Econ 303: Intermediate Macroeconomic Theory I
Questions for Tutorial Sessions
Instructor: Axel Watanabe*, Ph.D.
TA: Pierre Kabahizi
Tutor: Melecia Thomas
Winter 2019
Last updated on April 11, 2019 at 20:53 4 February 15
Time From 14:45 to 15:45 on Fridays, starting in the third 4.1 5.26 from V1 ® (the second theorem only). I might have
week rushed through the proof on Tuesday. I gave the tutor
Venue FG C070 a blow-by-blow account. I hope that’ll help.
Tutor Melecia Thomas
4.2 5.31 from V1 ® .
1 January 25 4.3 Suppose a consumer has the following preferences:
1.1 Find the M RSl, c for each one of these functions. Ex- u(C, l) = α log C + (1 − α) log(l).
plain.
Assume that the firm has the following production func-
(a) u(C, l) = C 0.7 l 0.3 tion:
(b) u(C, l) = 0.7 log(C) + 0.3 log(l) Y = zN d
(c) u(C, l) = 0.7C + 0.3l with z = 1.
(d) u(C, l) = min{0.7C, 0.3l}. (a) What are the competitive equilibrium values (C, l, N , π, w)
®
in this market?
1.2 C3.4 from V1 .
(b) How does C change with α? Why?
(c) Assume that the firm produces toxic waste, which
2 February 1 reduces its profit by 10% for every unit produced.
Write down the new profit for the firm.
2.1 F.17 (and F.18 if time permits) from V1 ® . (d) What will be the new competitive equilibrium val-
ues?
2.2 5.7 from V1 ® . (e) Will the social planner’s problem change? If yes,
why? If not, why not?
3 February 8
5 February 22
3.1 5.21 from V1 ® .
5.1 5.41, 42 and 45 from V1 ® .
3.2 Consider a typical one-period model populated by a
consumer that values consumption and leisure
6 March 8
u(C, L) = min{C, 2L}.
6.1 6.12 and 13, plus 20 (if the time permits) from V1 ® .
In this case, the consumer would have Y = zN d , but
that the firm receives a subsidy from the government
equal to 10% of output. 7 March 15
We assume that z = 1, G = 1, and h = 12.
7.1 6.35 through 42 from V1 ® .
(a) Write down the firm’s profit function. Solve the
firm’s problem. Can you find equilibrium wage? 8 March 22
(b) Solve the consumer’s problem. Find equilibrium
labour supply, leisure and consumption. Ron is a representative agent in an economy with a govern-
(c) What happens to this individual if they experi- ment. His preferences are given by the following function
enced a positive TFP shock such as z going from
1 to z = 2. Provide intuition rather than calcula- u (c0 , c1 ) = log c0 + .95 log c1 .
tions.
Ron is endowed with income (20 , 21 ) = (15, 20) and the gov-
* Department of Economics, Concordia University
ernment aims to spend 10 = 11 = 3.
1
Questions for Tutorial Sessions
8.1 What is the equilibrium interest rate?
8.2 Assume the government aims to impose a tax profile
of (t 0 , t 1 ) = (3, 3). What is Ron’s consumption c0 , c1
and savings s?
8.3 Assume the government decides to increase t 0 to t 0 =
4.5. What is the new value of t 1 if government expen-
diture does not change?
8.4 Find the equilibrium interest rate and his new con-
sumption values. Does Ricardian equivalence hold?
8.5 Assume that Ron believes that the government should
not exist, and therefore does not trust the government.
For this reason, he does not participate in the credit
market, and does not borrow or lend at the prevalent
interest rate r . Assume t 0 = 4.5 and t 1 is still equal to
what you found in item 8.3. Find the new equilibrium
interest rate.
8.6 Does the government change its spending schedule?
What about Ron’s consumption profile?
9 March 29
9.1 7.6 from V1 ® .
9.2 6.83 from V1 ® (if time permits).
10 April 5
10.1 7.15 and 7.16 from V1 ® .
11 April 12
11.1 7.40, 42, 46 and 47 from V1 ® .