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What are the exogenous variables in the model? What are the four conditions that a competitive equilibrium must satisfy for this model?
Why is the competitive equilibrium in this model Pareto optimal? Explain the difference between the first and second welfare theorems. Why is each useful?
Give three reasons that an equilibrium might not be Pareto optimal. What are the effects of an increase in government purchases?
What are the equilibrium effects of an increase in total factor productivity? Why does a distorting tax on labor income lead to an inefficient economic outcome?
Explain what happens when the economy is on the bad side of the Laffer curve and the income tax rate falls.
In the model used in this chapter, determine the effects this has on aggregate output, consumption, employment, and the real wage, and explain your results.
Under these circumstances, using a diagram determine the effects of an increase in z on output, consumption, employment, and the real wage, treating G as given.
Show that an increase in government spending that is productive in this fashion could increase welfare for the representative consumer.
Determine the effects of an increase in G on consumption, leisure, labor supply and tax rate in a high-tax-rate equilibrium and in a low-tax-rate equilibrium.
Determine the effects of an increase in total factor productivity, z, on the Laffer curve, on the equilibrium tax rate, and on consumption and leisure.
What does the Solow residual measure, and what are its empirical properties? What are three possible causes for the productivity slowdown?
Why is a Cobb-Douglas production function useful for analyzing economic growth?
Explain what determines the golden rule quantity of capital per worker and the golden rule savings rate.
What can increase the standard of living in the Malthusian model? What are the characteristics of a steady state in the Solow growth model?
What is the effect of an increase in total factor productivity on steady state population and consumption per worker in the Malthusian model?
How does the separation rate behave during recessions? What does this tell you about the source of decreases in employment during recessions?
Plot the special unemployment rates relative to the standard measure of the unemployment rate, and comment on the differences that you see.
What will be the effects on the unemployment rate, the vacancy rate, the labor force, the number of firms, the aggregate output, and the labor market tightness?
What is the basic market failure in Keynesian economics? What explains aggregate fluctuations in the Keynesian DMP model?
In the DMP model, what are the effects of an increase in the UI benefit? In the DMP model, what are the effects of an increase in productivity?
In the DMP model, what determines a consumer's decision to search for work? In the DMP model, what determines a firm's decision to post a vacancy?
Is the participation rate procyclical or countercyclical? How does the employment/population ratio behave relative to the participation rate?
How has the labor force participation rate behaved over time? Do women and men behave similarly with respect to labor force participation?
Calculate these growth rates from quarterly data. Do you think your plot shows any evidence that government spending crowds out private consumption? Why or why
What does the DMP model predict would be the effects of labor-saving devices in the home, for example dishwashers, washing machines, and vacuum cleaners?