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ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD(Department of
Economics)
WARNING1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR
SOLVING
THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD
OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
2. SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM
OTHER(S) AS ONES OWN WILL BE PENALIZED AS DEFINED IN
AIOU PLAGIARISM POLICY.
ASSIGNMENT No. 1(Units 14)
Course: Advance Macroeconomics (2701) Semester: Spring, 2010
Level: M. Phil Total Marks: 100
Q.1 What is a Business Cycle? Discuss the possible extensions
and limitations of a real
business cycle model in detail. (20)
Q.2 (a) Review the textbook Keynesian model of AD. What
aredM
di and
dMdY for given value of P. (10)
(b) If in the derivation of LM curve we adjust M to keep i
always equal to i instead
of assuming M is exogenous.
i) What is the slope of LM curve?
ii) What is the slope of AD? (10)
Q.3 Read non-Walrasian theories largely depend upon the
explanation of
Coordination-Failure Models by Cooper and John (1988).
Substantiate the
statement. (20)
Q.4 In practice individual invest in many assets which have
almost uncertain returns.
Keeping this statement in view, analyze the household
consumption behaviour in
the presence of risky assets. (20)
Q.5 Given the Cobb-Douglas production function
LKY = 1=+Let w, r, P and Y are given
i) Is Eulers theorem satisfied when ?1+ Explain
ii) Find out the firms choice of K. Given choice of K what is
the profit
function.
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iii) Find first order condition for the choice of L and see
whether second order
condition is satisfied or not.
iv) Solve the first order condition in part (iii) for L as a
function of P, Y, w, and
Kr . How do changes in each of these variables affect L?
(20)
ASSIGNMENT No. 2(Units 59)
Q.1 (a) Discuss in detail different theories given by the
economists to explain the
phenomenon of unemployment in a country. (10)
(b) Using wage- efficiency model, find equilibrium unemployment
rate
,
oU given ,)1( nu ww += the wage in union sector, and in non
union sector it is
=1
)1( an
wbw . Where aw is average wage
and .)1(. nua wfwfw += Also calculate by what proportion is
the
cost of effective labour higher in union sector than non-union
sector
if ,05.014.0 === f ?1=b (10)
Q.2 Discuss the dynamic inconsistency of low- inflation monetary
policy in the light of
famous paper of Kydland and Prescott. (20)
Q.3 Show the impact of change in saving rate on output and
consumption in the Solow
growth model. Also give a quantitative implication for the
effect on output in thelong-run. (20)
Q.4 Describe how each of the following changes affects the basic
diagram for the
Solow mode?(a) The rate of depreciation falls.
(b) The rate of technological progress rises.
(c) The production function is Cobb-Douglas,kkf =)( and capital
share
rises.
(d) Output per unit of effective labour is higher than before.
(20)
Q.5 (a) Discuss the general case of model without capital by
reintroducing the capital
into the model. (10)
(b) Assume that 1n and the economy is on balanced
growth path. Show how each of the following changes affects the
0gA =
and 0gk =
lines and the position of the economy in ),( kA gg space at
themoment of the change. (10)
(i) An increase in ka
(ii) An increase in n
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