ECON 104 G4 Assignment 3 (Deadline 8:00 am October 5)

15.5 if P0 P = In
1. An n × n matrix P is said to be orthogonal  
λ 0 λ
√  
a. For λ = ±1/ 2, show that the matrix P =  λ 0 −λ  is orthogonal.
 
 
0 1 0
b. Show that the product of two orthogonal n × n matrices is orthogonal.

2. Show that any two different columns of an orthogonal matrix, as defined in question
1 are orthogonal vectors, as are any two different rows.

3. If a and b are n -vectors, prove the triangle inequality ka + bk ≤ kak + kbk·

4. Let a = (3, 1) and b = (−1, 2), and define x = λa + (1 − λ)b

a. Compute x when λ = 0, 1/4, 1/2, 3/4, and 1
b. If λ ∈ [0, 1], what set of points does x = λa + (1 − λ)b trace out?

2−x 1 (2 − x)(−x) − 8 = 0, that is

5. Find all the solutions to the equation = 0 x2 − 2x − 8 = 0, so x = −2
8 −x or x = 4.

16.1 6. Consider the following macroeconomic model of two nations, i = 1, 2, that trade
only with each other:

Y1 = C1 + A1 + X1 − M1 ; C1 = c1 Y1 ; M1 = m1 Y1 = X2
Y2 = C2 + A2 + X2 − M2 ; C2 = c2 Y2 ; M2 = m2 Y2 = X1

where Yi is GDP, Ci is consumption, Ai is exogenous expenditure, Xi denotes exports,

and Mi denotes imports of country i, for i = 1, 2.
a. Interpret the two equations M1 = X2 and M2 = X1
b. Given the system of eight equations in eight unknowns, use substitution to reduce it
to a pair of simultaneous equations in the endogenous variables Y1 and Y2 . Then solve
for the equilibrium values of Y1 , Y2 as functions of the exogenous variables A1 , A2
c. How does an increase in A1 affect Y2 ? Interpret your answer.

1+a 1 1
7. Show that 1 1+b 1 = abc + ab + ac + bc

1 1 1+c

det 1
8. Consider the simple macroeconomic model described by the three equations
i. Y = C + A0
ii. C = a + b(Y − T )
iii. T = d + tY
Here Y is GDP, C is consumption, T is tax revenue, A0 is the constant (exogenous)
autonomous expenditure, and a, b, d, and t are all positive parameters. Find the equi-
librium values of the endogenous variables Y, C, and T by writing the equations in
matrix form and applying Cramer’s rule.

9. For an orthogonal matrix P defined in question 1, show that its determinant must
be 1 or −1.

10. Calculate the following determinants:

1 2 3 4
0 −1 0 11
2 −1 0 3
−2 0 −1 3

11. Let C be an n × n matrix that satisfies C2 + C = I

a. Show that C−1 = I + C
b. Show that C3 = −I + 2C and C4 = 2I − 3C
 
−2 3 2
 
12. Find the inverse of A =  6 0
 
3 
 
4 1 −1

13. Show that the following system of equations has a unique solution for all values of
b1 , b2 , b3 , and find the solution.

3x1 + x2 = b1
x1 − x2 + 2x3 = b2
2x1 + 3x2 − x3 = b3

14. Consider the macroeconomic model described by the system of equations

i. Y = C + I + G

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ii. C = f (Y − T )
iii. I = h(r)
iv. r = m(M )
where f, h, and m are given functions, Y is cop, C is consumption, l is investment, G
is public expenditure, T is tax revenue, r is the interest rate, and M is the quantity of
money in circulation. Usually macro-economists regard M, T, and G as the exogenous
(free) variables. Then the system will in general determine the endogenous variables
Y, C, l, and r as functions of M, T, and G. Now, assume that f, h, and m are differen-
tiable functions with 0 < f 0 < 1, h0 < 0, and m0 < 0
Differentiate the system and express the differentials of Y, C, I, and r in terms of the
differentials of M, T, and G. Find ∂Y /∂T and ∂C/∂T, and comment on their signs.

