INTERMEDIATE MACROECONOMICS I

Answer all questions as briefly and precisely as possible. Each question is worth 25 marks (Total Marks = 100). Answers should be uploaded on Moodle by 4PM on Tuesday 9 August. All these questions can be answered by consultin" rel="nofollow">ing appropriate sections of the textbook and lecture notes. It is up to the student to identify and read these sources and no help or hin" rel="nofollow">ints should be expected in" rel="nofollow">in this task. 1. Describe the Base Year method and the Chain" rel="nofollow">in Weighted method for calculatin" rel="nofollow">ing Real GDP. What problem(s) arises in" rel="nofollow">in usin" rel="nofollow">ing the Base Year method? How does the use of Chain" rel="nofollow">in Weighted method help rectify this problem? 2. Compare and contrast the CPI and GDP Deflator as measures of the cost of livin" rel="nofollow">ing. Does the CPI tend to overstate or understate the true cost of livin" rel="nofollow">ing? Explain" rel="nofollow">in your answer. 3. Consider the followin" rel="nofollow">ing aggregate production function which depends on labour alone: Y=A.Lx whereY is aggregate output, L is the amount of labour employed, A is a productivity of the economy and xis a positive exponent that captures the productivity of labour. [Numerical values of A, x and L are given in" rel="nofollow">in an Excel file attached to the tab “Parameter Values for Question 3 on the Resit CW”. You must use only those values that belong to the same row as the first in" rel="nofollow">initial of your surname. For example, if your surname starts with H, you should use A=108, x=1/4 and L=81. If you cannot fin" rel="nofollow">ind your in" rel="nofollow">initial, then contact me by sendin" rel="nofollow">ing a message via Moodle.] i. Usin" rel="nofollow">ing the values of A and x from the Excel file but leavin" rel="nofollow">ing L as a variable, solve for the equation that expresses the demand for labour in" rel="nofollow">in the economy as a function of the real wage of labour (W/P). [12 marks] ii. Now, assumin" rel="nofollow">ing that the supply of labour is fixed at the level that corresponds to the value of L in" rel="nofollow">in the row correspondin" rel="nofollow">ing to your surname, solve for the equilibrium value of the real wage in" rel="nofollow">in the labour market. [10 marks] iii. What is the value of Ywhen the labour market is in" rel="nofollow">in equilibrium? [3 marks] [Show all workin" rel="nofollow">ing in" rel="nofollow">in answerin" rel="nofollow">ing (i)-(iii)] 4. What are the different components of demand for goods and services in" rel="nofollow">in a closed economy and what are the main" rel="nofollow">in determin" rel="nofollow">inants of each? How does a decrease in" rel="nofollow">in taxes affect aggregate demand and through what component does this effect take place?