer!).QUESTION 5 Explain why it is not a sustainable policy to attempt to keep unemployment below its natural level according to the expectations-augmented Phillips curve model.QUESTION 6 The Phillips curve is a relationship between unemployment and inflation. What other components must be added to the Phillips curve in order to derive the short-run aggregate supply curve that is a relationship between output and inflation? Provide a sketch of the short- run aggregate supply curve. What does the long-run aggregate supply curve look like?QUESTION 8 Name Kaldor's stylized facts of economic growth and explain whether they hold in the steady state of the Solow growth model.Consider an economy in which the real volume of production has increased during the past years at an average rate of 3% per year. Over the same period of time the capital stock has increased at an average rate of 3% per year as well. Employment has only increased at an average rate of 1% per year. Using Solow's method of growth accounting, one would find that total factor productivity has increased over this period on average 1.2% per year. Based on this information, determine the implicit shares of capital income and labour income in national income and explain why these shares are needed to make this computation.For each of the following statements only one of the suggested answers is correct. Which one? 3a) Which of the following actions of the European Central Bank would be an expansionary monetary policy? (i) Increasing the refinancing rate (ii) Purchase of foreign exchange (iii) Sale of securities 3b) In the model of intertemporal consumption for households, assume that consumers are able to borrow and lend as they wish at the exogenously given interest rate r subject to their wealth constraint. A reduction of income in the first period in a simple two-period model is represented diagrammatically as (i) a clockwise rotation of the intertemporal budget constraint. (ii) a counterclockwise rotation of the intertemporal budget constraint. (iii) a downward shift in the budget constraint. 3c) In a competitive market for labour an exogenous increase in the participation rate of women leads to (i) an increase in real wages and an increase in employment. (ii) an increase in real wages and a decrease in employment. (iii) a decrease in real wages and an increase in employment. 3d) The current account (i) consists of a payments account and a capital account.(i) Assume an economy without population growth and without technological progress. Explain how the savings rate influences the steady-state level of the capital stock. (ii) Does an increase in the savings rate s change per-capita output and the growth rate of per-capita output? (Explain your answer!)
