Problems

Chapters 3,5,7

List of Suggested Problems

Chapter 3Numerical Problems: 3a,b 4aAnalytical Problems: 2

Chapter 4Numerical Problems: 2a,bAnalytical Problems: 7

Chapter 7Numerical Problems: 1a, 3aAnalytical Problems: 1

Chapter 3 Numerical Problem 3, Parts a,b

N Y MPN MRPN (P = 5) MRPN (P = 10)

1 8 8 40 80

2 15 7 35 70

3 21 6 30 60

4 26 5 25 50

5 30 4 20 40

6 33 3 15 30

Chapter 3 Numerical Problem 4a

The marginal product of labor is given by the equation below:

(100 )MPN A N

The price of output is $2 per unit What is the quantity of labor demanded if

A=1 and the nominal wage is $10?

Chapter 3 Numerical Problem 4a (continue) Profit maximization requires that labor be hired

to the point where MRPN is just equal to W:

2 1 100 10MRPN N

2 1 100MRPN N W

Solve for N: N = 95 Plot the demand for labor:

2 1 100 N W

Chapter 3 Analytical Problem 2

What are the effects of each event on the output? A large number of immigrants arrive in the country

(lower) Energy supplies become depleted (lower) New teaching techniques improve the educational

performance of high school seniors (higher) The new law mandates the shutdown of some

unsafe forms of capital (lower)

Chapter 4 Numerical Problem 2, Parts a,b

# Fabricators Output MPKf

0 0 —

1 100 100

2 150 50

3 180 30

4 195 15

5 205 10

6 210 5

Chapter 4 Analytical Problem 1 For this question you are asked to use the saving

investment diagram to analyze the effects of different events on saving investment in the real rate of interest. Consumers decide to save more The government announces a large one-time bonus

payment to veterans returning from a war to be financed by future taxes

Government introduces an investment tax credit, but changes other taxes of total tax collections remain unchanged

A large number of oil deposits are discovered increasing the marginal product of capital and expected future income

Chapter 7 Numerical Problem 1

This problem simply involves plugging numbers into the money demand function

I will refer you to the answers that have been posted; I will not cover it in this review

Chapter 7 Numerical Problem 3a

We are told that the quantity theory holds and that velocity is constant at 5, output is fixed at its full employment value of 10,000, and the price level is equal to 2.

Determine the real demand for money and the nominal demand for money

Chapter 7 Numerical Problem 3a

Solve for M; M = 4000 Solve for M/P; M/P=2000

MV PY

5 2 10,000M

Chapter 7 Analytical Problem 1

What are the effects of each on the demand for M1? The demand for M2? Money market mutual funds become more

checkable Checkable home equity lines of credit are

introduced The stock market crashes—further declines are

feared Banks introduce overdraft protection featuring

automatic savings to checking transfers A crackdown reduces the illegal drug trade occurs

The End