Question 1: Suppose a firm's hourly marginal product of labour is given by MPN = A(200 - N).

a. If A = .2 and the real wage is $10 per hour, how much labour will the firm want to hire?

b. Suppose the real wage rate rises to $20 per hour. How much labour will the firm want to hire?

c. With the real wage rate at $10 per hour, how much labour will the firm want to hire if A rises to .5?

Question 2: Suppose you divide your life into two periods-working age and retirement age. When you work, you earn labour income Y; when retired, you earn no labour income, but must live off your savings and the interest it earns. You save the amount S while working, earning interest at rate r, so you have (1 + r)S to live on when retired. Because you don't need to consume as much when retired, you want to set consumption when working twice as high as consumption when retired.

a. Suppose you earn $1 million over your working life and the real interest rate for retirement saving is 50%. How much will you save and how much will you consume in each part of your life?

b. Suppose your current income went up to $2 million when working. Now what will you save and how much will you consume each period?

c. Suppose a social security system will pay you 25% of your working income when you are retired. Now (with Y = $1 million, as in part a) how much will you save and how much will you consume each period?

d. Suppose the interest rate rises (starting from the situation in part a). Will you save more or less?

Question 3: Country A has a capital-labour ratio that is initially twice as big as that of country B, but neither is yet in a steady state. Both countries have the same production function, f(k) = 6 k1/2. Country A has a 10% saving rate, 10% population growth rate, and 5% depreciation rate, while country B has a 20% saving rate, 10% population growth rate, and 20% depreciation rate.

a. Calculate the steady-state capital- labour ratio for each country. Does the initial capitallabour ratio affect your results?

b. Calculate output per worker and consumption per worker for each country. Which country has the highest output per worker? The highest consumption per worker?

c. In general, do all the fundamental characteristics of different countries need to be identical for convergence of output per worker?

Question 4: A country has the per-worker production function yt = 5kt0.5, where yt is output per worker and kt is the capital-labour ratio. The depreciation rate is 0.2 and the population growth rate is 0.05. The saving function is St = 0.2yt, where St is total national saving and Yt is total output.

a. What is the steady-state value of the capital-labour ratio?

b. What is the steady-state value of output per worker?

c. What is the steady-state value of consumption per worker?

Question 5

Download GDP data for Canada from CANSIM : http://www5.statcan.gc.ca/cansim/homeaccueil?lang=eng for at least the last 30 years. Specify data characteristics: quarterly/annually, seasonally adjusted, and what measure of GDP you are using (income based/expenditure based).

Data can be downloaded as a CSV file.

1. Draw a graph (use Excel) to show GDP over time.

2. List and discuss GDP's components.

3. What year did Canada experience its last recession? What about the recession before the last one?

4. What was the period of largest economic growth?