Login for writer: hidden, available for the assigned writer onlyPassword for writer: hidden, available for the assigned writer onlyECON 1183 Macroeconomics III Problem set Instructions – Answer all of the questions below. – Write up your answers in word and submit your document on moodle. For calculations you can either use the equation tool in Word (see here) or write the equations on a separate paper by hand, then take a photo of your calculations and paste them into the Word document. For graphs you can either use the graph tools in Word or Excel or draw them by hand and paste them as a picture. All the text (except for graph legends) has to be written in Word. Hand-written text will not be considered. – I strongly encourage you to use the Excel simulation file on moodle to conduct the simulations. You can also use the access to Maddison Data in the Excel simulation file. To access it, on the EqPath sheet click on Show Data and then on the newly appeared Compare sheet. – Answer the questions in order and clearly indicate which questions you are answering. Start a new page in the Word document for every sub-question (1a on one page, 1b on the second page, etc.). – Writing more is not better (and can be worse if its wrong). Be brief and precise in your answers. Each question state approximately how many words you should use. Anything exceeding the maximum word count by 10% will not be considered. – This is an individual submission, . you are meant to work alone on this problem set. Plagiarism will be checked and if two submissions are deemed too similar both will receive a point reduction (up to zero points for both). – You can reach a total of 100 points. Each sub-question states how many points it is worth. Questions 1. The black death (bubonic plague) killed almost 1/3 of Europes population in the 14th century and caused the death of 75200 million people in Eurasia and North Africa. It is the most fatal pandemic recorded in human history. Use the augmented Solow growth model to work through this question (see below for variables and definitions and use those variables and definitions throughout the problem set). Suppose that the economy initially sits in a steady state. At period ????, the population (???? ) is ???? reduced drastically through a shock, such as the Black Death. After this shock, the population continues to grow at the previous growth rate ????. a. What are the effects of a negative shock to ???? on the steady state value of capital, consumption, investment and output per efficiency unit of labour? In your answer, state the solutions for the steady state values of those variables. (50-200 words) (5Marks) b. Suppose that the shock happens in period 50. Plot out diagrams showing how consumption, investment and output per efficiency unit of labour will react in a dynamic sense (. over time) to the negative shock to ???? in ???? = 50. Describe how the ???? shock plays out in the diagram in a few sentences. Discuss the responses of the variables immediate after the shock and their behaviour in the long run. Relate your diagrams to your answer to question 1a). (70-200 words) (10 Marks) c. Plot out diagrams showing how the actual economy, . consumption, investment and output per labour unit (NOT per efficiency unit of labour) will react in a dynamic sense to the negative shock to ????. Make sure that the reaction of the variables is properly visible in the diagram (you might have to select a shorter time horizon in the diagram to show the reaction of the variables to the shock). Describe how the shock plays out in the diagram in a few sentences. Compare the responses of the variables per labour unit with the responses of the variables per efficiency unit of labour immediate after the shock and in the long run. (130-230 words) (10 Marks) d. Plot out a diagram showing how real wages will react in a dynamic sense to the negative shock to ????. Make sure that the reaction of wages is properly visible in the diagram. What is the economic mechanism that leads to the change in real wages after the shock? (130-230 words) (10 Marks) e. Read Munro (2004) on real wages in England after the Black Death (on moodle). Did real wages increase of fall immediately after the Black Death (after 1348) in England? Does your simulation fit the actual development for real wages in England in the first 10 years after 1348? Very briefly state the main drivers of changes in real wages immediately after the Black Death according to Munro (2004). Are the drivers different from the mechanism you identified in the previous question? (150-250 words) (5 Marks) f. How realistic is the economic mechanism that leads to the change in real wages after the shock to ???? in the Solow model? Answer this question by critically evaluating the way the labour market is modelled in the Solow model. (150-250 words) (10 Marks) 2. Similar to what was done in question 1 with the example of the Black Death in Europe, select a country or region of your choice and a significant economic event that happened in this region. You are not allowed to select the Black Death to discuss a negative shock to the population, or the 1st or 2nd World War to discuss a negative shock to the capital stock. a. Present data on the event. Plot out diagrams showing how consumption, investment and output per efficiency unit of labour will react over time to the shock. Describe how the shock plays out in the diagram in a few sentences. Discuss the responses of the variables immediate after the shock and their behaviour in the long run. Will your variables return to the previous steady state or approach a new steady state in the long run? (130-230 words) (10 Marks) d. Plot out diagrams showing how the actual economy, . consumption, investment and output per labour unit (NOT per efficiency unit of labour) will react in a dynamic sense to the shock. Make sure that the reaction of the variables is properly visible in the diagram (you might have to select a shorter time horizon in the diagram to show the reaction of the variables to the shock). Describe how the shock plays out in the diagram in a few sentences. Discuss the responses of the variables immediate after the shock and their behaviour in the long run. (150-250 words) (10 Marks) e. Compare the development of the actual data in a) with the simulation that you conducted in d). Does the development of the actual data follow the same path as your simulation? Why, or why not? Critically evaluate the economic mechanism that drives the development of the simulated variable in the Solow model. (200-300 words) (10 Marks) f. Think about how you would model the same economic shock within the post-Kaleckian growth model instead of the Solow model. What, if any, would be the consequences of the shock on the growth rate of the capital stock within the Post-Kaleckian growth model? Compare this with the effect on economic growth within the Solow model. Does the effect of the shock on economic growth differ depending on whether you assess it within the augmented Solow model or the post-Kaleckian growth model? Which model do you consider to be better suited to model the specific shock that you selected? (200-300 words) The Augmented Solow model features the following equations: 1. Output: ???? = ????????t^????(????t????t )^?????1 2. Population: ????t = (1 + ????)^???? 3. Labour-augmenting productivity: ???????? = (1 + ????)^???? 4. Investment: ????t = ????????t 5. Consumption: ????t = (1 ? ????)???????? 6. Equilibrium: ????t = ????t + ???????? 7. Capital stock: ????????+1 = ???????? + (1 ? ????)???????? 8. Profit rate: ????t = MPK = ????????????^?????1 (????t????t)^1????? =????????????t ??????1 9. Real wage: ???? = MPL = (1?????)????t????????^???? (????t????t)^????? =(1?????)????t????????t^???? 10. ???? = rate of depreciation 11. ???? = saving rate 12. ???? = parameter The dynamic equation for ???????? is: 13. ????t+1 = ????????????t^????(????t????t )^?????1 + (1 ? ????)????t Use smaller case letter for variables per labour unit or per capita and hats to denote variables per efficiency unit of labour (e. g. ???? = ????? , ???? = ????? , ???? = ????? ).Show more
