Macroeconomics (9th Edition)
Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
Question
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Chapter 7, Problem 5NP

a)

To determine

Percentage of difference between equilibrium price level and initial value if output increases to 106.

b)

To determine

Percentage of difference between equilibrium price level and initial value if real interest rate increases to 0.11

c)

To determine

Real output level

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Problem 2. If the consumer preference can be represented by a CES function with δ = 0.5, i.e. u(x, y) = x0.5 + y0.5. Let the prices and income be (px, py, w).  1. Set up the Lagrangian expression.2. Take the first-order conditions.3. Substitute into budget constraint to derive the optimal consumption bundles.
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