Make a paragraph describing the changing roles of women following the American Revolution

a) What are the justification for public intervention when one of the hypothesis of the first theorem of welfare is violated?

b) Outline the major limits and shortcomings of economic policy coordination.

c) Write short notes on each of the following.

i) Actual (financial) or cyclically adjusted (structural) deficit.

ii) Budgetary balance

Why will the number of suppliers in the tourism industry decrease, and how will this consolidation of suppliers take place?

Question 2: Application of Basic AD/AS Model to Fiscal Policy. [Suggested writing time: 17 minutes] Suppose due to an impeachment you are the newly elected President of the United States (US). You, with your prudent set of economic advisors, are reviewing the following hypothetical economic data in 2019 to 2020:

Real GDP per capita growth rate = -0.2%

Unemployment rate = 6.8%

Inflation rate = -1.0%

a. Determine what phase of the business cycle the US economy is likely to be experiencing in 2019 to 2020. Provide specific reasons for your answer. b. Use a well-labelled AD/AS diagram to show the position of this economy in 2020. Explain how the US government, using appropriate fiscal policy, might boost the economy back to the long run, full-employment GDP equilibrium. Draw the AD curve shift(s) associated with this policy on your diagram.

Two firms, A and B, sell widgets to a market of 100 buyers. The firms' widgets are undifferentiated, and the firms know each others' costs and capacities. Furthermore the firms are playing a one-time pricing game; widgets are obsolete after this one selling opportunity. Each buyer is interested in purchasing a single widget, and has an RP of $10.

Firm A has lower costs than Firm B, but also has lower capacity. Specifically, their (constant) marginal costs and capacities are as follows.

   Finally, assume that each firm can only post prices in whole dollar amounts. (This question is motivated by firms selling through coin-operated vending machines. It is too costly to stock such machines with pennies, so sellers must set prices in fixed increments of larger denomination coins.) Throughout this entire problem, firms may only choose prices of $1.00, $2.00, $3.00, ..., up to $10.00. Firms may NOT use prices such as $1.50, $2.99, $3.83, etc.

(2a.) Find equilibrium prices for this one-time pricing game. (As usual: all buyers go to the firm with the lowest price. However if Firm A's price is no higher than Firm B's price, Firm A serves only 30 buyers, and the rest go to Firm B. Your answer should be a pair of prices, one for each firm.)

(2b.) Suppose that before the pricing game starts, Firm A can build a production plant that would have full capacity of 100 units. (Marginal costs would remain the same, and Firm B would see Firm A's new capacity. Then firms would simultaneously set some equilibrium prices.)

Ignoring the cost of building, how much profit would Firm A earn if it expanded?  Firm A would now earn profits of ______________. (You must show your calculations for credit. The same assumptions apply as the previous part, except now the firms split the market 50/50 if they price equally.)

Classify the following transactions (current account transaction, financial account transaction), the sign of entry (plus or minus/ debit or credit). Choose one country of reference.

a) Walmart issues a corporate bond in the UK

b) A German tourist rents a car in Iceland

c) A U.S. worker in Canada wires money back to his family in the U.S.

d) A French company builds a plant in South Africa

e) Toyota exports cars to Spain.

Homework Assignment #1 ECO 3203, Spring 2020

Instructions: Answer each of the following questions. Show your work wherever possible, and justify your responses wherever appropriate.

Due: Friday, January 31st at the beginning of class


1. What is meant by the “marginal product of labor”? What typically happens to a firm’s marginal product of labor as it increases labor employment, all else equal? Why is that? What typically happens to a firm’s marginal product of labor as it increases capital employment, all else equal? Why is that?


2. Consider the following production functions:

 Y = AK1/2L1/2  Y = AK + 3L

a. Fixing total factor productivity (A) at 2 and labor employment (L) at 16 units, what is the marginal product of capital when capital employment (K) is 25, 35, and 45 for each production function? Do these production functions exhibit diminishing returns to capital employment? Explain. b. Are labor and capital complements under these production functions? Explain. c. Is either production function a “Cobb-Douglas” function? Explain.


3. Describe the difference between what the “nominal” wage rate and the “real” wage rate measure. How is a nominal wage rate converted into its real equivalent?


4. Consider a perfectly competitive, profit-maximizing firm facing the following marginal product of labor function and prices:

 MPL = 0.5A(K/L)1/2  W = 40  R = 60  P = 8  K = 4

a. What is the real wage rate paid by this firm?
b. If total factor productivity (A) is 20, how much labor (L) would this firm want to employ? c. If the price of output (P) rises from $8/unit to $10/unit, what will the new real wage rate be? All else equal, how much labor would the firm want to employ at that wage rate? d. Assuming that total factor productivity is 20, graph this firm’s labor demand function (quantity of labor demanded graphed against the real wage paid for labor) for values of the real wage between 4 and 40. Be sure to plot at least 3 distinct points.


