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Question;ECON-2010: ASSIGNMENT;AVAILABLE DATE: OCTOBER 30 - DUE DATE;NOVEMBER 20 (IN CLASS);Note: No ripped off;pages from the notebooks will be accepted, such assignments will not be either;accepted or graded. Unstapled assignments will be awarded 5% penalty. Late;submissions will be penalized 25% per day. Questions and parts must be properly;numbered ? violations will be penalized by 10% grade.;Q.1: Explain why government budget deficits crowd;out private investment spending in a closed economy, but crowd;out net exports in a small open economy. Assume prices are flexible andthat;factors of production are fully employed in both economies. Use the basic;version of the open-economy model where net exports is function of real;exchange rate. Use diagrams to explain your answer. [10];Q.2;The real interest rates and real exchanges rates are constant and equal in;North Country and South Country. The Fisher equation and purchasing power;parity hold in both countries. If the nominal interest rate is 8 percent in;North Country and 10 percent in South Country, do you expect North Country's;nominal exchange rate to appreciate, depreciate, or remain the same? Explain.;[10];Q.3;In classical macroeconomic theory, the concept of monetary neutrality means that;changes in the money supply do not influence real variables. Explain why;changes in money growth affect the nominal interest rate, but not the real;interest rate. Use quantity theory of money and fisher equation to answer this;question. [10];Q.4;Consider a money demand function that takes the form (M/P)d;= Y/3i, where M is the quantity of money, P is the;price level, Y is real output, and i is the nominal interest rate;(measured in percentage points). [10];a);What is the velocity of money if the nominal interest;rate is constant?;b) How;will the level of the velocity of money change if there is a permanent (one;time) increase in the nominal interest rate, holding other factors constant?;Q.5;Assume that an employer believes that the ?eff iciency? (e) it can get;from a particular worker, as a function of the hourly wage (w), is given;by function e = ?0.125 w + 0.15w2;? 0.005w3, at least;up to a wage of 30. [15];a);Create a table of w, e;e/w, and w/e for wages equal to 5, 10, 14, 15, 16, 20, and;25.;b);Which wage gives the highest ratio;of efficiency per unit of labour cost?;c) Once;the firm has hit on an optimal w, whatever it is, would cutting wages;whenever demand falls off increase or decrease wages per unit of efficiency?;Q.6: Assume that we have an;economy where a certain share (f) of the unemployed (U) manage to find work;during a given period of time! Assume also that a certain share (s) of the;employed are separated from their jobs every period! Denote employment by E and;the total labor force by L! [10];a);Derive an expression for the;unemployment rate (U/L) in a steady state! What is unemployment if s = 0.02 and;f = 0.5?;b);Repeat the exercise for f = 0.25!;Q.7;Consider the following Neoclassical model of the economy, where the domestic;interest rate_ and the world;interest rate_ are in percentage terms. Show all your work.;[15];= 1000;= 50 + 0.7(_? _), NX= 100? 100_, = 200? 10_, _ = 5%, = 200,_ = 100;(a);Find the equilibrium real interest rate, national;saving, and investment in a closed economy. Show the equilibrium real interest;rate on a saving-investment diagram with_ measured on the vertical axis.;(b) Now assume the;small economy opens up to trade. Calculate the real exchange rate (_), trade balance and net;capital outflow. Show the trade balance on a saving-investment diagram with_ measured on the vertical axis;(c) Assume;that contractionary fiscal policymakers enacted by reducing government spending;to 100. Find the new real exchange rate, trade balance and net capital;outflows. Redraw the diagram from part (b) to show the changes.;Q.8;A hypothetical economy can be described by the Solow growth model. Answer the;below questions for this economy by using the following information: [20];=?;saving;rate (s) = 0.20 depreciation rate (d) = 0.12 initial capital per;worker (k) = 4 population growth rate (n) = 0.02;a.;What is the steady-state level of capital per;worker?;b.;What is the steady-state level of output per;worker?;c.;What is the level of steady-state consumption per;worker?;d.;What is the steady-state level of investment per;worker?


Paper#55752 | Written in 18-Jul-2015

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