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By: Sebastian

Macroeconomics

Macroeconomics

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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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