Question

1. A large number of immigrants entered Germany in the early 70s. How would that affect the current level of full - employment output? Show graphically.

2. Last summer, Russia experienced a significant drought, which lowered the marginal product of labor. How would that affect the equilibrium in the labor markets? Show graphically.

3. There was a significant increase in oil prices in 1979 - 80 following the Iranian Revolution. What are the implications of this negative supply shock on labor markets?

4. After the recession, consumers became more future-oriented and thus decide to save more. Use the saving-investment analysis to analyze the effects of this change on investment and real interest rate. (Ch. 4)

5. In 2006, Congress estimated that the cost of the Iraq War was approximately $100 billion a year. Since the US government was running a budget deficit at the time, assume that the war was financed by government borrowing. How do the equilibrium interest rate and private investment change in response to government expenditure on the war? (Ch. 4)

Answer 1

Question number 1 is answered.