5. Describe the difference between the “endogenous” and the “exogenous” variables of an economic model. In the classical model of a closed economy (Mankiw, chapter 3), which variables are endogenous and which are exogenous? List at least 4 variables in each category.


6. Use the classical model of factor markets (Mankiw, chapter 3) to predict how each of the following shocks should affect a nation’s real wages (W/P) and real rental price of capital (R/P). Be sure in each case to clearly state your predicted direction of change (up, down, or no change) for both variables and to depict your predictions with supply/demand diagrams for both the labor and capital markets.

a. The supply of capital (KS) decreases b. Technological innovation increases total factor productivity (A) c. Government purchases (G) are increased


7. How do macroeconomists typically define the difference between the “short run” and the “long run”? Is the classical model of a closed economy (Mankiw, chapter 3) considered a short run model or a long run model? Why?


8. Use the classical model of a closed economy to predict how each of the following shocks should affect a nation’s real aggregate income (Y), national saving (S), investment (I), and interest rate (r). Be sure in each case to clearly state your predicted direction of change (up, down, or no change) for all four variables and illustrate your predictions for S, I and r with a supply/demand diagram for the loanable funds market.

a. The supply of capital (KS) decreases b. Technological innovation increases total factor productivity (A) c. Government purchases (G) are increased d. Autonomous investment (i0) decreases

9. According to the classical model of a closed economy, what determines the size of a nation’s real aggregate income? Based on that theory, what kind of public policies could be used to increase a nation’s income? Give at least two specific examples.


10. Consider the following model of a closed economy:

 YS = AK1/2L1/2  Yd = C + I + G  C = 300 + 0.70(Y – T)  I = 2000 – 10,000r  W/P = MPL  R/P = MPK  KS = 100  LS = 225  A = 30  G = 1,000  T = 1,500

a. What are the market-clearing values of the real wage (W/P) and real rental price of capital (R/P) for this economy? b. Assuming that both factor markets clear, labor market and capital market clear, what will real aggregate income (Y) and national saving (S) be for this economy? c. What must the real interest rate (r) be in order to establish equilibrium in the market for loanable funds? d. What would the new equilibrium values of W/P, R/P, Y, S and r be if the capital supply (KS) increased from 100 to 144, all else equal? e. What would the new equilibrium values of W/P, R/P, Y, S and r be if taxes (T) decreased from 1,500 to 1000, all else equal? Assume that KS = 100.


11. What is “autonomous consumption”? Describe two shocks that would increase a nation’s autonomous consumption. According to the classical model, how would national saving (S) and investment (I) be affected (up, down, or no change) by those shocks? How would the aggregate demand for goods (Yd) be affected (up, down, or no change)? Explain.


12. What is “crowding out,” and why does it happen when government purchases are increased? Would an exogenous increase in autonomous consumption also cause crowding out? Explain.

13. Consider a nation with a marginal propensity to consume of 0.75.

a. What will its marginal propensity to save be? b. What would happen to its consumption (give the direction and size of the effect) if taxes (T) were to increase by 100, assuming that real aggregate income is unaffected? What would happen to private saving? To public saving? To national saving? c. Suppose, instead, that government purchases (G) increase by 100 while taxes remain unchanged. Assuming that aggregate income is unaffected, what would happen to consumption? What would happen to private saving? To public saving? To national saving?


14. Suppose you deposit $200 into a bank for 1 year. At the time of your deposit, goods cost $2.50 apiece. A year later, you withdraw your deposit with interest, which totals $215. At that time, the price of goods has fallen to $2.40 apiece.

a. What was the “real” value of your $200 at the time of your deposit? b. What nominal interest rate did your bank pay you for your deposit? c. What was the rate of inflation over the year that your money was sitting in the bank? d. What real interest rate did you earn on your deposit?

Do you think the cultural issues could impact any overall harmonization efforts?

What drives the current regional conflicts in the world? Can alternatives to war be found and accepted?

Inequality. There are two types of labor in the economy: skilled labor Lsk and unskilled labor Lunsk. Skilled and unskilled labor earn different real wages: Wsk/P and Wunsk/P. The production function is given by

Y =Aln(Lsk)+4ln(Lunsk).
The parameter A reflects technology. The supply of skilled labor is given by LSsk = Wsk/P and the

supply of unskilled labor is given by LSunsk = 10.

