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Chapter 3:
Q1: Macroeconomics P.100 Numerical Problems #3
Q2: Macroeconomics P.102 Analytical Problems #1
Chapter 4:
Q3: Macroeconomics P.142 Numerical Problems #6
Q4: Macroeconomics P.143 Analytical Problems #5
Q1:
Answer:
b.
Answer:
Number of
Widgets
Produced
0
8
15
21
26
30
33
MPN
MRPN
(P = $ 5)
MRPN
(P = $ 10)
N/A
8
7
6
5
4
3
N/A
40
35
30
25
20
15
N/A
80
70
60
50
40
30
Acme can get $5 for each widget it produces. How many workers will it
hire if the nominal wage is $38? If it is $27? If it is $22?
(1) W = $38. Hire one worker, since MRPN ($40) is greater than W ($38)
at N = 1. Do not hire two workers, since MRPN ($35) is less than W ($38)
at N = 2.
(2) W = $27. Hire three workers, since MRPN ($30) is greater than W
($27) at N = 3. Do not hire four workers, since MRPN ($25) is less than
W ($27) at N = 4.
(3) W = $22. Hire four workers, since MRPN ($25) is greater than W
($22) at N = 4. Do not hire five workers, since MRPN ($20) is less than
W ($22) at N = 5.
Week 5
Page 1
Answer:
d.
Answer:
e.
Answer:
Week 5
Graph the relationship between Acmes labour demand and the nominal
wage. How does this graph differ from a labour demand curve? Graph
Acmes labour demand curve.
Figure 1 plots the relationship between labour demand and the nominal
wage. This graph is different from a labour demand curve because a
labour demand curve shows the relationship between labour demand
and the real wage. Figure 2 shows the labour demand curve.
With the nominal wage fixed at $38, the price of widgets doubles from $5
each to $10 each. What happens to Acmes labour demand and production?
P = $10. The table in part a shows the MRPN for each N. At W = $38,
the firm should hire five workers. MRPN ($40) is greater than W ($38)
at N = 5. The firm shouldn't hire six workers, since MRPN ($30) is less
than W($38) at N = 6. With five workers, output is 30 widgets, compared
to 8 widgets in part (a) when the firm hired only one worker. So the
increase in the price of the product increases the firm's labour demand
and output.
With the nominal wage fixed at $38 and the price of widgets fixed at $5,
the introduction of a new automatic widget market doubles the number of
widgets that workers can produce. What happens to labour demand and
production?
If output doubles, MPN doubles, so MPRN doubles. The MPRN is the
same as it was in part (d) when the price doubled. So labour demand is
Page 2
f.
What is the relationship between your answers to part (d) and part (e)?
Explain.
Answer:
Q2:
a.
Answer:
b.
Answer:
Week 5
Show that a 10% increase in A also increases the MPK and the MPN by
10% at any level of capital and labour. (Hint: What happens to Y for any
increase in capital K or for any increase in labour N?)
In the initial situation, capital K1 and labour N1produce output Y1; when
productivity rises they produce output 1.1 Y1. Suppose that a small
increase in capital to K2 with labour left at N1 produces output Y2 in the
initial situation. Then it produces 1.1Y2 when productivity rises by 10%.
The marginal product of capital (MPK) in the initial situation is
Page 3
c.
Can a beneficial supply shock leave the MPK and MPN unaffected? Show
graphically.
Answer:
Q3:
Answer:
Week 5
Answer:
Using both versions of the goods market equilibrium condition, Eqs. (4.7)
and (4.8), find the real interest rate that clears the goods market. Assume
that output equals full employment output.
(1) Using Eq: Y = Cd + Id + G
Y = (360 + 200r + 0.1 Y) + (120 400r) +120 = 600 600r+ 0.1Y
So 0.9Y = 600 600r
At full employment, Y = 600. Solving 0.9 600 = 600 600r,
we get r = 0.10.
(2) Using Eq: Sd = Id
c.
Government purchases rise to 144. How does this increase change the
equation describing desired national saving? Show the change graphically.
What happens to the market-clearing real interest rate?
Answer:
Week 5
Page 5
Answer:
Week 5
Page 6