Macro Eco Problem SET

No need for writing essay.
just solve the problem set.
thank you
Problem 8 should read:  if the consumption of durable goods is DEcreasing in the interest rate”

Problem Set 1
Deadline: Thursday, September 25, BEFORE class
1. Is GDP a áow or a stock? Why?
2. Which component of U.S. GDP would be a§ected and how if:
(a) a Russian national buys a new house in Miami beach?
(b) GM sells some cars that entered its inventory last year.
(c) you pay your tuition?
(d) you clean your apartment?
(e) you buy Samsung stock?
(f) you buy an old house?
(g) you pay some teen to mow your lawn
(h) pharmaceutical companies increase their R&D spending seeking for an
e§ective vaccine against the Ebola virus?
(i) Delta buys an Airbus airplane produced in Europe?
(j) the government hires more policemen?
(k) the government increases the monetary transfers to the poor
3. An economy is producing just oranges and grapefruits. The table below
contains information about the quantity and prices of both goods from 2010 to
2013.
Year
Quantity of oranges
Orange Price
Quantity of Grapefruit
Grapefruit Price

(a) Calculate the nominal GDP for each year.
(b) Assume 2013 is the base year and Önd the real GDP and the GDP
deáator for each year (including 2013).
(c) Assume the typical consumer buys 5 oranges, 5 grapefruits, and nothing
else.
(i) Let 2013 be the base year. Estimate the CPI for each year (including
2013).
(ii) What was the ináation in 2012 (the percentage change in CPI from
2011 to 2012)? What is the percentage change in the GDP deáator in 2012
relative to 2011? Why may using the GDP deáator (in this case) understate
the increase in the cost of living, while using the CPI (in this case) may overstate
the increase in the cost of living?
1
4. A countryís population (age 16 or older) is 150 million. Moreover, we
know that 110 million people are employed and 7 million are unemployed.
(a) Find the unemployment rate and the labor force participation rate.
(b) Imagine a recession hits the economy and 3 million people are Öred.
2 million people look for jobs for some time, but could not Önd any; they
get desperate and decide to wait for better economic conditions. The other
1 million people are still looking for a job, but are not successful yet. Find the
unemployment rate and the labor force participation rate.
5. Consider a closed-economy market-clearing model with the following pro-
duction function:

where denotes capital,

denotes labor, and
A
is a positive constant.
(a) Check what are the returns to scale in production.
(b) Find the marginal product of labor (MPL). Does MPL increase or de-
crease with labor if we keep technology and capital Öxed? What is the intuition
behind the result?
(c) Find the marginal product of capital (MPK). Does MPK increase or de-
crease with capital if we keep technology and labor Öxed? What is the intuition
behind the result?
(d) Assume the supply of labor increases by 20%. Calculate the resulting
percentage change in the output, the real wage, and the real rental rate.
(e) Assume the supply of capital increases by 20%. Calculate the resulting
percentage change in the output, the real wage, and the real rental rate.
(f) Assume that the total factor productivity
A
increases by 20%. Calculate
the resulting percentage change in the output, the real wage, and the real rental
rate.
6. Consider a closed-economy market-clearing model where: