Homework #3
General Instructions: For this homework you will need to attach your work indicating how you found your answers. It is fine for you to record your answers in the blanks given on this sheet, however you will need to indicate how you found your answers in order to get full credit.
1. Discuss the effect of each of the following (holding everything else constant) on full-employment output and labor productivity. Use appropriate graphs for each example to illustrate your answer.
- Increased immigration into your country
- An increase in the birth rate in your country..
- An increase in the proportion of citizens who are older in your country
- More widespread use of the Internet in industrial or commercial uses
- Expansion of the use of robots in production
2. Below is some data about the economy of Macroland. Figures are given as of the first of the year for each date. (Round off percentages to nearest whole number.)
|
Year
|
Population
|
Employment
|
Labor Productivity
|
Total Output
|
Population Growth Rate (relative to prior year)
|
Growth rate of output (relative to prior year)
|
Direction of change in average standard of living
|
|
1997
|
10
|
5
|
$10,000
|
|
X
|
X
|
X
|
|
1998
|
12
|
6
|
$11,000
|
|
|
|
|
|
1999
|
14
|
7
|
$11,200
|
|
|
|
|
|
2000
|
15
|
8
|
$11,400
|
|
|
|
|
|
2001
|
15
|
8
|
$11,800
|
|
|
|
|
Fill in the table above.
3. Complete the following table. Assume that the marginal propensity to consume is .8, and that taxes, investment spending, government spending and net exports are autonomous.
The following abbreviations are used in the table:
Y = aggregate production
T = autonomous taxes
YD = disposable income
C=consumption spending
I = investment spending
G = government spending
X - M = net export spending
AE= aggregate expenditure
|
Y (1)
|
T (2)
|
YD
(3)
|
C (4)
|
I (5)
|
G (6)
|
X-M (7)
|
AE (8)
|
Direction of Change in Aggregate Production (9)
|
Inventory Change (10)
|
|
100
|
|
90
|
|
|
|
|
250
|
|
|
|
|
|
|
160
|
|
100
|
|
|
|
|
|
600
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Decrease
|
30
|
In the table you will get 1 point for your answers for columns 5,6, and 7; 1 point each for your answers to columns 1, 2, 3, 4, 8, 9, and 10. For the rest of the questions in this problem, each answer is worth two points.
a. What is the value of autonomous consumption with respect to disposable income? ___________________
b. What is the value of autonomous consumption with respect to aggregate income? _____________
c. What is the equilibrium level of output for this economy? _____________
d. What is the equation for savings with respect to disposable income? __________________
e. What is the level of savings when
- Aggregate income equals 200? ____________
- Aggregate income equals 500? ____________
- Aggregate income equals aggregate expenditure? ____________
f. If employment is equal to 20% of aggregate income, then what is the level of employment in this economy when the economy is in equilibrium? ___________________
g. If the government would like employment to equal 200 people, what must the equilibrium level of aggregate output equal? _____________
h. If the government wishes to achieve the level of output found in (g),
- How much would government spending need to change by in order to reach this level of output, holding everything else constant? ______________
- How much would taxes need to change by in order to reach this level of output, holding everything else constant? ____________
- If the government were to reach this level of output by changing both taxes and government spending by an equivalent amount (a balanced budget proposal), how much would taxes and government spending need to change by (hold everything else constant)? ____________