Assignment:
1. A stock or a áow?
(a) labor-force participation rate
(b) private saving
2. Which COMPONENT(S) (if any) of U.S. GDP (consumption C, investment I, government spending G, and/or net exports NX) THIS YEAR would be a§ected and how (INCREASE or DECREASE) if:
(a) Miami-Dade County builds a new public school.
(b) You buy an old computer for your business.
(c) A French tourist buys some ice cream while visiting Key West.
(d) General Motors produces some cars, but does not manage to sell them this year.
(e) Spirit Airlines buys a new Airbus airplane produced in Europe.
(f) Boeing sells an airplane, which was produced last year, to Japan Airlines.
(g) A Brazilian citizen buys a new house in Miami Beach and rents it to a Colombian citizen.
(h) You cook yourself a dinner.
(i) The government increases the monetary transfers to the poor.
(j) You buy some shares of Tesla stock from a broker who charges you a small fee.
3. A closed economy is producing just oranges and apples. The respective prices and quantities are listed below.
Year Orange price Quantity of oranges Apple price Quantity of apples
2016 $1.50 25,000 $2.00 25,000
2017 $1.65 30,000 $2.10 50,000
2018 $2.00 35,000 $2.20 80,000
Assume that the listed quantities are also the ones bought by the "typical" consumer in the economy.
(a) Find the nominal GDP in 2018.
(b) Find the real GDP in 2018 if the base year is 2016.
(c) Find the GDP deáator in 2018 if the base year is 2016.
(d) Find the CPI in 2018 if the base year is 2016, assuming that the fixed basket used in estimating the CPI reflects the quantities bought in 2016.
(e) Find the 2018 GDP in chained 2016 dollars.
(f) If the implicit price deflator is set to 100 in 2016, Önd the implicit price deáator in 2018.
(g) If the PCE price index is set to 100 in 2016, how much is it (approximately) in 2018?
4. A countryís population (civilians, age 16 or older) is 200 million. We know that 100 million people are employed and 8 million are unemployed.
(a) Find the unemployment rate and the labor force participation rate.
(b) Imagine that a recession hit the economy and 3 million workers were fired. 2 million of them were not able to and jobs for some time, got desperate, and decided to wait for better economic conditions. The remaining 1 million are still looking for a job, but are not successful yet. Find the unemployment rate and the labor force participation rate.
5. The production function of an isolated island economy is F(K; L) = 5K1/5L4/5. Assume the supply of labor is 7,776.
(a) How much is the supply of capital if the market clears at a real rental rate of 16?
(b) A hurricane hits the island in question. There are no casualties, but some capital stock has been destroyed. Would the equilibrium real rental rate increase or decrease? Explain.
6. Consider a closed-economy market-clearing model with the following production function:
F (K,L) = AK1/4 L3/4,
where K denotes capital, L denotes labor, and A > 0 is referred to as total factor productivity. Assume the supply of capital increases by 20%. Calculate the resulting percentage change in the output, in the real wage, and in the real rental rate. [In answering this question, you are allowed to use the approximations regarding percentage changes; see slide 4 of the math review (slide set 2)].
7. Consider the following closed-economy market-clearing model (notation as in class):
Y = F(K, L) = 3K1/3L2/3
K¯ = 125, L¯ = 8,000; G¯ = 1,200, T¯ = 1,000
C = 60 + 0.8 (Y-T)
I = 5,940 - 1,000 * r, where the real interest rate r is measured in percent.
(a) Find private saving, public saving, and national saving. Compute the equilibrium real interest rate.
(b) Imagine that the government achieves a balanced budget by raising tax revenue. Find the resulting national saving and compute the new equilibrium real interest rate.
8. Consider a closed-economy market-clearing model where the marginal propensity to consume MPC = 0.9, the marginal product of labor MPL = 30, and the marginal product of capital MPK = 20.
(a) Find the change in private saving, public saving, and national saving if labor increases by 1 unit (i.e., ΔL = 1). [You may have a look at pages 43 to 45 of slide set 5]
(b) Use graphical analysis to demonstrate whether the equilibrium real interest rate will increase or decrease.