Intermediate Macroeconomics

Problem 1: Overall Europe there is a discussion about the unconditional basic income. There was a referendum on the basic income in Switzerland and the pilot projects are going in Netherlands, France and Finland.

(a) Analyze the case of Switzerland and state the assumptions in terms of AD-AS model.

Hint: Do not forget that there is a source of funding that is needed to provide basic income

(b) Analyze the policy from the point of view of AD-AS model

(c) Look over pilot project in Netherlands, would the predictions from the model be different? Hint: Analyze the policy and state the assumptions to answer the question

Problem 2: There is an empirical evidence that before re-elections governors prefer to increase the budget deficit.

(a) State the assumptions under which it can be beneficial for the governor in terms of AD-AS model and Phillips Curve Model?

(b) Analyze from the point of view of AD-AS model?

(c) Analyze from the point of view if Phillips Curve Model?

Problem 3: Assume production function is Y = K^a(AL)^1-a, where Y = output, K = capital, L = labor,A = technology level and a ∈ (0;1).

(a) Assume the depreciation rate = δ, saving rate = s, A and L are fixed. Find the K^∗, i.e. the steady state level of capital and the equilibrium level of output

(b) Assume that s⁰ = 3s and δ⁰ = 4δ new saving and depreciation rates. Find new equilibrium level of capital and output. Show change on graphs.

(c) Assume now that g_L>0 is the growth rate of labor units and g_A>0 is the growth rate of technology. Find new steady state capital amount and output amount (s and δ are as in (a)) and illustrate the steady state on the graph.

(d) Assume g'_L = .5 g_L and g_A⁰ = 3g_A are the new levels of growth of labor units and technology find the new steady state capital and output. Show the change on the graph.