Problem 1. The following equations characterize country's economy. Assume that the economy is a closed economy. Production function: Y = A·K•N-3-N²/2. where A = 5 and K = 21. Labor supply: NS = 5 + 3w. Desired Consumption: Cª = 56 +0.75Y - 100r Desired Investment: Iª = 130 - 900r Government Spending: G = 300 (a) Find the equilibrium levels of the real wage, employment and output (you may want to go back and read your notes on labor market). (b) Find the equilibrium level of the real interest rate, consumption, investment and national saving. (c) Illustrate your answers to parts (a)and (b) with appropriate graphs. (d) Suppose that due to a wave of immigration, labor supply increases. The new labor supply curve is given by Labor supply: NS = 25 + 3w. Find the new equilibrium values of the real wage, employment, output, the real interest rate, investment, saving and consumption. Illustrate these new answers in the graphs that you drew for part (c).

Problem 1. The following equations characterize country's economy. Assume that the economy is a closed economy. Production function: Y = A·K•N-3-N²/2. where A = 5 and K = 21. Labor supply: NS = 5 + 3w. Desired Consumption: Cª = 56 +0.75Y - 100r Desired Investment: Iª = 130 - 900r Government Spending: G = 300 (a) Find the equilibrium levels of the real wage, employment and output (you may want to go back and read your notes on labor market). (b) Find the equilibrium level of the real interest rate, consumption, investment and national saving. (c) Illustrate your answers to parts (a)and (b) with appropriate graphs. (d) Suppose that due to a wave of immigration, labor supply increases. The new labor supply curve is given by Labor supply: NS = 25 + 3w. Find the new equilibrium values of the real wage, employment, output, the real interest rate, investment, saving and consumption. Illustrate these new answers in the graphs that you drew for part (c).

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Problem 1. The following equations characterize country's economy. Assume that the economy is a
closed economy.
Production function: Y = A·K'N – 3·N²/2.
where A = 5 and K = 21.
Labor supply: N$ = 5 + 3w.
Desired Consumption: Cd = 56 +0.75Y – 100r
Desired Investment: Iª = 130 – 900r
Government Spending: G = 300
(a) Find the equilibrium levels of the real wage, employment and output (you may want to go
back and read your notes on labor market).
(b) Find the equilibrium level of the real interest rate, consumption, investment and national
saving.
(c) Illustrate your answers to parts (a)and (b) with appropriate graphs.
(d) Suppose that due to a wave of immigration, labor supply increases. The new labor supply
curve is given by
Labor supply: N$ = 25 + 3w.
Find the new equilibrium values of the real wage, employment, output, the real interest rate,
investment, saving and consumption. Illustrate these new answers in the graphs that you drew
for part (c).

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Q2. Suppose the U.S. economy is represented by the following equations. Z=C+I+G C = 300+.5 YD T = 400 I = 200 YD = Y-T G = 1000 (a) Given the above variables, calculate the equilibrium level of output (Y). (b) Using the graph below, illustrate the equilibrium level of output for the economy. Aggregate Demand (Z) 450 (c) Now assume that consumer confidence increases causing an increase in autonomous consumption from 300 to 400. What is the new equilibrium level of output? (d) How much does income change as a result of this event? What is the multiplier for this economy? (e) Graphically illustrate (in the above graph) the effects of the change in autonomous consumption on the aggregate demand line and equilibrium Y. Clearly indicate in your graph the initial and final equilibrium levels of output. (f) Briefly explain why this increase in output is greater than the initial increase in autonomous consumption.