Macro Economy Homework

Econ 332 Fall 2018 Homework 3 Name _________________________________________ What are the 3 key variables used to measure the health of the Macro Economy ?

1) __________________ 2) __________________ 3) __________________

4) Short run fluctioation in the health of an economy are known as ___________ ____________

Explain the difference between Macroeconomics and Microeconomics 5) 6) 7)

Give an example of someone who does not have a job but is not counted as unemployed. 8) 9) 10) Fiscal policy involves:

a) determining exchange rates. b) interest rates.

c) government expenditures. d) all of the above.

11) What is depreciation in our model ? 12) In the Solow growth model in the steady state which economy grows faster. One with a higher or lower savings rate ?

a) Higher b) Lower

13) In the Solow growth model in the steady state which economy has a higher output per worker. One with a higher or population growth rate ? a) Higher b) Lower

14) In the Solow growth model in the steady state which economy has a higher level of capital per worker. One with a higher or lower population? a) Higher b) Lower

On the Use of funds side of the budget constraint, what 2 things can a household do with their income 15) ___________________________

16) __________________________

17) The labor market clears when:

a) the marginal product of labor is zero. b) the real wage causes LS = LD.

c) the real wage causes LS to be minimized. d) the real wage causes LS to be as large as possible.

18) A bond that is traded in the bond market in the Barro model is piece of paper that:

a) is the lenders claim to ownership in the company. b) is the lenders claim to the amount owed by the borrower. c) is the borrowers claim to the amount owed by the lender. d) assures the person is who they say they are.

19) An investment in the Barro model is:

a) the purchase of a bond. b) the purchase of ownership in a firm.

c) the purchase of a capital good used for production. d) all of the above.

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Econ 332 Fall 2018 Homework 3 20) If a worker receives a one time bonus, we would expect them to:

a. save most of it. b. reject it.

c. consume most of it. d. consume half of it and save half of it.

What is the subsitution effect of winning the lottery on labor supply ? 21) 22) 23) 24) The model predicts that an economic expansion caused by an increase in technology, A, will:

a) drive up the real wage. b) drive down the real wage. c) cause labor supply to be greater than labor demand. d) lead to a relatively low real wage.

25) An example of a temporary change in technology would be:

a) a harvest failure. b) a new discovery.

c) a new invention. d) all of the above.

26) A higher real wage:

a) makes consumption more expensive. b) makes leisure less expensive. c) makes it a worse deal for households to work an extra hour. d) makes leisure more expensive.

27) The biggest category of state and local expenditures are:

a) education. b) defense.

c) transfer payments. d) none of the above.

Money demand depends on a # of variables. Tell me how a decrease in the following would affect money demand. 28) Price Level____________________

29) Inflation Rate___________________

30) Real GDP____________________ 31) Transaction Costs_____________

32) TRUE / FALSE : The largest increase in transfer payments at the federal level have been in welfare & food stamps.

How would unemployment benefits affect the labor market and why? USE TERMS WE DISCUSSED AND MODELED IN CLASS.

33) 34) 35)

36) The biggest category of government purchases in the US is:

a) state and local purchases. b) federal government purchases.

c) defense purchases. d) federal transfer payments.

37) Government transfer payment as a percentage of GDP have been:

a) generally rising. b) cyclical.

c) generally falling. d) constant.

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Econ 332 Fall 2018 Homework 3 38) The model predicts that a temporary increase in lump sum taxes causes:

a) an increase in consumption. b) a reduction in gross investment.

c) a reduction in real GDP. d) all of the above.

39) The model predicts a permanent decrease in government purchases causes accompanied by an equal drop in taxes:

a) an increase consumption. b) an increases real GDP.

c) an increases the real interest rate. d) all of the above.

40) Data across more than 50 countries shows that the U.S. ratio of government expenditure to GDP is

a) much higher than the median ratio. b) slightly below the median ratio.

c) one of the two highest ratios. d) one of the two lowest ratios.

