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Macroeconomics

Multiple Choice

Given: C = 100 + 0.75Yd; I = 120 - 0.1Y – 200i; G= 40; T = 40

What is the marginal propensity to consume?

Answer:

50

-0.2

100

-200

What is the autonomous spending multiplier?

Answer:

4

40

100

50

What is the value of Y in the goods market equilibrium if interest rate is equal to 5%?

Answer:

350

489

629

556

Given your value of Y in 33, what is the value of disposable income?

Answer:

449

678

437

589

What is the value of consumption?

Answer:

542

393

437

616

What is the value of investment?

Answer:

47

39

72

88

How much will Y change when government spending increase by 20?

Answer:

90

120

100

80

How much will Y change when taxes increase by 20?

Answer:

-80

-70

-60

-50

How much will Y change when government spending and taxes increase by 20?

Answer:

20

40

10

50

Given: Money Supply = 900; Mt = 0.7Y; Ms = 250 – 800i, and P = 1

If Y is equal to 1000, what is the value of the interest rate?

Answer:

15%

20%

16%

6.25%

Given the interest rate in 40, how much money will be used for speculative purposes?

Answer:

210

233

200

616

What will be the amount of money that will be used for transactions?

Answer:

789

393

700

667

If Money supply decreases to 800, what will be the new interest rate?

Answer:

18.75%

34.6%

19.66%

44.5%

What will be the new amount for speculative purposes?

Answer:

150

100

250

300

What will be the new amount of money that will be used for transactions?

Answer:

789

393

700

667

Given: IS ~ Y = 657 – 571i

LM ~ Y = 357 + 1143i

What is the equilibrium value of the interest rate in the economy?

Answer:

17.5%

32%

16%

57%

What is the equilibrium value of income in the economy?

Answer:

557

887

667

678

If Fiscal Policy was done to expand aggregate expenditure and made the government spending increase, what will happen to the IS curve?

Answer:

Shift to the left

Shift to the right

If Fiscal Policy was done to contract and made the level of taxation to increase, what will happen to the IS curve?

Answer:

Shift to the left

Shift to the right

If Monetary Policy was done to expand the economy and made the money supply to increase, what will happen to the LM curve?

Answer:

Shift downward

Shift upward

Macroeconomics

Explain how the interest rate works in the classical system to stabilize aggregate demand in the face of autonomous changes in components of aggregate demand such as investment or government spending.

Macroeconomics

If the consumption function is given as C= 20 + 0.8Yd, complete the

Following table:

Disposable

Income (Yd)

200 500

Consumption

(C)

300 700

Savings (S) 100

Macroeconomics

4. Suppose a country’s debt rises by 10% and its GDP rises by 12%.

a. What happens to the debt-GDP ratio? b. Does the relative level of the initial values affect your answer?

a. What happens to the debt-GDP ratio? b. Does the relative level of the initial values affect your answer?

Macroeconomics

The Blanchard family has 250 acres of land in Louisiana where they grow a rotation of three organic crops: sugarcane, tobacco, and oilseed. Each winter, the Blanchards decide how much land to devote to each crop. At least 400 tons of sugarcane, 520 tons of tobacco, and 360 tons of oilseed are needed to satisfy a futures contract they signed a few months before. They can sell sugarcane, tobacco, and oilseed for $200, $250, and $300 per ton, respectively, but would have to pay a 25% markup on those prices if they needed to buy these same crops after the harvest. The probability of a good planting season is 40% and the corresponding yields for sugarcane, tobacco, and oilseed are 8.4, 6.8, and 5.6 tons per acre, respectively. The probability of a bad season is 60% and the resulting yields would be 5, 3.4, and 2.8 tons per acre, respectively. Formulate a two-stage stochastic optimization model to maximize the Blanchard’s expected profit. How much land should be devoted to each crop to fulfill their contract (even if that means purchasing some of the crops)?

Macroeconomics

Macroeconomics

Exercise 1 ([Indifference Curves). Consider the utility function U(C1, C2) = ln(C1) + ln(C2).

1. Using a program of your choice (say excel, or matlab) plot indifference curves in the space (C1, C2) for

U ̄ = -0.5, -1, and -1.5. Consider values of C1 in the interval (0, 1]. Set the range of the vertical axis to

[0, 2].

2. Find an analytical expression for the slope of the indifference curve and show that it is equal to the

(negative) of the marginal rate of substitution.

