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Macroeconomics Questions For Final Exams

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26 views3 pages

Macroeconomics Questions For Final Exams

Uploaded by

Jessie Wu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MACROECONOMICS

Christos Michalopoulos
April 12nd , 2023
From Chapter 6 to chapter 10.

Question 1: In the search model, the matching function is as follows:

M = e · m(Q, A).

Explain the variables shown above and state carefully the four properties of the
matching function.
Question 2: In the Solow growth model, we derived the equation

k0 (1 + n) = s · z · f (k) + (1 − d) · k.

Explain all the mathematical symbols in the formula above. Plot it and determine
graphically the steady-state quantity of capital per worker.
Question 3: Consider the Solow Growth model and we are trying to find the
golden-rule steady state quantity of capital that leads to maximum consumption per
capita, by solving the following problem:

 
max
∗
z f (k ) − (n + d)k ,
∗ ∗
k

where z is total factor productivity, f the intensive-form production function, n is


population growth rate, d is depreciaton rate and k∗ the steady-state capital per worker.
Solve the above problem for the golden-rule steady state quantity of capital denoting
it by k∗gr for f (k) = kα , α ∈ (0, 1). Then use equation

sz f (k∗ ) − (n + d)k∗ = 0,

for s the savings rate, to find the golden-rule steady state quantity of savings denoting
it by s∗gr .

1
Question 4: Consider the equation of the steady state capital per capita k∗ given by

sz f (k∗ ) (1 − d)k∗
k∗ = + ,
1+n 1+n

where all the variables are the same as defined in Question 9. Simplify this equation
and plot it, therefore determining graphically k∗ . State carefully the lines/curves you
are plotting and which variables you are measuring on each axis.
Question 5: Explain what is Growth accounting trying to achieve. What does the
Solow residual measure?
Question 6: If countries are initially identical, except with respect to levels of
capital per worker, what does the Solow model predict will happen to these countries
in the long run? Is this consistent with the data? Also, what causes economic growth
in an endogenous growth model and why is knowledge called nonrivalrous?
Question 7: In a two-period economic model, the consumer’s lifetime budget
constrain is given by

c0 y0 t0
c+ = y+ −t− .
1+r 1+r 1+r
| {z }
=we

Explain the economic significance of all the symbols above and plot the budget con-
straint together with the endowment point E (what it says?). State carefully at which
part of the plot the consumer is a borrower and/or lender.
Question 8: In a two-period economic model, plot and explain carefully the income
and substitution effect of an interest rate increase, when a consumer is a lender.
1
Remember that 1+r
is the relative price of future consumption goods in terms of
current consumption goods.
Question 9: Explain carefully in words the two types of credit market frictions:
Asymmetric Information andd Limited Commitment.
Question 10: Consider two consumers, in a two-period economy, with one being
a borrower (with interest rate r2 ) and another being a lender (with interest rate r1 ). In

2
the first case, the consumer’s budget constraint is given by

c0 y0 t0
c+ = y+ −t− = we2 ,
1 + r2 1 + r2 1 + r2

and similarly can be written the consumer’s budget constraint when she is a lender.
Plot the budget constraint of a consumer who faces different lending and borrowing
rates writting and explaining carefully the horizontal and vertical intercepts as well
as the endownment point (denoted by E).
Question 11: Give a definition of the following two types of social security pro-
grams: pay-as-you-go and fully funded social security. In the fully funded social security,
assuming mandated retirement saving is binding, prove in a plot the case where the
consumer is worse off than she would be in the absence of the program.

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