Consumption investment labor and productivity

Macroeconomics Final Exam Preparation Pack

December 4, 2015

1. One question from each of the final two discussion clusters.

2. Describe the behavior of consumption, investment, labor, productivity, wages, the price level and the money supply over the business cycle both in terms of correlation, magnitude and lead vs lag. Give the economic intuition of the results on consumption, investment, productivity, wages and price levels.

3. Explain the role of R & D expenditures in the measurement of GDP. Why is this is traditionally difficult? How does GDP account for ?

4. Explain why in a simple one period model output increases as govern- ment spending increases but consumption falls.

5. Suppose the wage is 100 per hour and that the consumer has 100 hours H to work with. Suppose that the MRS is given by Hl

c . What will

the consumers choices of c and l be. Repeat with an upper bound of 10 hours. Repeat both parts with a ten percent flat tax. Suppose that the tax rate has two brackets so that income from hours above 1

2 H is

taxed at 20 percent. How does the solution change?

6. Suppose the MRS increases in a consumption leisure problem for every possible combination of consumption and leisure, how will this affect consumer decisions and equilibrium outcomes?

7. Show how moving from a to a linear tax affects outcomes in terms of output and work effort. What is the effect on economic efficiency? How does your picture show this?

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8. Consider the possibility that productiv- ity? How will an increase in government spending affect consumption, hours worked, output and welfare?

9. Consider the possibility that government spending increases the amount of hours to be worked in a , say by providing child care. How will an increase in government spending affect consumption, hours worked, output and welfare? What if the government spending is foreign aid? What if the foreign aid improves labor productivity? Is there any evidence for these channels?

10. Suppose that government spending increases lifespans. In our model what should be the effect of this on hours worked per person in a given time period? What complications are we missing from this story? What evidence exists for the predictions you have made?

11. Show how a change in the matching efficiency technology can effect output, the unemployment and vacancy rates.

12. How does the separation rate behave during recessions? What does this tell you about the source of decreases in employment during recessions?

13. What is the Beveridge curve? How well did the Beveridge curve hold up during the most recent recession? Can you think of an explanation?

14. How can threat points and multiple equilibria explain recessions? What evidence exists to support this story?

15. Does our model produce a multiplier? What types of changes would make the multiplier bigger?

16. Why, in a model with no production but two periods does an increase in current taxes (without a concurrent change in government spending) not affect consumption? Explain graphically how such a change effects savings.

17. Define and . Suppose consumers are limited in their borrowing but not their savings? How can that break Ricardian equivalence graphically?

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18. Suppose consumers can only borrow at an interest rate that is higher than the savings rate, how can an increase in the spreads explain the behavior of consumption and investment over the business cycle. How would this change if we allow for the purchase of durable goods in the initial period that cannot be updated over time?

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