1. Suppose a person works full time for a company. He earns Y dollars after taxes are taken out. Now suppose his consumption is measured by: 100+0.7Yd. I. Find the Marginal Propensity to Consumer.II. Based on the answer found above, explain what the MPC means in terms of how much is saved and how much is consumed given an $1 increase to disposable income.III. Suppose that the man gets a raise for working so hard. He earns $200 in gross pay. The rate of taxes is 5%. Find the worker’s consumption (C)?IV. What happens to consumption when the MPC decreases? Feel free to display thisgraphically.V. Would a rich person (i.e. Bill Gates) have a higher or lower MPC than the typical American worker? ExplainVI. Suppose this worker is young but is expect to move up the corporate ladder, ultimately becoming CEO who earns millions of dollars. How should this workerhandle his finances? Save or consume? Explain.2. Suppose the economy is described by: Y=3000, G=1000, T=500, C=100+0.5(Y-T), and I(r)=500-40r.I. Find the equilibrium interest rate and the equilibrium investment.II. Find the national savings.III. What happens to Y if “r” increases? Explain.IV. What happens to Y if “G” increases? Explain.V. What happens to Y if “T” decreases? Explain.VI. Describe the relationship between “G” and “r” when a country is at war.3. Suppose an economy is described by: C(Y-T)=50+0.2(Y-5), I(r)=70-40(r), G=35, and r=0.7.I. Find the equilibrium Y.II. Find private savings.III. Describe what “M” means in terms of consumption.IV. Explain what is occurring when the economy’s potential GDP is less than Y*.V. Explain how changing “M” effects Y?4. Suppose that you need to borrow some money to help pay for student loans. You take out a loan for $1000. The current interest rate is 8%. I. How much do you owe in one year?II. How much do you owe if the interest rate falls to 5%?III. If you know that you need to pay back exactly $1000 tomorrow, how much are you borrowing today? (Interest rate is at 8%)IV. When should a person save instead of borrowing based on interest rates? Explain.V. State and describe ‘r’? State ‘r’ as if you were a borrower and then as a lender.VI. Explain how a bond works.5. Show how aggregate supply equals aggregate demand. (Use the production function andexpenditure formula)I. Show the work here:II. If Y> C+I+G holds true, what happens to the interest rate ‘r’?III. If Y<C+I+G holds true, what happens to the interest rate ‘r’?IV. Describe the government budget when G > T?V. Describe the government budget when G = T?6. Show how supply of loanable funds equals the demand of loanable funds. I. Show the work here:II. Explain what the Supply of Loanable Funds mean?III. Explain what the Demand of Loanable Funds mean?7. Why do Americans work more than Europeans?I. Based on the data from 1970 to 1974, which country or countries had hours worked per person greater than the US?II. Based on the data from 1993 to 1996, which country or countries had greater output per hour worked than the US?III. Explain why Americans tend to work more than Europeans.IV. Explain why Americans consume more on average than other countries? (List at least 3
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