ICU winter 2011, Principles of Macroeconomic
Homework #1
Rules:
(1) Write down your answers in the answer-sheet form, the file of which is uploaded on the website with the name answersheet_form. Answers that are not written in this form will not be accepted. (2) In each problem, the explanation is more important than the result. So always remember to
explain the logic in your results, even if the problem does not explicitly ask you to do so.
(3) Write as clearly as possible. An answer with poor handwriting that I cannot read will automatically receive no point.
(4) You can discuss with others but you need to write your answers on you own. If answers of two people appear to be that one is copied from the other then both will receive no point.
Deadline: Jan 10, 2012
Submission: Submit to me in the class
Problem 1 (8 pts×3) (References: topic 3 and chapter 3)
In this problem we use the neoclassical theory of distribution studied in topic 3 to consider the case of the Japanese economy. Analyze the effects of each of the following events on the real wage and the real rental price of capital:
(a) Population aging advances and the labor force decreases.
(b) The Tohoku earthquake and tsunami destroyed some part of the capital stock. (c) The economy-wide adoption of information technology helps to improve production
function.
Problem 2 (10+8×3 pts) (References: topic 3 and chapter 3)
The following equations describe the neoclassical theory studied in topic 3:
Y = + + C I G
(1)Y = Y
(2)G=G (3)
T = T
(4)0
(
C = + C a Y − ) T
(5)I = − r I
0b
(6)where Y is national income, C is consumption, I is investment, G is government
expenditure, T is tax revenue, r is the real interest rate, and Y G T C I a b
, , ,
0,
0, ,
are1
positive constants.
1. Explain briefly the economic meaning of each of the equations (1)~(6).
2. Suppose Y =
5000, 1000, 1000, 250, 1000, 0.75, 50
G= T = C0 = I0 = a= b= .2.a. Compute private saving, public saving, and national saving. 2.b. Find the equilibrium interest rate.
2.c. Now suppose that the government increases G to 1250. What are the effects of this fiscal policy on private saving, public saving, national saving, and the equilibrium interest rate.
Problem 3 (5 pts×4) (References: topic 5 and chapter 4)
Among the three functions of money, which of the functions do the following items satisfy, and which do they not satisfy?
(a) A SUICA card (b) A credit card (c) A Rolex watch
(d) A painting by Picasso
Problem 4 (22pts) (References: topic 5 and chapter 4)
Use the Internet to collect data and find a country that had high inflation and a country that had low inflation over the past few decades. For these two countries, find the money growth rate and nominal interest rate, and relate your findings to the theories studied in topic 5.
Hint: One data source I would suggest is World Development Indicators,1 but there are many others.
1 Go to http://databank.worldbank.org/ddp/home.do?Step=2&id=4, click DATABANK on the right of the page and then follow the steps there.
2
