11. Explain how a labor choice model may result in a backward bending labor supply curve. What must the relative signs/sizes of the income and substitutions effects be? 12. Suppose Susan has $1,000 in...

11. Explain how a labor choice model may result in a

backward bending labor supply curve. What must the relative signs/sizes of the

income and substitutions effects be?

12. Suppose Susan has $1,000 in income this period,

but no income in the next period (this is only a two period example so nothing

happens after that). Demonstrate how Susan determines how much to save and how

much to consume in both periods. How would her level of savings change if real

interest rates increased?

13. Suppose consumption is given by C = 1000 + 0.75 x

Disposable Income while investment is given by I = 2000 – 20r. If government

expenditures equal 0 (no expenditures) and the tax rate is 1/3 (the government

collects 1/3 of income as tax revenue), what is the equation of the IS curve?

What are the values r-intercept and the Y-intercept?

14. Explain how sticky wages give rise to

unemployment savings and investment? What ramifications does this have for the

economy as the Fed begins slowing the

pace of growth of the money supply?
16. What does the

evidence around the Taylor Rule suggest about the Fed’s recent management of

the

money supply?
17. Suppose the Chinese economy

continues to slow. Using economic models, explain the likely impact on

the US.

18.

Explain the “zero-bound” problem facing

monetary policy.

19.

Consider the article “Canada Does the

Global Economy a Favor.” How does this reading confirm

standard economic theory? How is it in conflict with

standard economic theory?