What is the person’s demand function for good 2?
Suppose later that the government changes the quantity tax to an income tax, and asks
the person to pay the same amount of tax as he pays in question 2. So the person has to
pay a fixed amount of tax no matter what amount of good 1 he consumes. What is the
person’s demand function for good 1 under this income tax?
Would the person prefer the quantity tax or the income tax? Explain briefly your
answer.
Suppose that Ann rents each farmer 1 unit of land for free: r = 0. So there are 100
farmers. What would be the price of rice?
Suppose that Ann rents each farmer 1 unit of land and the rent is r >0. What would be
the amount of r that makes each farmer earn a zero profit?
Suppose that Ann rents each farmer Z units of land. So there are 100/Z farmers, and
each farmer pays rZ to Ann. What would be the market price of rice? (The price is a
function of Z.)
Write down the profit function of each farmer; it should
depend on Z and r only.
Suppose that Ann charge the rent r at the level that
makes each farmer earn a zero profit. What is the optimal r for Ann? (Write down the
equation. You do not need to solve it.)
If the monopolist sets a single price to both consumers, what would be the price that
maximizes its total profit?
Suppose that the monopolist is considering a two-part tariff. Under the tariff, a
consumer needs to pay a fixed amount of A first, and then the consumer pays a price t
for each unit purchased. So to purchase Q units, a consumer needs to pay a total of A +
tQ. If a consumer decides to buy nothing (Q = 0), then he does not need to pay
anything. What will be the maximal profit the monopolist can get from using a two-part
tariff? (Remember to consider the production cost.)
What is the equilibrium value of N?
What is the equilibrium value of r?
What is the equilibrium price level?
If the government purchases increase to G = 72.5, what will be the new equilibrium
value of GDP?
Compare the equilibrium level of investment when G = 50 and the level when G = 72.5,
how large is the crowding out effect?
C = 300 + 0.5Y − 200r
I = 200 − 300r
G = 100
NX = 150 − 0.1Y − 0.5e
e = 20 + 600r
Y = 900,
Where NX is not export ( = export − import), and e is real exchange rate.
What is the equilibrium value of r?
C = 300 + 0.5Y − 200r
I = 200 − 300r
G = 100
NX = 150 − 0.1Y − 0.5e
e = 20 + 600r
Y = 900,
Where NX is not export ( = export − import), and e is real exchange rate.
Now suppose that Y increases to Y = 940. What is the equilibrium value of e?
C = 300 + 0.5Y − 200r
I = 200 − 300r
G = 100
NX = 150 − 0.1Y − 0.5e
e = 20 + 600r
Y = 900,
Where NX is not export ( = export − import), and e is real exchange rate.
Suppose that Y = 940 and that the government purchases increase to G = 132, what will
be the equilibrium value of NX?
Suppose that the nominal exchange rate between the U.S. dollar and the Japanese yen is
110 yen per dollar. Suppose that a hamburger in Japan’s McDonald’s costs 1,100 yen, and a
hamburger in an American McDonald’s costs 2 dollars.
The real exchange rate between hamburgers in the U.S. and hamburgers in Japan is e,
which means that 1 hamburger in the U.S. can exchange for e hamburgers in Japan.
What is the value of e?
Suppose that the nominal exchange rate between the U.S. dollar and the Japanese yen is
110 yen per dollar. Suppose that a hamburger in Japan’s McDonald’s costs 1,100 yen, and a
hamburger in an American McDonald’s costs 2 dollars.
Suppose that next year there is an inflation of 10% in Japan, and an 5% inflation in the
U.S. Suppose that the real exchange rate does not change. What would be the nominal
exchange rate next year?
The money supply of an economy is $6,000,000. Currency held by the public is
$2,000,000. The required reserve ratio is 0.25. There is no excess reserve.
What is the value of the money multiplier in the economy?
The money supply of an economy is $6,000,000. Currency held by the public is
$2,000,000. The required reserve ratio is 0.25. There is no excess reserve.
During the new year holidays, people withdraw cash from their bank accounts for
buying gifts. How would this event affect the money supply?
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