-
7/29/2019 Mid Term- Macro
1/7
I. Hakan Yetkiner Izmir Univery of
Economicshttp://eco.ieu.edu.tr/hyetkiner.php Department of
Economics
ECON 202INTERMEDIATE MACROECONOMICS 26 April 2006Dr.
Yetkiner
Mid-Term
1. (10 Points) The following information about business activity
is revealed to theDepartment of Commerce by the only three business
firms in the economy:
Beta Flour Company $ Ace Oven Co. $ Dewdrop Cookie Co. $Sales
250 Sales 150 Sales 900
Wages 100 Wages 100 Wages 600
Depreciation 30 Depreciation 20 Flour Inventory
Rent 50 Beginning of Year 100
End of Year 200Flour Purchases 250
Oven Purchases 150
Depreciation 50
Compute GDP by using product (value added), expenditure, and
income approaches.
Hint: You should indicate each item clearly.
1
-
7/29/2019 Mid Term- Macro
2/7
I. Hakan Yetkiner Izmir Univery of
Economicshttp://eco.ieu.edu.tr/hyetkiner.php Department of
Economics
2. (10 Points) Assume that GDP=4,800; C=3,400; Private Domestic
Savings=400;G=1,200; and NX=-120. What are disposable income,
private domestic investment, and
the budget deficit?
3. (10 Points) An individual is endowed with h=24 hours of
leisure per day and = 240units of fixed income (dollars) per day.
His marginal rate of substitution in resource
supply isMRSlc = c/l. The wage facing him is w = 10. How many
hours of labor will he
supply, and what will be his income from labor?
Solveandillustrate your answer in fulldetail.
2
-
7/29/2019 Mid Term- Macro
3/7
I. Hakan Yetkiner Izmir Univery of
Economicshttp://eco.ieu.edu.tr/hyetkiner.php Department of
Economics
4. (10 Points) Daniel has income of y1 = 200 when he is young
and y2=300 when he isold. Initially, the real interest rate is r1 =
25%. Daniel chooses to consume c1* = 240
when he is young.
a) What is the present and future value of Daniels lifetime
resources? How much does
Daniel consume when he is old (c2*)? Is Daniel a borrower or a
lender? Please illustratethe problem and your answer infull
detailin a figure.
b) Now suppose that the interest rate increases to r2 = 50%.
Daniels choice under thisscenario is to consume c1** = 225 when he
is young. How much does Daniel consume
when he is old (c2**)?Redraw your figure from part (a), and add
to it the illustration ofwhat happens in response to the increase
in the real interest rate.
3
-
7/29/2019 Mid Term- Macro
4/7
I. Hakan Yetkiner Izmir Univery of
Economicshttp://eco.ieu.edu.tr/hyetkiner.php Department of
Economics
5. (15 Points) Suppose that Daniel has income of y1 = 400 when
he is young and y2=100when he is old. Initially, the real interest
rate is r1 = 25%. The utility function of Daniel
is
+
=
11
1
2
1
1 ccU , where = 0.8 is the discount factor. Find the optimal
values of
c1 and c2 for 5.0= . Next, suppose that r has been raised to
30%. Find again theoptimal values of c1 and c2. Disentangle the
substitution effect from income effect, using
the Hicksian compensation.
4
-
7/29/2019 Mid Term- Macro
5/7
I. Hakan Yetkiner Izmir Univery of
Economicshttp://eco.ieu.edu.tr/hyetkiner.php Department of
Economics
6. (30 Points) Suppose that utility function u of a
representative agent is, where c is consumption of physical goods
and)ln()1()ln( Lcu += L is
consumption of leisure. Suppose that production technology is
represented by
where is output and is labor demand. We assume that
=1Ny
y N NLh += and is the real
wage. There is no government in the economy.
w
a) Find the optimal values of ,c L , , , and under the
competitive equilibrium
assumption.
N y w
b) Find the impact of one-time permanent changes in exogenous
variables on
endogenous variables in the model.
5
-
7/29/2019 Mid Term- Macro
6/7
-
7/29/2019 Mid Term- Macro
7/7
I. Hakan Yetkiner Izmir Univery of
Economicshttp://eco.ieu.edu.tr/hyetkiner.php Department of
Economics
8. ++ Bonus Question (10 points)
Write down a well-designed essay on chain-weighted measurement
of National Income
and Product Accounting with an EXAMPLE. Hint: You are expected
to write down aone-page essay, including the numerical example.
7
