macroeco homework help

ECO 305 – HW 1 (Due Date: March 4th – beginning of class)

Please show all your work for full credit. Make sure that all graphs are fully labeled.

Question 1 (40 Points) Year Price of TV Price of Car Quantity of TV Quantity of Car 2000 $1000 $20.000 100 100 2001 $1200 $21.000 130 80 2002 $1400 $22.000 170 120 2003 $1600 $23.000 210 150 Take 2002 as the base year. Calculate for all the years

a) Nominal GDP b) Real GDP c) Real Growth Rate d) Nominal Growth Rate e) Inflation Rate f) Calculate Real GDP growth rate by chain weighted method g) Calculate inflation rate by chain weighted method

Question 2 (20 Points) Consider the following small economy’s data:

a) Plot a graph with consumption on the vertical axis and GDP on the horizontal axis, and another graph with unemployment on the vertical axis and GDP on the horizontal axis. Are consumption and unemployment procyclical or countercyclical?

b) The average (arithmetic mean) of a variable is obtained by adding up all the

values and dividing by the number of values summed. Calculate average GDP, average consumption and average unemployment for this economy.

Year GDP Consumption Unemployment 1997 15 5 4 1998 25 22 3 1999 35 13 2 2000 40 27 1 2001 35 33 2

Question 3 (40 Points) Representative consumers have the utility function U(C,Ls) = ln(C) + ln(1- Ls) Representative consumers have labor endowment of 1. So Ls must be less than 1 Representative firm’s production function is Y(Ld )=4 Ld There is perfect competition in the markets (so price and wages are taken as given by firms and consumers) a) Write down profit function of the firm b) Solve for the firms maximization problem and find the labor demand c) Write down the budget constraint of the representative consumer d) Write down the maximization problem of the representative consumer and find

labor supply e) Write down the market clearing conditions f) Solve for equilibrium labor supply and labor demand g) Solve for equilibrium goods demanded and goods supplied h) Solve for equilibrium price and wage