# Essay on Econ

Macroeconomic Theory

Spring 2010

Instructor: Guangyi Ma

Extra Problems #1

Suggested Answers and Comments

Notice:

(1) This set of extra problems contains 25 multiple-choice problems and 6 analytic (short-answer) problems. These problems are not homework and will not be graded. The aim of these problems is to provide you with additional exercises.

(2) I will give solutions of the assignment and the “extra-problem” set after the due date.

Page 1

Problem 1~25: Multiple choice problems

1. C

2. A

3. D

This problem helps you pay attention to the difference between variables and functions. First, whether prices (wages are prices for labor) are assumed to be flexible or

4. C sticky depends on the time

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Problem 26~31: Analytic problems

26. The production function for an economy can be expressed as Y = F(K, L), where Y is real GDP, K is the quantity of capital in the economy, and L is the quantity of labor in the economy.

a. If F( ) = 100 + 3K + 9L, what is real GDP if the quantity of capital is 200 and the quantity of labor is 500?

b. What is/are the endogenous variable(s) in this model?

c. What is/are the exogenous variable(s) in this model?

Ans. a. Y = 100 + 3(200) + 9(500) = 5,200

b. Y

c. K, L

27. The quantity of coffee demanded, Qd, depends on the price of coffee, Pc, and the price of tea, Pt. The quantity of coffee supplied, Qs, depends on the price of coffee, Pc, and the price of electricity, Pe , according to the following equation:

Qd = 17 – 2Pc + 10 Pt

Qs = 2 + 3Pc – 5 Pe

a. If the price of tea is $1 and the price of electricity is $0.50, what is the equilibrium price and quantity of coffee?

b. What is/are the endogenous variable(s) in this model?

c. What is/are the exogenous variable(s) in this model?

Ans. a. The equilibrium price is $5.50 and the equilibrium quantity is 16.

b. Pc and Q

c. Pt and Pe

Comment: Problem 26,