Scribd
Upload
36 views

UGmacro2022 ps1

This document contains a 4-question problem set on introductory macroeconomics. It addresses topics including: 1) The relationship between output, employment, wages, rents, and other variables as we move along a short-run aggregate supply curve. 2) How a revision of nominal wages upward due to expected inflation would affect short-run and long-run aggregate supply. 3) Whether statements about the loanable funds market and money market are true, false, or uncertain as the economy moves along an aggregate demand curve. 4) How a loss of confidence due to COVID-19 would impact consumption, investment, money demand, interest rates, and aggregate demand.

Uploaded by

Chunming Tang
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
36 views

UGmacro2022 ps1

This document contains a 4-question problem set on introductory macroeconomics. It addresses topics including: 1) The relationship between output, employment, wages, rents, and other variables as we move along a short-run aggregate supply curve. 2) How a revision of nominal wages upward due to expected inflation would affect short-run and long-run aggregate supply. 3) Whether statements about the loanable funds market and money market are true, false, or uncertain as the economy moves along an aggregate demand curve. 4) How a loss of confidence due to COVID-19 would impact consumption, investment, money demand, interest rates, and aggregate demand.

Uploaded by

Chunming Tang
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

ECON1220H&I Introductory Macroeconomics

Chi-Wa Yuen

Problem Set 1
[due by March 13 (Mon), 12noon]

Q.1 Movements along the AS curves


Given the technology parameter (A) and the capital stock (K), we can determine labor employment
(N), along with wages (w and W) and rentals (rk and Rk), from equilibria in the labor and capital-
input markets, and output (Y) from the production function.

Consider the six variables mentioned above — viz., Y, N; W, w; Rk, and rk — in the context of the
following SRAS diagram.
P
E SRAS
D

(a) Which of these 6 variables {Y, N; W, w; Rk, rk} would remain constant as we move upward
along this SRAS curve (say, from point D to point E)?
(b) Which of these 6 variables {Y, N; W, w; Rk, rk} would change and in what direction as we
move upward along this SRAS curve (say, from point D to point E)?
(c) Which of these 6 variables {Y, N; W, w; Rk, rk} would remain constant, and which of them
would change and in what direction, as we move upward along a given vertical LRAS
curve?
Text

Q.2 Shift in AS curves due to revision of labor contracts


Upon expiry of the existing contracts, suppose employers and employees decide to revise the
nominal wage (W) upward under a new set of contracts because they expect a rise in the future
price level (Pe). Explain how it would affect aggregate supply in the short run (SRAS) and in the
long run (LRAS).

Page 1 of 2
Q.3 Movement along the AD curve
Consider the following AD curve of an economy.
P

D
E
AD
Y

Determine whether each of the following statements is True, or False, or Uncertain. Then provide
a brief explanation to justify your answer.
(a) The quantity of loanable funds (or credits ℒ) supplied by the savers at point D is bigger than
that at point E.
(b) The real balance of money held by the public (m) at point D is higher than that at point E.
(c) The interest rates in both the credit and money markets (rcredit and Rmoney) at point D are
lower than those at point E.

Q.4 Shift in AD curve due to Covid-19


Suppose, under the threat of Covid-19, consumers and investors (including business firms and
financial-market participants) have all become pessimistic about the future of the economy.

(a) Explain how such loss of confidence would affect consumption demand (C), investment
demand (I), and money demand (md).
(b) Explain how this would create a discrepancy in the interest rates between the loanable-funds
market and the money market (i.e., rcredit vs. rmoney). Then explain how to eliminate such
interest-rate gap via EITHER an adjustment in the price level (i.e., P-adjustment) OR an
adjustment in real output (i.e., Yd-adjustment).
(c) Conclude how aggregate demand (AD) would respond to this confidence crisis.

Page 2 of 2

You might also like