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# Solving Macroeconomic Questions

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## Intermediate Macroeconomics

QUESTION 1:
Consider a country that is characterized by the following production function:
Y= 5K.5 L.5. Assume that the rate of depreciation as well as the rate of saving are each
.10. Also assume that there is no technological progress nor population growth.

a. What is the steady state level of capital per worker?
b. What is the steady state level of output per worker?
c. Suppose that the savings rate remains at .10 while the rate of depreciation increases to .20. What now happens to steady state level of capital per worker and output per worker?

QUESTION 2:
Explain why the Lucas aggregate supply curve is steeper than the New Keynesian aggregate supply curve.

QUESTION 3:
Suppose that the government of a country increases fiscal spending. According to the real business cycle theory, what will be the impact on the economy due to this change in government spending?

QUESTION 4:
The production function of a country X is given by: y = 150n - .5n2
The demand for labor is given by: nd = 300 - 2.5 (W/P).
The supply of labor is given by: ns = 200 + 2.5 (W/P).
The expected price level is 2.

a. What is the equation of New Keynesian Aggregate Supply curve?
b. If the labor market had been of the New Classical model, what would the equation of the Lucas Aggregate Supply curve be?

QUESTION 5:
What are the shortcomings of Statistics Canada's measurement of the unemployment rate?

QUESTION 6:
Define the natural rate of unemployment. Discuss the factors that determine the natural rate of unemployment.

QUESTON 7:
What is meant by the concept of the expected inflation rate? How does the expected inflation rate influence the actual inflation rate?

QUESTION 8:
What are the key assumptions of the quantity theory of money? Assume that money supply has increased by 5%, real output has increased by 5%, and there has been no change in the velocity of money. What will be the rate of inflation?

QUESTION 9:
Use an appropriate diagram to show the impact of a favorable oil shock on output and price level.

QUESTION 10:
Is it possible to lower the inflation rate without increasing unemployment above the natural rate? Explain your answer.

QUESTION 11:
An economy has the following short run aggregate supply and aggregate demand relations:
ys = -2000 + 50 P
yd = 4000 - 50P

Calculate the following:
a. Real GDP and price level.
b. If the money supply increases by 10% and it is anticipated, what is the new real GDP and price level?
c. What is new short run aggregate supply curve? Why has it changed?

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