Problem Set 1 Macro

Problem set 1
(Topic 0 and 1)

Questions on concepts that will be discussed and valuated in class.

It is suggested to students to think about how to answer the questions in detail before theclass. It will be evaluated how clearly and shortly the concepts are explained:

1. Why was it necessary to introduce simplyfing assumptions in the Basic Macroeconomic Model? What is the risk ofintruducing too many simplyfing assumptions?

2. When does the public sector present a deficit? If the Public Sector has a deficit, what happens to public debt?

3. To what three sectorsdo firms sell their products in the Basic Macroeconomic model? What are the factors of production in the model?

4. Define the Balance of trade. Explain what are all its components and what itmeans to have a balance in deficit.

5. Define the hoseholds' disposable income in the Basic Macroeconomic Model. What are the possible uses of the income in the model?

6. What is thedifference between stock and flow variables?

Exercises:

1. At the beginning of 2005 the public debt of Santa Clara is 9B euros. During the year the public sector spent 3B for paying its employees,it transferred 1.5B to the private sector, it did not make any other payment and its revenue from taxes is 2B euros. If the interest rate was 5%. Compute the amount of Santa Clara's public debt atthe beginning of 2006.

2. The data for the public sector for 2008 is the following: public expenses G=20B, collection of taxes T=30B, transfers Z=10B, nominal interest rate i=5%, public debt atthe beginning of 2008 DP08=60B. Compute the public debt of this economy at the beginning of 2009.

Questions in test format:

1. Miguel is thinking of buying an airplane ticket to go to London tovisit his girlfriend (the cost of the ticket is 69 euros), of buying his favourite author's (Michel Houllebecq) book collection (books price 89 euros), of buying a pair of jeans (120 euros), of...