Essay on Problem Set 1 - 609 Words

Problem Set 1 Macroeconomics, ECON 2123 (Instructor: Partha Sen; TA: Peter Tsui) ------------------------------------------------------------------------------------------------------------------------------------ Posted: Friday, 19 September 2014 Due: 5:00 PM Friday, 26 September 2014 (Submit your homework into the homework collection box outside the department office) 100 marks total Part I: True/False/Uncertain (20 marks, 4 marks each) 1. GDP is the value of all goods and services produced in the economy during a given period. 2. When disposable income equals zero, consumption equals zero. 3. The multiplier is greater than 1 if T = 0 and G = 0. 4. Paradox of saving occurs when the attempts by people to save more lead to a decline†¦show more content†¦What was the rate of inflation in the year of 2010? (8 marks) Part III: The Goods Market (55 marks) Note Questions 2(c), 3(c) and 4(c) require short answers—no more than 5 sentences each. 1. Suppose that the economy is characterized by the following behavioral equations: (16 marks) C = 16 + 0.6 YD I = 15 G = 15 T = 10 Solve for the following variables: (a) Equilibrium GDP (Y) (b) Disposable income (YD) (c) Consumption spending (C) (d) What is the value of marginal propensity to consume (MPC)? (e) What is the value of marginal propensity to save (MPS)? (f) Find the multiplier and autonomous spending. (g) What are private saving and public saving? 2. Use the economy described in problem 1 in Part III. (9 marks) (a) Solve for equilibrium output. Compute total demand. Is it equal to production? (b) Assume that G is now equal to 11. Solve for equilibrium output. Compute total demand. Is it equal to production? (c) Assume that G is now equal to 11, so output is given by your answer to (b). Compute private plus public saving. Is the sum of private and public saving equal to investment? Briefly explain. 3. Consider the following behavioral equations: (15 marks) C = c0 + c1 YD T = t0 + t1 Y YD = Y – T G and I are both constant. Assume that t1 is between 0 and 1. (a) Solve for equilibrium output and equilibrium taxes. (b) What is the multiplier? (c) Does the economy respond more to changes in autonomous spending when t1 is 0 or when t1Show MoreRelatedProblem Set 1842 Words   |  4 PagesPROBLEM SET # 1 Instructions: 1) Open book, open notes limited to only class materials. 2) Unlimited time. 3) This must be reflective of your individual effort. GMU Honor Code applies. 4) The Problem Set #1 (only the question solutions portion) is due at the end of the day on September 24th. 5) Show all work, as partial credit will be given for each question’s answer. Organize your work so it is easy to follow. You can use word, power point, excel or combinationsRead MoreProblem set 1788 Words   |  4 Pagesï » ¿ECP 6705 – First Problem Set Fall, 2014 Name or Names: (if a group of two) 1. 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