CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics
Economics 100A
Prof. Yang
Solutions to Homework Problems Chapter: 1 2 3 4 5 6 7 8 9
Chapter 4
Numerical
1. Y / Y = C / Y + I / Y + G / Y
I / Y = a - .02R
a) Y/Y = C/Y + I/Y
+ G/Y = 1.0
Since C/Y does
not depend on R, I/Y must adjust enough to offstet the fall in G/Y.
Therefore I/Y must
rise by 4% of GDP from
its original level.
b) Since I/Y rises by 2% for every 1% decrease in R, it is necessary for R to fall by 2%.
c) The growth
accounting formula is given by DY/Y
= DA/A + .3DK/K + .7DN/N. If K/Y is initially
2, then
K = 2Y.
If I/Y increases by 4%, then I/K will have increased by 2%.
Since I = DK, the increased share
of investment in GDP
leads to an increase in the growth rate of real GDP equal to .3DK/K = .3(.02) = .006,
or .6%.
2. a) 1000 = [.3(4000) -
4000(.05)]P
= (1200 - 200)P
1 = P.
b) 1100 =
1000P
1.1 = P.
10% change
in M and P.
c)
1000 = [1200-4000(.10)]P
1000/800 = P
1.25 = P.
Interest rates increase
due to an increase in government spending.
d)
1000 = [.3(4500) - 200]P
1000/1500 = P
.87 = P.
Analytical.
2. a) Output increases due to increased labor input.
b) Output increases due to improvement in technology.
c) Output is unchanged; only price level changes.
d) Output is unchanged initially, but C crowds out some I.
6. a) Both the investment spending and nongovernment spending schedules shift down.
b) If no
other spending component were related to R, then R would fall enough to
restore I to its
original level.
c) If the
fall in interest rates increases net exports and investment, then the decline in R
will crowd
in some of each.
I will not return to its original level, but X will be higher
than it was initially.