1. (A) Derive the demand functions for skilled and unskilled labor, LDsk and LDunsk. Sketch the equilibrium graphically on two diagrams: the market for skilled labor and the market for unskilled labor. Don’t worry about the precise shape of the curves.

2. (B) The level of technology A was 25, and during the last year it went up to 36. Find the original and the new equilibria (you need to calculate two levels of employment and two real wages). What is the direction of change in GDP? Re-draw the diagrams from part B to show how the increase in A affects the equilibrium on both markets. Clearly label all axes, shifts, and curves.

3. (C) As the American economy has been growing, income inequality has been rising too. In the context of this problem, is inequality in incomes of skilled an unskilled workers a “fair” outcome? If you were a policymaker, would you want to eliminate this kind of inequality?

1. For each of the following: draw a supply/demand graph for the currency market in question.  Label axes, the supply and demand curves, and equilibrium exchange rate.  Then show and explain with words what will happen to the market after the shock described.  Include the effect on the foreign exchange rate.  Explain.

1. The market for Russian Rubles.  Foreigners significantly increase their tourism/travel into Russi
2. The market Japanese Yen. Japanese imports from the United States increase significantly.
3. The market for European Euros.  The EU lowers its interest rate.
4. The market for Mexican Pesos.  Investors speculate that the Peso will soon appreciate.
5. The market for British pounds.  Brexit scares investors, so investors leave the UK.
6. The market for Korean won.  Americans buy many more Korean cars.

1. Consider the non-equilibrium situation in the money market: People want to reduce their holdings of monetary asset. In the process toward the equilibrium, answer how variables below will change in the market: Decrease, Increase, No change.

Price of non-monetary asset:

Interest rate:

Real money supply:

Read money demand:

QUESTION 1

1. An amount of money that people would be willing to pay to purchase a good or service, less the amount they actually pay is called_____:

   	A.	economic surplus.
   	B.	social surplus.
   	C.	producer surplus.
   	D.	consumer surplus.

1 points   

QUESTION 2

1. Economic demand is most clearly understood as the relationship_____:

   	a.	between the price of a good or service and the quantity that consumers are willing and able to purchase at each price.
   	b.	between the quantity supplied and the price people are willing to pay for the supply.
   	c.	between the average price of a good or service and the quantity demanded at that price.
   	d.	between the income a person has and the price of a good or service the person will pay to purchase it.

1 points   

QUESTION 3

1. All of the following are non-price factors that influence demand except_____:

   	a.	consumer income.
   	b.	consumer tastes and preferences.
   	c.	quantity supplied.
   	d.	prices of related goods.

1 points   

QUESTION 4

1. Economic supply is most clearly understood as the_____:

   	a.	the quantity supplied.
   	b.	the amount of a good or service a producer is willing to sell at a particular price.
   	c.	the cost of producing a good and the market price.
   	d.	the inventory of a business operation.

1 points   

QUESTION 5

1. Which of the following illustrates a derived demand?

   	a.	The demand for computer technicians falls as the demand for computers falls.
   	b.	The demand for computer technicians rises as the demand for pencils rise.
   	c.	The demand for tax accountants falls as the demand for law clerks falls.
   	d.	The demand for tax accountants rises as the demand for legal secretaries rise.

1 points   

QUESTION 6

1. An interest rate is most clearly understood as_____:

   	a.	an amount paid to buy an interest in a company.
   	b.	a rate of return on an investment.
   	c.	the price of lending in the financial market.
   	d.	all of the above.

1 points   

QUESTION 7

1. If the wage for computer technicians drops, what will likely soon happen to the quantity supplied of these technicians?

   	a.	It stays the same.
   	b.	It falls.
   	c.	It rises.
   	d.	None of the above.

1 points   

QUESTION 8

1. If the government passes a law on the maximum price and apartment owner can charge for each unit of the apartment, which of the following is likely to occur?

   	a.	The number of units demanded will soon fall below the amount supplied.
   	b.	The number of units supplied will increase.
   	c.	The number of units offered for rent will be upgraded.
   	d.	The number of units demanded will soon rise above the amount supplied.

1 points   

QUESTION 9

1. Which of the following statements is correct?

   	a.	A change in demand is caused only by a change in price.
   	b.	An increase in supply combined with a decrease in demand raises the equilibrium price.
   	c.	A decrease in price and the qauntity supplied will take place whenever the price moves above equilibrium.
   	d.	A shortage of the quantity supplied has no impact on the equilibrium price.

1 points   

QUESTION 10

1. Other things being equal, the higher the price of a good, the_____:

   	a.	smaller the quantity demanded.
   	b.	larger the quantity demanded.
   	c.	smaller the relative price.
   	d.	larger the relative price.