Intermediate Macroeconomics Questions
1. Suppose a firm has a production function
Y = A ∗ K1/3N2/3
with A = 100 and K = 40. Output sells for a price of $10 each. The nominal wage is W = $500 and the price level is 10. How many workers should the firm hire (report an integer)? (Hint: I recommend solving this using calculus. If you are uncomfortable with calculus, you may want to check your answer using a table.)
2. Consider the following scenarios. For each, indicate the type of unemployment created and indicate whether it falls under natural unemployment. Discuss your reasoning for each.
(a) Suppose that as cleaner sources of energy become available, there is a drop in the international price of coal. This causes BHP to close down one of its more expensive coal mines. They are able to retain some workers by moving them to other mines, but have to layoff the majority of workers.
(b) A self-employed programmer does consulting work for medium to large corporations, typically helping them develop and launch internal programs for data collection, analysis, and dissemination. After completing a job at Westpac that took two years to complete, he is looking for a new company to contract with.
3. Consider an economy at equilibrium in the goods market, money market, and labour market.
(a) Draw the appropriate IS-LM-FE curves to capture this equilibrium.
(b) Consider an decrease in government spending. Capture this event on your AS-LM-FE space.
(c) Is the economy under- or over-utilizing labour at the current level of output?
(d) Allow for the price level to adjust. Capture the consequence of price level adjustment in the IS-LM-FE space.