CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics
Prof. A. R. Gutowsky
Economics 100A
Problem Set 2
Chapter 3
The Aggregate Supply Side
1. What is a production function?
(A) What is the meaning of bar over Y (or my
Q)?
2. How is national income distributed to the factors of production?
(A) What is the meaning of the three equations
found on page 48?
3. Given the following information:
Output |
Units of Labor | Units of Capital |
| 0 | 0 | 2 |
| 10 | 1 | 2 |
| 18 | 2 | 2 |
| 24 | 3 | 2 |
| 28 | 4 | 2 |
| 30 | 5 | 2 |
| 31 | 6 | 2 |
| 27 | 7 | 2 |
(A) Diagram the above information. What kind
of diagram is being drawn?
(B) Define the term: marginal product? Given
the above information, compute the marginal product of labor.
Diagram
your answer.
(C) Why does the production function increase
at decreasing rate?
(D) Why does the marginal product schedule
decline?
4. What is the meaning of the five equations on page 50?
(A) What is the decision rule one should use
when determining whether one should purchase another unit of an input?
(B) What is the meaning of: W = MP * P
W/P = MP
I’m not asking you define the terms.
5. Given the above output/input information, if the price of labor was $ 20 and the price
of output $ 5 per unit,
how many units of labor should be purchased? Defend your answer.
6. What is the meaning of the equations found on page 52?
The Aggregate Demand Side
1. What determines the demand for output?
2. What are the determinants of C, I, G and T?
(A) Define the term: marginal propensity to
consume?
(B) Define the term: real rate of
interest/return.
(1) How does the real rate of interest differ from the nominal rate of interest?
Equilibrium in the Goods Market
1. What brings the supply of output and demand for output into equilibrium?
(A) What is the meaning of the equations found
on page 59?
2. What is the meaning of the equations on page 60?
(A) Define national saving, private saving,
public saving.
3. Explain how the rate of interest will cause the goods market to be equilibrium?
(A) Define the term: equilibrium
(B) Why is your answer to (3) an equilibrium
rate of interest?
4. Explain how changes in fiscal policy will effect output, spending, saving and the rate
of interest?
(A) What is crowding out?
5. Repeat question (4) for each of the following changes:
Increase in taxes
Increase in investment
Decrease in consumption
6. Answer questions 4 through 9 on pages 71 and 72.
Chapter 4 Solow Growth Model
1. Know the meaning of the equations on page 79, especially y = f(k).
(A) Why are these supply side equations?
2. Know the meaning of the equations on page 80-81?
(A) What are these demand side equations?
(B) How was Figure 4-2 on page 81 derived?
3. Know the meaning of the equations on page 82?
(A) How was Figure 4-4 on page 83 derived?
(B) What is meant by steady state?
4. How will a change in saving affect growth?
5. What is the "Golden Rule Level of Growth’?
6. How will a change in population growth affect economic growth?
(A) What is the meaning of the equations found
on page 98-100?
Chapter 5
1. How will technological progress affect economic growth?
2. What do you know about steady state growth and the United States?
3. What economic policies will foster economic growth?
4. What are Endogenous Growth Models and how do they differ from the Solow Growth Model?
5. What is growth accounting?
(A) What is the meaning of the equations found
pages 125-128?
(B) What is the meaning of total factor
productivity (TFP)? Why is it important?
(C) What are the sources of growth in the
United States?
(1) What happened to TFP after 1970? Did it matter? Explain.
(2) What has happened to "productivity" after 1995? To answer this question
check the RFE.ORG
website and find out what is happening currently to productivity. HINT: check out the BLS
website and the Economic Report of the President.
[Problem Set 1 2 3 4 5] [Exercises] [Reading Assignments] [Web Resources]