3. Show analytically that the indifference curves are convex.

4. For the 3 indifference curves plotted above, find the slope of the indifference curve at the point C1 = 1

and the corresponding value of C2. Explain why the indifference curves at C1 = 1 become flatter as

the level of welfare declines.

Exercise 2 (The Saving Schedule). Consider a two-period economy populated by identical households with

preferences defined over consumption in period 1, C1, and consumption in period 2, C2, and described by

the utility function

p

C1 +

p

C2.

Assume that households are endowed with Y1 kilos of apples in period 1 and with Y2 kilos of apples in

period 2. Let P1 and P2 denote the price of apples in periods 1 and 2. Households can save (or borrow)

at the nominal interest rate i. Let r denote the real interest rate, so that the gross real interest rate is

1 + r =

P1

P2

(1 + i). Let St denote saving in kilos of apples.

1. State the household’s budget constraints in periods 1 and 2.

2. Derive the household’s intertemporal budget constraint in terms of C1, C2, Y1, Y2, and r.

3. State the household’s utility maximization problem.

4. Find the optimal level of consumption in period 1, C1, in period 2, C2, and the associated level of

saving, S1. Express your answer in terms of Y1, Y2, and r.

5. Now assume that output is 10 kilos of apples in both periods (Y1 = Y2 = 10) and that the real interest

rate is 0 percent (r = 0). Find C1, C2, and S1. (Your answer should be 3 numbers.) Finally, compute

the same 3 numbers but under the assumption that the real interest rate is 10 percent (r = 0.1). Is

saving increasing in r? Provide intuition.

Exercise 3 (An Economy Driven by Natural-Rate Shocks). Consider a two-period sticky-price economy

populated by identical households with preferences defined over consumption in period 1, C1, and consumption

in period 2, C2, and described by the utility function

lnC1 + β lnC2,

1

where β = 1/1.1 is the subjective discount factor. In both periods, potential output (Y ) is equal to 10 kilos

of apples. Let P1 and P2 denote the price levels in periods 1 and 2, respectively. Assume prices are fixed

at P1 = P2 = 1 and that the economy is always in full employment in period 2 (the long run). The central

bank uses the nominal interest rate, denoted i, as its monetary instrument. The nominal interest rate is

subject to the zero lower bound (ZLB) constraint.

1. Assume further that the central bank sets the nominal interest rate so as to maximize employment

and minimize excess aggregate demand for goods. Denote this interest rate by i

∗

. Find i

∗

.

2. Now suppose that a financial panic causes households to become more patient. Specifically, suppose

that the subjective discount factor increases to 1/0.9. Suppose that the central bank is slow to react

and keeps the interest rate at i

∗

(the level of i obtained in question 1. Find the output gap, defined as

(Y /Y ̄

1 − 1)100, where Y1 denotes output in period 1.

3. Now suppose that contrary to the assumption in question 2, the central bank acts quickly and changes

the interest rate to minimize unemployment. Denote this interest rate by i

∗∗. Find i

∗∗ and the output

gap.

4. Consider the scenario of question 3, that is, i = i

∗∗. Suppose that the fiscal authority decides to

also intervene. Let G∗ denote the lowest level of government spending that eliminates involuntary

unemployment. Find G∗

. Calculate private consumption in period 1.

5. Suppose that the government miscalculates G∗ and instead sets government spending equal to G ̃, where

G ̃ is 10 percent higher than G∗

. Assume further that realizing this situation, the central bank changes

the interest rate to avoid excess aggregate demand, while still maintaining full employment. Find the

new interest rate and private consumption. Comment.

Macroeconomics

What is economics

Macroeconomics

A movie theater shows films for a community of 10000 people shows films during weekends. Right now, the price per ticket is $17.50. In the past, when they increased or decreased the price per ticket, they discovered that for every dollar (or fraction) that the price was increased or decreased, the attendance decreased or increased proportionally by 200 people. The theater owner pays the Film Distribution Company $10 (incremental cost) in royalties per person who views the film. Can be Hand written or in excel just need to show work. Find

- The willingness-to-pay distribution of the movie goers.
- The average price they would be willing to pay.
- The price per ticket that maximizes revenue.
- Should the theater owner increase or decrease the price per ticket if she wants to maximize contribution?
- Find the consumer surplus if the tickets are priced at the price that maximizes contribution.

Macroeconomics

investing $17985 on march 1st 2021, i pay .02% per month and the invester wants their money on January , 2024. how much will I give the invester back