tutorial8[1]

TUTORIAL8–WEEK9

ECON2102–Macroeconomics2

Session2,2010

i).Discussion:What are the e?ects on this year’s quantity of labor supplied,L s1,from the following changes:

a)an increase in the interest rate,i1.

.

b)a permanent increase in the real wage rate,w

P

.

c)a temporary increase in the real wage rate,w

P

+K0).

d)a one-time windfall,which raises initial real assets,(B0

P

ii).True/False:Indicate whether the statement is true or false.

1.Intertemporal substitution e?ects are substitution e?ects over time.

2.The model predicts that in response to a permanent positive change in technology real consumption will be procyclical.

3.When the capital utilization rate,κ,is added to the model the interest rate becomes countercyclical.

4.Unemployment will exist in a market clearing model,if it takes some search time for workers to?nd jobs.

iii).Multiple Choice Questions:Identify the choice that best completes the statement or answers the question.

5.An equilibrium business-cycle model:

https://www.360docs.net/doc/a31187844.html,es shocks to GDP to?nd equilibrium conditions.

https://www.360docs.net/doc/a31187844.html,es GDP to?nd equilibrium shocks to the economy.

https://www.360docs.net/doc/a31187844.html,es equilibrium conditions to determine how shocks a?ect real GDP and other macroe-conomic variables..

https://www.360docs.net/doc/a31187844.html,es GDP to?nd equilibrium conditions.

6.During an economic expansion due to an increase in technology,A,consumption will:

a.tend to rise due to the income e?ect.

b.may rise or fall depending on whether the income e?ect is greater than the substitution e?ect or not.

c.tend to fall due to the intertemporal substitution e?ect of the interest rate rising.

d.none of the abov

e.

7.A variable that moves in the same direction as real GDP is known as:

a.acyclical.

b.procyclical.

c.countercyclical.

d.exogenous.

https://www.360docs.net/doc/a31187844.html, real consumer expenditure since1954has been:

a.procyclical.

b.countercyclical.

c.a cyclical.

d.exogenous.

9.With a temporary change in technology the model predicts:

a.the interest rate will be procyclical.

b.a lower interest rate will motivate households to increase current real consumption.

c.a higher interest rate will motivate households to increase current real saving.

d.all of the abov

e.

10.A higher real wage:

a.makes consumption more expensive.

b.makes it a worse deal for households to work an extra hour.

c.makes leisure less expensive.

d.makes leisure more expensiv

e.

11.A higher interest rate makes:

a.future consumption and leisure more expensive.

b.future consumption cheaper and future leisure more expensive.

c.future consumption and leisure cheaper.

d.future consumption more expensive and future leisure cheaper.

12.In the US since1964total hours worked and employment have been:

a.acyclical.

b.countercyclical.

c.procyclical.

d.exogenous.

13.When we allow a capital utilization rate,κ,less than100%,then the rate of return form owning capital becomes:

a.(R/P)?δ.

b.(R/P)·κ?δ(κ).

c.(R/P)·κ?δ.

d.(R/P)?δ(κ).

14.GDP might rise in an expansion due to:

a.an increase in technology,A,directly increasing GDP.

b.an increase in technology,A,causing an increase in labor,L and GDP.

c.an increase in technology,A,causing an increase in the capital utilization rate,the quantity of capital services and GDP.

d.all of the abov

e.

15.If the rental price of capital increases,then the capital utilization rate,κ,:

a.also increases.

b.decreases.

c.remains the same.

d.depends on whether the substitution rate is greater than the income e?ect.

16.If the labor force is100million,there are95million people employed,there are98million jobs that employers want occupied,then the number of unemployed workers in the labor force is:

a.5million.

b.3million.

c.2million.

d.none of the abov

e.

iv)Short Answer Questions

17.If there is a positive technological change,what happens in the labor market?

18.What is the relationship between real GDP and the cyclical part of GDP?

19.How does the capital utilization rate a?ect the depreciation rate and why?

20.How can there be unemployment in a market clearing model?