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    2701 Advance Macroeconomics

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    meelas123
    This document contains an assignment for an advanced macroeconomics course. It outlines 5 questions related to topics like business cycles, Keynesian models, non-Walrasian theories, household consumption behavior, and Solow growth models. It warns students that plagiarism will not be tolerated and assignments must be their original work to receive credit.

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    2701 Advance Macroeconomics

    Uploaded by

    meelas123
    58 views3 pages
    This document contains an assignment for an advanced macroeconomics course. It outlines 5 questions related to topics like business cycles, Keynesian models, non-Walrasian theories, household consumption behavior, and Solow growth models. It warns students that plagiarism will not be tolerated and assignments must be their original work to receive credit.

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    This document contains an assignment for an advanced macroeconomics course. It outlines 5 questions related to topics like business cycles, Keynesian models, non-Walrasian theories, household consumption behavior, and Solow growth models. It warns students that plagiarism will not be tolerated and assignments must be their original work to receive credit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    58 views3 pages

    2701 Advance Macroeconomics

    Uploaded by

    meelas123
    This document contains an assignment for an advanced macroeconomics course. It outlines 5 questions related to topics like business cycles, Keynesian models, non-Walrasian theories, household consumption behavior, and Solow growth models. It warns students that plagiarism will not be tolerated and assignments must be their original work to receive credit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 3

    ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

    (Department of Economics)

    WARNING
    1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING
    THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD
    OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
    2. SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM
    OTHER(S) AS ONE’S OWN WILL BE PENALIZED AS DEFINED IN
    “AIOU PLAGIARISM POLICY”.
    ASSIGNMENT No. 1
    (Units 1–4)
    Course: Advance Macroeconomics (2701) Semester: Spring, 2010
    Level: M. Phil Total Marks: 100

    Q.1 What is a Business Cycle? Discuss the possible extensions and limitations of a real
    business cycle model in detail. (20)

    Q.2 (a) Review the textbook Keynesian model of AD. What are di
    dM and
    dY for given value of P. (10)
    dM
    (b) If in the derivation of LM curve we adjust M to keep i always equal to i instead
    of assuming M is exogenous.
    i) What is the slope of LM curve?
    ii) What is the slope of AD? (10)

    Q.3 “Read non-Walrasian theories largely depend upon the explanation of


    Coordination-Failure Models by Cooper and John (1988).” Substantiate the
    statement. (20)

    Q.4 In practice individual invest in many assets which have almost uncertain returns.
    Keeping this statement in view, analyze the household consumption behaviour in
    the presence of risky assets. (20)

    Q.5 Given the Cobb-Douglas production function


    Y = K δ Lβ δ + β =1
    Let w, r, P and Y are given
    i) Is Euler’s theorem satisfied when δ + β ≠ 1? Explain
    ii) Find out the firm’s choice of K. Given choice of K what is the profit
    function.
    iii) Find first order condition for the choice of L and see whether second order
    condition is satisfied or not.
    iv) Solve the first order condition in part (iii) for L as a function of P, Y, w, and
    rK . How do changes in each of these variables affect L? (20)

    ASSIGNMENT No. 2
    (Units 5–9)

    Q.1 (a) Discuss in detail different theories given by the economists to explain the
    phenomenon of unemployment in a country. (10)
    (b) Using wage- efficiency model, find equilibrium unemployment rate
    U o , given wu = (1 + µ) wn , the wage in union sector, and in non
    wa
    union sector it is wn = (1 − bµ ) w
    1 − β . Where a is average wage
    and wa = f .wu + (1 − f ) wn . Also calculate by what proportion is the
    cost of effective labour higher in union sector than non-union sector
    if µ = f = 0.14 β = 0.05 , b =1? (10)

    Q.2 Discuss the dynamic inconsistency of low- inflation monetary policy in the light of
    famous paper of Kydland and Prescott. (20)

    Q.3 Show the impact of change in saving rate on output and consumption in the Solow
    growth model. Also give a quantitative implication for the effect on output in the
    long-run. (20)

    Q.4 Describe how each of the following changes affects the basic diagram for the
    Solow mode?
    (a) The rate of depreciation falls.
    (b) The rate of technological progress rises.
    (c) The production function is Cobb-Douglas, f ( k ) = k δ and capital share δ
    rises.
    (d) Output per unit of effective labour is higher than before. (20)

    Q.5 (a) Discuss the general case of model without capital by reintroducing the capital
    into the model. (10)
    (b) Assume that θ +β <1 and n > 0, and the economy is on balanced
    growth path. Show how each of the following changes affects the g A = 0
    and g k = 0 lines and the position of the economy in ( g A , g k ) space at the
    moment of the change. (10)
    (i) a
    An increase in k
    (ii) An increase in n

    2
    (iii) A decrease in θ

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