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
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
Desire consumption and investment are
C = 300+0.8(Y −T)−200r;
I = 258.5−250r.
Taxes and gove