100 points total. Due 9/29 Monday in class.
Measurements of Macro variables and the Structure of the National Economy
1. Mankiw, Ch. 2: Q2, Q5, Q8 (10 points f
or each question) 2. (10 points) Suppose that the unemployment rate is 5%, the total working age population is 100 million, and the number of unemployed is 2.5 million. Determine (a) the participation rate; (b) the labor force; (c) the number of employed workers; (d) the employment/population ratio 3. (10 points) Suppose that the government deficit is 10, interest on the government debt is 5, taxes are 40, government expenditures are 30, consumption expenditures are 80, net factor payments are 10, the current account surplus is -5, and national saving is 20. Calculate the following (not necessarily in the order given): (a) Private disposable income (b) Transfers from the government to the private sector (c) Gross national product (d) Gross domestic product (e) The government surplus (f) Net exports (g) Investment expenditures
The Labor Market: Productivity, Output, and Employment
4. Mankiw, Ch. 3: Q1, Q5 (10 points for each question) 5. (15 points) Suppose that the production function is Y = 9K0.5N0.5. With this production function, the marginal product of labor is MPL=4.5K0.5N-0.5. The capital stock is K=25. The labor supply curve is LS=100[(1-t)w] 2, where w is the real wage rate, t is the tax return on labor income, and hence (1-t)w is the after-tax real wage rate. (a) Assume that the tax rate on labor income t, equals zero. Find the equation of the labor demand curve. Calculate the equilibrium levels of the real wage and employment, the level of full-employment output, and the total after-tax wage income of workers. (b) Repeat part (a) under the assumption that the tax rate on labor income, t, equals 0.6.
The Goods Market: Consumption, Saving, and Investment
6. (15 points) Analyze the effects of a temporary increase in the price of oil (a temporary adverse supply shock) on current output, employment, the real wage, national saving, investment, and the real interest rate. [Because the supply shock is temporary, you should assume that the expected future MPK and households’ expected future incomes are unchanged. Assume throughout that output and employment remain at full-employment levels (which may change).]