41) When the Barro model assumes lump-sum taxes, this means

a) real taxes are independent of a household’s income. b) nominal taxes depend negatively on a household’s consumption. c) nominal taxes depend positively on a household’s income. d) there is no tax on inheritances.

42) Adding government to the Barro model affects the household budget constraint by

a) adding the present value of real transfers net of real taxes as a source of funds. b) adding the present value of real transfers plus real taxes as a use of funds. c) adding and subtracting the present value of real transfers net of real taxes as a source of funds, for no net effect. d) subtracting the present value of real transfers net of real taxes as a use of funds.

43) The largest source of tax revenue for the U.S. federal government is the ___________________ tax. Why does an increase in tax rates on Labor Lower Capital Utilization rates? 44) 45) 46)

47) In the short run if the tax rate on asset income rises, then in the market clearing model:

a) household current consumption will rise compared to future consumption. b) the after tax real interest rate rises. c) current investment will rise. d) all of the above.

48) With an increase in government purchases financed by an increase in the marginal tax rate on labor income, the

change in labor supply depends on whether the: a) negative substitution effect is bigger than the positive income effect. b) positive substitution effect is bigger than the negative income effect. c) negative substitution effect is bigger than the negative income effect. d) positive substitution effect is bigger than the positive income effect.

49) An increase in the marginal tax rate on labor income will shift the

a) labor supply curve leftward b) labor demand curve rightward

c) labor supply curve rightward d) labor demand curve leftward

50) The major sources of federal government revenue, in descending order of their importance, are

a) individual income taxes, social-insurance contributions, and corporate profits taxes. b) payments from the Federal Reserve, corporate profits taxes, and individual income taxes. c) social-insurance contributions, corporate profits taxes, and individual income taxes. d) corporate profits taxes, payments from the Federal Reserve, and individual income taxes.

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Econ 332 Fall 2018 Homework 3 51) The U.S. federal income-tax structure is designed so that

a) all citizens pay a flat marginal tax rate. b) the marginal tax rate generally rises with income. c) the average tax rate falls as income rises. d) all citizens pay a flat average tax rate.

52) An open-market operation in which the Federal Reserve purchases bonds will

a) increase the money supply and increase the price level. b) decrease the money supply and decrease real GDP. c) decrease the money supply and increase the price level. d) decrease the money supply and increase real GDP.

Real Wages are 7 and the real rental price of capital is 100. The depretiation rate is 0. The production function: Y = K.1*L.1 53) What is the equilibrium amount of L 54) 55) 56) 57)

58) What is the equilibrium amount of K 59) 60) 61) 62)

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Econ 332 Fall 2018 Homework 3 You are born with nothing and you will die with nothing. You will live for 3 periods. 63) Write out the 3 period budget constraint. 64) 65) 66) 67)

Production function Y=2*(K*L).5; Kapital K = 625; Labor Supply = (real wage)^2 68) What is the equilibrium real wage? 69) 70)

71) What is total output? 72) 73)

74) What is the rental price of capital? 75) 76)

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Econ 332 Fall 2018 Homework 3 If Y = A*(K*L)^.5 and The growth rate of capital per worker = s*(y/k) – s*d –n 77) What is the equation for the steady state capital per worker k* in terms of savings rate deprectation rate

population growth rate and technology? SHOW YOUR WORK. 78) 79) 80) 81)

Labor Supply = 12*wage Labor Demand = 1728/wage Y = 2*(K*L).5 K = 625 82) What is Equilibrium L? 83) 84) 85) 86)

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Econ 332 Fall 2018 Homework 3 87) What is Equilibrium MPK? 88) 89) 90)

If a Tax Rate on Labor Supply of 20% is imposed and there are no income effects. 91) What is Equilibrium L? 92) 93) 94) 95)

96) What is Equilibrium MPK? 97) 98) 99)

100) Free Point have a nice summer.

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