Reference no: EM131542163
Q1. Suppose the government (in a small open economy) is increasing taxes. Use the IS-LM with the interest parity condition, i.e. r = rFor, to describe the economic effect of this policy (and show this on the IS-LM graph) under:
a. Fixed exchange rate
b. Flexible exchange rate
2. True or false? "In the neo-classical growth model, countries with the same savings rates but different population growth rates will achieve the same standard of living." Use of a properly labeled graph to explain your answer.
3. The capital share of output = 20%. Assume constant return to scale, no government, no net exports and no technological progress. Using this information:
a. Write (calculate) the Cobb-Douglass production function.
b. Write (calculate) the output per worker function.
c. Calculate total factor productivity if output grows by 6%, labour by 4% and capital by 2%.
4. Assume closed economy and the following:
Population growth n= 1% per year, work force is growing at the same rate as population, consumption C=0.5 (1-t)Y (t is taxation rate and Y is output), production function per worker is y=8k0.5 , the depreciation of capital = 9% per year, government purchases G=0, and taxation rate=0. Use this information to:
a. Write (calculate) expressions for national saving/worker and the steady-state level of investment /worker as functions of the capital/labour ratio k.
b. Calculate steady-state values of capital/worker ratio k (2) points, output /worker, consumption/worker and investment/worker.
5. The money demand function has the following form: Md/P = 400 + 0.25Y - 1000i. Assume that: P=130, Y=800 and i=0.08. Find real money demand, nominal money demand and the velocity.