15. Suppose that the two equations

(z + 2w)5 + xy 2 = 2z − yw
3
(1 + z 2 ) − z 2 w = 8x + y 5 w2

define z and w as differentiable functions z = ϕ(x, y) and w = ψ(x, y) of x and y in a

neighbourhood around (x, y, z, w) = (1, 1, 1, 0).
Compute ∂z/∂x, ∂z/∂y, ∂w/∂x, and ∂w/∂y at (1, 1, 1, 0).

16. Suppose y1 and y2 are implicitly defined as differentiable functions of x1 and x2 by

the following system:
3x1 + x22 − y1 − 3y23 = 0
x31 − 2x2 + 2y13 − y2 = 0

Find ∂y1 /∂x1 and ∂y2 /∂x1

17. A version of the ”IS-LM” macroeconomic model leads to the system of equations
I(r) = S(Y )
aY + L(r) = M,
where a is a positive parameter, while I, S, and L are given, continuously differentiable
functions. Suppose that the system defines Y and r implicitly as differentiable functions
of a and M. Find expressions for ∂Y /∂M and ∂r/∂M .

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18. Consider the macroeconomic model

Y =C +I +G
C = F (Y, T, r)
I = f (Y, r)

where F and f are continuously differentiable functions, with FY0 > 0, FT0 < 0, Fr0 <
0, fY0 > 0, fr0 < 0, and FY0 + fY0 < 1
a. Differentiate the system, and express dY in terms of dT, dG, and dr
b. What happens to Y if T increases? What if T and G undergo equal increases?

19. When there are two goods, consumer demand theory involves the equation system

U10 (x1 , x2 ) = λp1

U20 (x1 , x2 ) = λp2
p 1 x1 + p 2 x 2 = m

Here U (x1 , x2 ) is a given utility function. Suppose that the system defines x1 , x2 , and
λ as differentiable functions of p1 , p2 , and m. Find an expression for ∂x1 /∂p1

20. Find the mas between y and x when:

a. U (x, y) = 2x0.4 y 0.6
b. U (x, y) = xy + y
−4
c. U (x, y) = 10 (x−2 + y −2 )

21. Suppose the production function F (K, L) defined for K > 0, L > 0 is homogeneous
00
of degree 1. If FKK < 0, so that the marginal productivity of capital is a strictly
00
decreasing function of K, prove that FKL > 0, so that the marginal productivity of
capital is strictly increasing as labour input increases.

22. The equilibrium outputs q1 and q2 of two firms satisfy

q1 = f (q2 , c1 )
q2 = g (q1 , c2 )

where c1 and c2 are parameters (say, cost parameters), and f and g are differentiable
functions that are decreasing in each of its arguments and satisfies f10 (q2 , c1 ) > −1 and
g10 (q1 , c2 ) > −1 for all q and c. We want to know how the equilibrium outputs q1 and
q2 change with the parameters c1 and c2

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a. Find the differentials of the pair of equations in the form of matrix.
b. Denote the determinant as

1 −f10
∆= = 1 − f10 g10
−g10 1

Using inverse matrix, find dq1 and dq2 in terms of dc1 and dc2 .
∂q1 ∂q1 ∂q2 ∂q2
c. Using Cramer’s rule, find , ,
∂c1 ∂c2 ∂c1
and ∂c2

√
23. Consider a quadratic form: Q(x, y) = ax2 + 2xy + cy 2 (a 6= 0)
a. Show that if Q(x, y) is positive definite, then a > 0 and c > 0
b. Suppose that a > 0 and ac = 12 . What is the definiteness?
c. Suppose that c = −1. Find the range of value a in which Q(x, y) is negative definite.

24. A quadratic form Q(x, y) = ax2 + 2bxy + cy 2 is written by using a symmetric

matrix A.
a. Show that if Q(x, y) is positive definite, then the diagonal elements of A are positive.
b. Show that if Q(x, y) is negative definite, then the diagonal elements of A are
negative.
c. Show that if Q(x, y) is negative definite, then it is negative semidefinite.