By: Sebastian

Macroeconomics

Order Description

Economic Homework

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Class: Macroeconomics (ECON 2301) Spring 2015

Subject: Take-home Assignment #2 Due Date: On the Date of Exam #2

Instructions: Please follow the instructions and show the steps to your answer. Written explanation is expected to be

free of grammatical and syntax errors (as much as possible) and NO plagiarism. Arithmetical steps should follow

college standards. Graphs, tables, flows and other visual representations should be of good quality and with clear

details. It is also important that you show the formula first before deriving any arithmetical results if applicable. If

necessary, you can make up your own variables, reasons or estimates in solving problems but please explain your

reasons in doing so!

LAST, try your BEST in doing school work AS ALWAYS! Late homework will not be accepted.

IMPORTANT: Write your own answers on separate sheets of paper with your own graphs and tables. Please turn in

your homework with your full name on the first page -after you are done with the test. DO NOT turn in the handout.

Problem #1 (10 Points)

In this problem, please draw your own short-run AD-AS diagrams with clear details for each question. Make sure to

label the followings: the axes, the curves, the initial equilibrium values, the direction of the curve, shifts and the

terminal equilibrium values. You should use the cause?effect method in explaining changes in the economy

illustrated in your diagrams in writings and with steps by steps.

Notes: 1) The following AS-AD model in Figure 1Z is for a closed 3-sector economy with no international trade.

2) Be creative! Try your best to come up with your own analyses. DO NOT COPY ANSWERS DIRECTLY

FROM SAMPLE HOMEWORK SOLUTIONS in the Summary Package #2.

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(5 Points) (A) Refer to Figure 1Z. In the 2nd quarter of the Year, the economy was in equilibrium at Point B on the

AD3 function. Three months later, it arrived to Point D on the AD2. Please use the cause->effect methods and your

own original catalyst(s) (i.e. NOT FROM SAMPLE SOLUTIONS) to explain the short-term adjustments -for this

economy from its beginning to ending equilibrium conditions. NOTES: You should demonstrate the changes in your

own graph also.

(5 Points) (B) Refer to Figure 1Z. In the 2nd quarter of the Year, the economy was at Point E on the AD1 function. A

few months later, it arrived to Point C on the AD3 function. Please use the cause->effect methods and your own

original catalyst(s) (i.e. NOT FROM SAMPLE SOLUTIONS) to explain the short-term adjustments -for this economy

from its beginning to ending equilibrium conditions. NOTES: You should demonstrate the changes in your own graph

also.

Problem #2 (10 Points)

In this problem, please draw your own long-run AD-AS along with the (missing) short-run AS (and possibly long-run

AS) curves (with clear details) for each question. If necessary, AD and/or AS curves could be added into your model.

Make sure to label the followings: the axes, the curves, the initial equilibrium values, the direction of the curve, shifts

and the terminal equilibrium values. You should use the cause?effect method in explaining changes in the economy

illustrated in your diagrams in writings and with steps by steps.

Notes: 1) The following AS-AD model in Figure HW2.2 is for a closed 3-sector economy with no international

trade.

2) Be creative! Try your best to come up with your own analyses. DO NOT COPY ANSWERS DIRECTLY

FROM SAMPLE HOMEWORK SOLUTIONS in the Summary Package #2.

(5 Points) (A) Refer to Figure HW2.2. In 2010, the economy was in equilibrium at Point E2. Years later, it arrived to

Point E6. Please use the cause->effect methods and your own original catalyst(s) to explain the long-term

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adjustments -for this economy from its beginning to ending equilibrium conditions. NOTES: You should demonstrate

the changes in your own graph also.

(5 Points) (B) Figure HW2.2. In 2010, the economy was in equilibrium at Point E11. Years later, it arrived to Point

E5. Please use the cause->effect methods and your own original catalyst(s) to explain the long-term adjustments -for

this economy from its beginning to ending equilibrium conditions. NOTES: You should demonstrate the changes in

your own graph also.

Notes: Like Problem #1, you need to come up with your original changes that caused AS/AD/LRAS curves to shift.

Initial, transitional and ending conditions needed to be explained fully in details in college standards with the required

cause?effect?evidence inquiry methods.

Problem #3 (10 points)

Consider a closed economy where Y = C + I + G with the following information

C = 200 + 0.72 (Y T); I = 80 + 0.10Y; G = 200 + 0.08Y; T = 210

(4 Points) (A) What is the equilibrium level of GDP this year? Show your work!

(3 Points) (B) Next year, the new household spending function became C = 200 + 0.71 (Y T) (while other

macroeconomic equations and parameters remain unchanged.) What is the new equilibrium value for Y*?

(3 Points) (C) What is the annual percentage change in GDP for this hypothetical closed 3-sector economy?

Comparing to equilibrium incomes found in #3A and #3B, please explain why the two values of GDP are different.

Problem #4 (10 Points)

Consider the Table 1KEY for a 2-sector economy with various after-tax income levels

(5 Points) (A) Please construct the C(YD) (i.e. the consumption ) and S(YD) (i.e. the saving) functions. Show your

works as always!

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(2 Points) (B) Using the above consumption function in #4A, solve for equilibrium disposable income (YD)

arithmetically.

(3 Points) (C) Using the above consumption function in #4A, please draw it on a Consumption/Disposable Income

diagram with details, the break-even point and provide steps of how you draw your own graph.

Problem #5 (10 Points)

Table HW2.5 contains macroeconomic functions (C, I, G and T) as followed

C = 250 + 0.70 (Y T); I = 300 + 0.15Y; G = 210 + 0.05Y; T = 350 + 0.07Y

Your job is to fill in the remaining cells with appropriate values. Remember to show the formulas (on separate lines,

not on the table) and a few calculations for each variable (T, YD, C, I, G, AD and IU) to demonstrate that you do the

work by yourself and to earn full credits.

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