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FN Assigment1

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31 views1 page

FN Assigment1

Uploaded by

lean54966
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem 1 (2 point): A firm’s production function is Q = 24 + 2L.

Given K = 160
and L = 90.
a/ Find the values of the marginal products, MPK and MPL, then estimate the overall
effect on Q when K increases by 3 units and L decreases by 2 units.
b/ State the value of the marginal rate of technical substitution MRTS and give an
interpretation of this value. Estimate the change of Q if L increases by 2 units and K
decreases by 4 units.

Problem 2 (2 points): If the rate of net investment flow is given by I(t) = 200e0.1t,
calculate:
a/ The capital formation from the end of the third year to the end of the tenth year;
b/ The number of years required before the capital stock exceeds $50000.

Problem 3 (2 points): Consider the macroeconomic model defined by


National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: M S * = k1 Y + k 2 r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where

a/ Use Cramer’s rule to find C;


b/ Then write down the money supply multiplier for C and deduce it’s meaning.

Problem 4 (2 points): Consider the supply and demand equations:


QSt = 0.8Pt-1 - 12
QDt = -1.6Pt+ 60
a/ Assuming that the equilibrium conditions prevail, find an expressios for Pt and Qt
when P0 = 80;
b/ Is this system stable or unstable, explain why?

Problem 5 (2 points): An annuity pays out $30xyz at the beginning of each year in
perpetuity, where x, y, z are the last three digits of your student code (for example: if
a student code is 17071827 then x = 8, y = 2, z = 7 then $30xyz=$30827). If the
interest is 5% compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity of payments received starting from the end of
20th year.

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