Question 1:

Consider a consumer who saves $10,000 in 2013 at the nominal interest rate given above. After one year, he withdraws all the money from the bank and spent the entire amount on the commodity. How many units can he buy?

Suppose: Unit price of a commodity in 2013 = $15 Nominal interest rate = 7%

(annual rate)

Inflation rate between 2013 and 2014 = 5%

Question 2.

Below shows the relationship between the quantity of the labor input and the quantity of the output for a firm when holding other factors constant. Please fill the column on the right for Marginal Product of Labor for this firm and plot the MPN curve.

Question 3:

In real intertemporal model with investment, suppose the economy is in a competitive equilibrium initially. Suppose now all the consumers and firms anticipate a reduction in future total factor productivity.

(a) Draw a diagram to show how the reduction in future total factor productivity would affect individual firms' demand for future capital. Keep in mind that future capital is related to current capital and investment. Explain your diagram briefly.

(b) Suppose the economy is in a competitive equilibrium initially . Use the current- labor- market-equilibrium diagram and the current-goods-market-equilibrium diagram to show how the reduction in future total factor productivity would affect current output, real interest rate and current employment. Explain your diagram briefly.

Question 4:

(a) In Solow growth model, we focus on the growth of per-worker capital. Please derive how the per-worker capital grows from time t to t+1, by starting with the law of motion of aggregate capital, which express how the aggregate capital accumulates over time. And please show by what conditions that the economy reaches the steady state.

(b) Draw a diagram to show how a decline in the growth rate of the work force would affect the steady-state level of per-worker capital in the Solow growth model. Explain your diagram briefly.