Macroeconomics
Problem 1: (40 points)
GDP/ Income
Consumption
Investment
Government expenditure
Exports
Imports
Aggregate Expenditure
Inventories
GDP will
8400
6800
1200
1000
400
600
9200
7400
1200
1000
400
600
10000
8000
1200
1000
400
600
10800
8600
1200
1000
400
600
11600
9200
1200
1000
400
600
1. Fill in the blanks. Find the equilibrium GDP.
2. Calculate the MPC and the multiplier.
3. If the government wants to set a new equilibrium at 12000 by how much it needs to increase the government expenditure?
Problem 2:
Explain whether each of the following events will increase, decrease, or have no effect on long-run aggregate supply.
a. Country invites more expats.
b. Government raises the minimum wage.
c. Intel invents a new and more powerful computer chip. d. A new virus results in closedown of many companies
Problem 3
Consider the data of the following table for the years 2015 and 2016
Year
Potential GDP
Unemployment rate
2015
4.26 trillion $
4.19 trillion $
3.5 %
2016
4.27 trillion $
4.34 trillion $
4.9%
1. In 2015, Real GDP is higher than potential GDP. Explain how is this possible
2. Real GDP is 2016 is higher than 1969, the unemployment rate increased
substantially from 2015 to 2016. Why did this increase in unemployment occur?
3. Was the inflation rate in 2016 to have been higher or lower than the inflation rate in 2015? Does your answer depend on whether the recession that started in December 2015 was caused by a supply shock or by a change in a component of
aggregate demand?
