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Problem Set 2

The document outlines Problem Set 2 for ECON-3900 Macroeconomics, due on February 17, 3:30 PM. It includes questions related to a production function and a consumption function, requiring calculations of marginal products and analysis of changes in output and consumption due to variations in labor, capital, and taxes. Additionally, it references exercises from Mankiw's 'Macroeconomics' for further review and application.

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12 views2 pages

Problem Set 2

The document outlines Problem Set 2 for ECON-3900 Macroeconomics, due on February 17, 3:30 PM. It includes questions related to a production function and a consumption function, requiring calculations of marginal products and analysis of changes in output and consumption due to variations in labor, capital, and taxes. Additionally, it references exercises from Mankiw's 'Macroeconomics' for further review and application.

Uploaded by

kyanhhuynh61
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ECON-3900 Macroeconomics. Problem Set 2.

Submit your answers (via iCollege or in class) by Monday, February 17, 3:30PM.

1) Consider the following production function:

𝑌 = 2 ∗ 𝐿 + 5 ∗ 𝐾,

where 𝑌 is the amount of output, 𝐿 is the amount of labor input, and 𝐾 is the amount of
capital.

(a) Compute marginal product of labor (MPL) and marginal product of capital (MPK)
for this production function.
(b) Does this production function imply diminishing marginal products of inputs?
(c) Does this production function satisfy constant returns to scale property?
(d) Suppose that labor and capital inputs both increase by 50%. What will happen to
output produced as a result?

2) Consider the following consumption function

𝐶 = 0.5 ∗ (𝑌 − 𝑇),

where 𝑌 is the level of income and 𝑇 denote taxes. That is, (𝑌 − 𝑇) is disposable income.

(a) What is the marginal propensity to consume (or MPC) for this consumption
function?
(b) Suppose that taxes (𝑇) increase by $10 (other things being unchanged). What will
happen to disposable income? Will consumption increase or decrease as a result?
By how much?

The following questions are from exercises at the end of Chapter 3 in Mankiw’s
“Macroeconomics”, 11th edition. (see pages 66-68).

3) Questions for Review 1.

4) Questions for Review 2.

5) Questions for Review 4.

6) Questions for Review 5.

7) Problems and Applications 1.

8) Problems and Applications 4.

4
9) Problems and Applications 8.

10) Problems and Applications 10.

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