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York University
ECON 2450
Sharif Khan

ECON 2450 Department of Economics Intermediate Macroeconomic Theory II York University Instructor: Sharif F. Khan Summer 2 2013 Assignment 1 (OPTIONAL) Total Marks: 35 Read each part of the question very carefully. Show all the steps of your calculations to get full marks. 1. [10 marks] a) During the period 1973-1975, many industrialized countries experienced a deep recession with a simultaneous sharp rise in the price level. Would you conclude that the recession was the result of a demand shock? Would you instead conclude that the recession was due to a supply shock? Illustrate, using AD-AS analysis. b) It is sometimes argued that economic growth that is “too rapid” will be associated with inflation. Use AD-AS analysis to show how this statement might be true. When this claim is made, what type of shock is implicitly assumed to be hitting the economy? 2. [20 marks] The production function in an economy is given by Y = A(5N −0.0025N ) ,2 where A is productivity and N is labour. With this production function, the marginal product of labour is MPN = 5A−0.005AN. Suppose that A=2. The labour supply curve is given by NS = 55+10(1−t)w, where NS is the amount of labour supplied, w is the real wage, and t is the tax rate, which is 0.5. Desire consumption and investment are d C = 300+0.8(Y −T)−200r; d I = 258.5−250r. Taxes and gove
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