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# A few questions from old exams; I deleted questions that were on completely irrelevant topics, but I havent rewritten

questions to conform to Spring 2012 course materials. Economics 615 Spring 2008 Professor Jones [With partial answers] Thoroughly answer six of the following seven questions. Credit is based on throughness and accuracy. Phone with questions: 314-973-7243. Due: 8:30 pm, Friday, via e-mail. 1. The economy of Perelandra is described as follows: Production Function: Y = zK1/2N1/2 Representative Agents Utility function: U = L + 3C Time constraint: N + L = 100 In Perelandra, there are no government purchases, and no investment. In this one-period economy, completely solve for: Consumption as a function of z and K U = (100-N)+3(zK1/2N1/2) maxU : -1+1.5zK1/2 N-1/2 := 0 N1/2 = 1.5zK1/2 N = 2.25z2K Y = zK1/2(2.25z2K)1/2 Y = 1.5z2K The wage as a function of z and K w = MPN = .5zK1/2N-1/2 = .5zK1/2(2.25z2K)-1/2 Profits as a function of z and K = 1.5z2K - .75z2KN = 1.5z2K - .75z2K(2.25z2K) Also, answer the following: If z doubles, what exactly (quantitatively) happens to consumption and the wage? If z doubles, both consumption and the wage will quadruple exactly. One key to solving this is realizing which variables are endogenous and which are exogenous. If C, L, or N are in any of your responses, you have made a mistake. (Cobb-Douglas)

## Sales (to BurgerCo) 30 (to Public) 10

There are two businesses, CowCo and BurgerCo. BurgerCo only buys one input, and it buys it from CowCo. There is no government. What is GDP in this economy? Product approach: CowCo = 30 + 10 = 40 BurgerCo = 200 30 = 170 GDP = 40 + 170 = 210 Income approach: Wages = 100 + 50 = 150 CowCo Profit = 30 + 10 50 = -10 BurgerCo Profit = 200 100 30 = 70 GDP = 150 + -10 + 70 = 210 Expenditure approach = 10 + 200 = 210 GDP = 210 GDP = 210 What is the capital share of output? 70 + -10 = 60 60/210 = 2/7 What is the labor share? 50 + 100 = 150 150/210 = 5/7 What is the value added by each sector of the economy? CowCo value added = 40 BurgerCo value added = 170 Also, how is governments share of GDP actually calculated for the actual U.S. economy? There is no measure of value added by the government, so it is assumed to be equal to government wages. (Because they pay us government employees exactly what were worth.) Economics 615 MA Macroeconomics Spring 2008 Final Exam

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