Intermediate Macroeconomics - Coursework Example

(c) Calculate and graph the ratio of each of real residential investment, real non-residential investment and real inventory investment to real GDP. How do these components rank in terms of variability? Provide some explanation. 2. Consider a consumer who maximizes a utility function that depends on leisure and consumption, and who is subject to a budget constraint. The government imposes no tax on workers on wage rates up to a certain number of hours worked. Beyond this number of hours the government imposes a proportional tax rate. 4. In the Solow model, suppose there is government spending G=gN where g is fixed, and N is the number of people, and S=s(Y-T), where T=G.

Show with a diagram that there are two possible equilibria, but that only the larger is stable. What is the effect on growth rates of an increase in s? 5. Suppose that part of people’s time is taken up with a given level of childcare, so that this cuts into leisure and working time. Suppose now that government raises lump sum taxes to pay for this itself. From a consumer’s perspective, assuming that wages are unchanged, what will be the effect on the consumption/leisure tradeoff? A parent who stays home to care for his or her children receives home production value for providing the service; a parent who works and hires a caregiver must pay the caregiver for the service.

In the absence of a deduction for child care costs, payment for nonparental child care is made with income on which tax has been assessed. Thus a parent who pays for child care must earn more than the caregiver’s payment, before taxes, to pay the caregiver. Home-provided child care is “paid for” by forgoing untaxed wages, so the cost of home care is less than the cost of a hired caregiver. Making child care expenses tax-deductible would lead to greater social efficiency by eliminating this difference and