The document outlines a test for a Macroeconomics course at Universidad del Pacífico, focusing on various economic models and concepts. It includes short questions on the IS-LM-BP model, equilibrium conditions, central planner solutions, government expenditures, and the effects of taxes and productivity on consumption and wellbeing. Additionally, it addresses public goods and the differences between market and central planner solutions in an economy with heterogeneous agents.
The document outlines a test for a Macroeconomics course at Universidad del Pacífico, focusing on various economic models and concepts. It includes short questions on the IS-LM-BP model, equilibrium conditions, central planner solutions, government expenditures, and the effects of taxes and productivity on consumption and wellbeing. Additionally, it addresses public goods and the differences between market and central planner solutions in an economy with heterogeneous agents.
The document outlines a test for a Macroeconomics course at Universidad del Pacífico, focusing on various economic models and concepts. It includes short questions on the IS-LM-BP model, equilibrium conditions, central planner solutions, government expenditures, and the effects of taxes and productivity on consumption and wellbeing. Additionally, it addresses public goods and the differences between market and central planner solutions in an economy with heterogeneous agents.
The document outlines a test for a Macroeconomics course at Universidad del Pacífico, focusing on various economic models and concepts. It includes short questions on the IS-LM-BP model, equilibrium conditions, central planner solutions, government expenditures, and the effects of taxes and productivity on consumption and wellbeing. Additionally, it addresses public goods and the differences between market and central planner solutions in an economy with heterogeneous agents.
E CONOMICS D EPARTMENT Macroeconomics I S EMESTER II, 2022
Test 1
Professor: Antonio Cusato Novelli
Teaching Assistants: Marcelo Ordoñez, Alonso Palacios
1 (10 points) Short questions
Answer intuitively and in less than six lines: (a) Explain the main differences between the IS-LM-BP model and the microfounded models. What are the benefits of using a microfounded approach? (2 points) (b) One equilibria condition found on the static model with consumers and firms is:
u′ ( L) = zF ′ ( N ) u′ (C ) u′ ( L) Now assume that the economy is not in equilibrium and that u′ (C) > zF ′ ( N ). Explain the intuition behind the ajustment process towards the equilibrium. (3 points) (c) What is the central planner solution? Which are the main characteristics of it? In your answer, give emphasis on why the central planner solution is not the same that a govern- ment solution. (d) Explain the effects of an increase in government expenditures in a one period model with consumers and firms, where taxes are lump-sum and government expenditures are part of the production functions of firms. Make the assumptions you consider necessary.
2 (6 points) Taxes and productivity in a static model
Consumers have preferences that are represented by the following utility function:
U (c, l ) = ln(c) + θ ln(l )
Also, they face a restriction such that:
(1 + τ1 )c = wN (1 − τ2 ) + π Where τ1 is a tax on consumption and τ2 a tax on income. Consider that N + l = h. Firms produce using capital (K) and labor (N) through a Cobb-Douglas production func- tion with productivity (given by z) and with a labor-output elasticity equal to α. Assume ⌢ that capital is inherited and fixed such that K = K, and that the government has a balanced budget. (a) Solve the problem for the consumers. Find their partial equilibria solution. (1.5 points)
(b) Solve the problem for the firms. Find their partial equilibria solution. (1.5 points) (c) Define the general equilibrium and solve. What is the effect of taxes and productivity on the optimal level of consumption? Answer intuitively and mathematically. (1.5 points) (d) What is the effect of taxes and productivity on the wellbeing of households? Use the indirect utility function to answer. (1.5 points)
3 (4 points) Public goods and many heterogeneous agents
In this economy there are γ agents identified with the index i. Assume there is no govern- ment nor extraordinary profits from the firm. Consumers have h hours available for work and have two labor options. Either they work for a firm ( N f ) or for the provision of a public good ( N f ). Asumme h = 1. The representative firm produces with the following production function: γ y = z( ∑ N if )α n =1
The production of public good of the agent i is gi = θi Npi . The total production of public γ good is given by g = ∑n=1 gi . Assume that both public goods and the goods made by the firm are in the same unit of measurement. Agent i works for the representative firm for a wage wi . The utility of each consumer is given by:
U i ( ci , g )
a) Find the market´s solution. Solve the problem for each consumer and the firm. (3 points) b) If the central planner gives a weight of λi to each consumer, how could the central planner solution will differ from the market´s solution. No math is needed for this part if you consider so. (1 point)
