How would each of the following events affect the level of employment and the real wage rate?

How would each of the following events affect the level of employment and the real wage rate?

(a) A major government loan-guarantee program goes bust, losing $500 billion. To pay off the loss, the government announces that tax rates will rise 30% in the future.

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(b) A nuclear mishap contaminates all auto plants in the Detroit area, destroying their capital.

(c) Medical science cures the common cold, causing fewer work days lost due to illness, thus greatly increasing labor productivity.

2) Suppose the economy’s production function is Y = AK0.3 N0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N both rise by 20%, and A is unchanged, by how much does Y increase?

3) In April 2000, the United States had a labor force of 141,230,000, employment of 135,706,000, and there were 67,986,000 people not in the labor force (all numbers rounded to the nearest 1000).

(a) Calculate the unemployment rate.

(b) Calculate the participation rate.

(c) Calculate the employment ratio.

4) Suppose the marginal product of labor in the economy is given by

MPN = 0.002(16,000 – N), while the supply of labor is 1000 + 1000w.

(a) Find the market-clearing real wage rate and level of employment.

(b) What happens to the wage rate and employment if wealth rises, reducing the supply of labor to 500 + 1000w?

(c) What happens to the wage rate and employment if after wealth has risen as in part (b), there is a productivity shock that increases the marginal product of labor to

MPN = 0.0025(16,000 – N)?

5) Suppose a firm’s hourly marginal product of labor is given by

MPN = A (200 – N).

(a) If A = 0.2 and the real wage rate is $10 per hour, how much labor will the firm want to hire?

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

(c) With the real wage rate at $10 per hour, how much labor will the firm want to hire if A rises to 0.5?

1) The tax code changes so that business firms face higher tax rates on their revenue.
a. How does this change affect the desired capital stock? Explain.
b. Using a saving-investment diagram, analyze the effects on the equilibrium real interest rate, saving and investment.
2) How would the saving curve shift in the following case?
Consumers believe that next year a recession will occur and output will decline
3) An economy has full-employment level of 6000. Government purchases, G, are 1200. Desired consumption and desired investment are
Cd = 3600 – 2000r + 0.10Y, and
Id = 1200 – 4000r, where Y is output and r is the real interest rate.
(a) Find an equation relating desired national saving, Sd, to r and Y.
(b) Using both versions of the goods market equilibrium condition, find the real interest rate that clears the goods market. Assume that output equals full-employment output.
4) You are given the following information about an economy:
Gross private domestic investment = 40
Government purchases of goods and services = 30
Gross national product (GNP) = 200
Current account balance = -20
Taxes = 60
Government transfer payments to the domestic private sector = 25
Interest payments from the government to the domestic private sector = 15
Factor income received from rest of the world = 7
Factor payments made to rest of the world = 9
Find the following:
a. Net factor payments from abroad, b. GDP, c. Net exports, d. Consumption, e. Private saving, f. Government saving, g. National saving

1) Money demand in an economy in which no interest is paid on money is
MD / P = 500 + 0.2 Y – 1000 i
(a) Suppose that P = 100, Y = 1000, and i = 0.10. Find real money demand, nominal money demand, and velocity.
(b) The price level doubles from P = 100 to P = 200. Find real money demand, nominal money demand.
2) If nominal money supply grows 3% and real money demand grows 8%, the inflation rate is
A) -5%.
B) 8/3%.
C) 5%.
D) 11%.
3) If the income elasticity of money demand is 3/4 and income increases 8%, by about how much does the price level change?
A) Falls by 6%.
B) Unchanged.
C) Rises by 6%.
D) Rises by 8%.
4) In a small economy,
Desired national saving: Sd = $10 billion + ($100 billion) rw
Desired investment: Id = $15 billion – ($100 billion) rw
Output: Y = $50 billion
Government purchases: G = $10 billion
World interest rate: rw = 0.03
(a) Find the economy’s national saving, investment, current account surplus, net exports, desired consumption, and absorption.
(b) Owing to a technological innovation that increases future productivity, the country’s desired investment rises by $2 billion at each level of the world real interest rate. Repeat part (a) with this new information.
4) If the United States sells computers to Russia, and uses the proceeds to buy shares of stock in Russian companies, the U.S. trade balance ________ and the U.S. capital and financial account balance ________.
A) rises; rises
B) rises; falls
C) falls; falls
D) falls; rises
5) A country has a current account surplus if
A) the value of its exports exceeds the value of its imports, assuming net income from foreign assets and net unilateral transfers have a value of zero.
B) the value of its net exports of services exceeds the value of its net exports of goods.
C) it receives more income from foreign assets than it pays to foreigners for foreign-owned domestic assets.
D) its capital inflows exceed its capital outflows.