GRIPS Macroeconomics II

Fall II Semester, 2016

Problem Set 1

Junichi Fujimoto
December 14, 2016

Submission deadline:

Beginning of the rst class (9:00-10:30) on December 21 (Wed), 2016

Instructions for submission:

Clearly indicate your full name and your student ID number.

You are allowed to discuss the problem set in a small group, but you must write out and submit

your own work.

Late submission is not accepted (you can ask your friend to turn in the homework for you).
E-mail submission is accepted only in exceptional circumstances (e.g., severe illness), and the

electronic le (pdf) must be received by 24:00 of December 20 (Tue), 2016.

1. Textbook Chapter 11, Problems and Applications Q2, Q3, Q4, Q5

2. Suppose the following holds in the classical model.
Y
LS

= 4L 4 , k = 2
w 2
= 64( ) 3 , M S = 96
p

(a) Obtain the labor demand function LD .

(b) Compute the equilibrium values of the real wage, employment, output, the price level, and
the nominal wage.
(c) Suppose the money supply M S increases by 20%. Again, compute the equilibrium values of
the real wage, employment, output, the price level, and the nominal wage.
(d) Explain how your results for (c) relate to the neutrality of money.

3. Suppose the following production and utility functions are given in the classical model.
Y
U

= 6L
= C

1
10

1

1
1 L
4

(a) Obtain the labor demand function LD and the labor supply function LS .
(b) Compute the equilibrium values of employment and output.
(c) When P = 2, what is the equilibrium nominal wage ?
<Hint> The form of the labor demand function LD in this problem is a bit dierent from usual
cases. Think carefully the rm's optimization problem.