Final Exam 2 with Answers - Intermediate Macroeconomics | ECON, Exams of Economics

Download Final Exam 2 with Answers - Intermediate Macroeconomics | ECON and more Exams Economics in PDF only on Docsity! INDIANA UNIVERSITY . BLOOMINGTON College of Arts and Science Department of Economics ECON 322 (Intermediate Macroeconomics) Instructor: Kim Huynh Midterm Test 2 March 22r 2OOT Duration; 75 minutes 1. Write answers in the exam booklet (extra paper is available upon request) 2. Make sure to use the theory and methodology developed in the course 3. Where applicable draw a graph and/or write down some equation(s) 4. Academic dishonesty will not be tolerated This examination paper consists of 10 pages and 3 questions. Please bring any discrepancy to the attention of an invigilator. The number in brackets at the start of each question is the number of poirrts the questiclrr is worth. Answer ALL questions. To obtain credit, you must give clear and concise arguments to support your ansrvers. For instructor's use: Score t (25) Subtotal Score 2 (40) Subtotal 77 Total(100) | q" Score 3 (35) Subtotal Lq -.- Page 1 of 10 Pacp 2 or' 10 1. [25] Suppose that the government imposes a proportional income tax on the representative corrsurner's wage incorne. That is, the consurner's wage iucorne is: w(r-t)(h-t). (1) *Where f is the tax rate (0 < t < 1). What efiect does the income tax have on consumption and labor supplyf. Explain your results in only on the househcld problem (partial 6c 4^l'l \\ fi 0v C-t LI Tr-f t6 Jia.. Aob h,/ rrt* I a fnV.. r.a.l l. v Sinc^ w.y ),u.r",.vs lt^r- .^,rlt 1- 5€ t 76 :) ao ?1-l o\- S-[rt<\.i-,r.- C.l4r..] , -- Jtl h txi,rerP Ie - Lrt sr+ ;- /o /t z fi."- *r'.\ J**,*a"s'r--- sr.;(l (-.-rCr-t\) t {c strsl'l".tt,x- <J1.*+ il A_ZB fr* lnn* ell-* - Sior-- * \.r r lr** ,*r'I\ b- 1 nr6, iar-* e-|U( c-l, l.v =) rp tu Je: l{ le > s€ tttc ;( fs<s€ wz f1- Sg wL tao.ly' lrc ^4 n.uJ Lu- l.l+ " { c- uo-lal t* h, ttyv.i "( c- f.,n} a- C ru' ?) C^rtu) ' l?c';r} PacP 6 oF 10 (b) t25] Now suppose that government spending is used to make private firms more pro- ductive; for exarnple, government expenditures are spent on increasing transportation ilfrastructure (roads, bridges, etc.). You can think that the capital stock K has two components: ' K:K +G, Q) where .R is the private capital stock and G adds to the public capital stock. Re'do the analysis for the effect of a decrease in G on aggregate output (Y), consumption (C)' taxes (?), employment (N), aud the real wage (tu). To help in the analysis assurne that the strength of the substitution and incorne effects are equal' P*l T is 5r*€. LC.. Lf ,up\icL s\erc' + i.t* c{&..A + SLtcl t i^?gF ilflF:r Cr c> c. C,, C-r, tt 1, 'l\- {, i^ r Cic. Gr *or.i! n-+ rc*.y g$[r-rraf ^ t ";n*tW*) J 5i^.- F:E+C :)c &cn.l- in lr crol<) .K L drrsrct+ - A J*. r+* t+- l" l' sL;Ch rr* p-1. o,*c,.db-'\ t" f= Zf(*.,i,) l. ln0P' l1'Y y't v2 )z: ircr,)) /'ne(Kr ,l) h t'\ '! %r tt -) l, Rtr C," i n \<* stl &k d--^ , V lor5 1.lr ev.r psGF- 45.1-r.^-in A , I I I \ f't 11 /n Pru, (-.., ) J, ,\ na*,r (. r, Nd w? ./ Vt" r$ -'o n,vtSo.rwn 1^'rril" f(yr ( '1 SVA..ro) )1" 'toa\ql 1o-I t.r -trl,>f / --f ) / 't/c1 '( -) n4 -.--+aal.1o \'zar1- \.1 re--,r.r'i( nl*n) ",$)'\t)o )o ll"\- V ( tz -{\, }n \rl \\f f J-,. 3 5 1l- <;. faffa - "a,t1 \3..{.*4 -"-^en$ v{d{osus? .t 'W >.,r rn (<ra -*-, | \^-f ld rz @ 1f^*ft? ,{*- t'u 13 ^-U rzr\5 {wg.*PS 'n.Q t<,1 ' la *l^r* y \" 1 w, \z '-- t't"{r -rvr ( 1j&! V n lrr) f! 0I do L scvd -l-zrtfl I \'/<'/)rd/\ r r 1/ zu?l ] r- ? ?Ndut : \A>r^>t/( -rf "1 Y,:'cD l"nt' €+At 'l tdd l" 2n{tz q : j.l -J "1, 35 (j tlJd, Pecs 8 or' 10 3. (a) lZZl In the framework of a one-period competitive equilibrium closed economy model; evaluate the effects of a decrease in total factor productivity z on aggregate output (/), consrrmptiol (C), employrnent (N), and the real wage (ur). Ttr help in the arralysis assume that the strength of the substitution and income effects are the same. rrl'*- eY//: z-f Ck,d) -gq-D ffi*4