Scribd
Upload
194 views1 page

PS9

The problem set, assigned by instructor Kevin Sheedy, contains 3 questions related to macroeconomic concepts: 1) The effects of technological innovations on the capital stock and business cycles. 2) The conditions necessary for double coincidence of wants to enable trade between individuals in an economy. 3) The impacts of a hypothetical tax on credit card balances, including effects on credit card balances, demand for money, and price level.

Uploaded by

Elaine Vincent
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
194 views1 page

PS9

The problem set, assigned by instructor Kevin Sheedy, contains 3 questions related to macroeconomic concepts: 1) The effects of technological innovations on the capital stock and business cycles. 2) The conditions necessary for double coincidence of wants to enable trade between individuals in an economy. 3) The impacts of a hypothetical tax on credit card balances, including effects on credit card balances, demand for money, and price level.

Uploaded by

Elaine Vincent
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

LSE Economics Department EC210 Macroeconomic Principles 2013/2014 Michaelmas Term

Kevin Sheedy 32L.1.09, x5022 [email protected]

Problem Set 9: The Dynamic Macro Model and an Introduction to Money

1. Creative destruction : Consider permanent positive shocks to TFP that represent technological innovations. However, innovations are associated with a process of creative destruction. In other words, when an innovation occurs, a portion of the existing capital stock designed to work with the old technology is rendered obsolete and becomes useless. Describe the eects of such a shock. Are they consistent with the business cycle facts? 2. Double coincidence of wants : Suppose that there are three individuals in the economy with the following consumption and production characteristics. The rst person needs a haircut and provides massages, the other wants a guided tour through the city and can provide a haircut, and the third agent badly needs a massage and can give city tours. a. Why is this an example of the absence of double coincidence of wants? b. Assume now that person 2 can sew a T-shirt instead of providing a haircut, and person 1 wants a T-shirt instead of a haircut. Show that it is now possible for trade to take place. Carefully explain the dierence to part (a). c. Finally, replacing T-shirts with haircuts again, determine who trades what with whom if at money is used in exchange. 3. Credit card taxes : Suppose the government decides that the use of credit cards is bad and introduces a tax on credit-card balances. That is, if a consumer or rm has a credit-card balance of X (in real terms), he or she is taxed tX , where t is the tax rate. Determine the eects on the equilibrium price and quantity of credit-card balances, the demand for money, and the price level. Explain your results.

You might also like