Category: Economics

iv) As a first pre-test exercise in the study, the student managed to run the DickeyFuller test and obtained the output below. Explain the results for the first two variables. (5 Marks)
AUGMENTED DICKEY FULLER TEST FOR UNIT ROOT
VARIABLES AT LEVEL AR (0)
VARIABLES AT FIRST DIFFERENCE AR (1)
Variable
Lags 0
Test statistic
5% critical value
P-value
Lags 0
Test statistic
5% critical value
P-value
Economic growth (LogGDP)
(1)
-0.700
-2.972
0.8467
(1)
-4.386
-2.975
0.0003
Tourist arrivals
(1)
-1.756
-2.972
0.4023
(1)
-2.936
-2.983
0.0413
Tourism expenditure
(1)
-0.810
-2.972
0.8163
(1)
-2.897
-2.975
0.0458
Tourism receipts
(1)
-1.800
-2.972
0.3807
(1)
-3.291
-2.983
0.0153
Travel services
(1)
-1.055
-2.972
0.7328
(1)
-4.458
-2.975
0.0002
v) Given an AR(1) model, use appropriate mathematical expressions to discuss the process of the Dickey-Fuller test. Further, discuss what would happen to this test if there is a presence of serial correlation. (5 Marks)

Section 4.36
The head office of TechMart is comparing two stores in St. John’s and Corner Brook, NL. At the end of the month, the accountant creates graphs of the monthly expenditures of each store location.
St. John’s Monthly Expenditures
Corner Brook Monthly Expenditures
Head office determines that the Corner Brook store is spending more money than the St. John’s store on rent. Is this accurate? Why or why not?
The accountant looks at the financial records for each store and discovers that the St. John’s store has total monthly expenditures of $60 000 and the Corner Brook store has total monthly expenditures of $45 000. Determine how much each store spends on rent each month.
Does your answer for part b) confirm your answer for part a)? If not, how could the accountant better represent the data using a graph?

For Questions #46-#48, suppose the market for household drinking water in Milwaukee, WI, is modeled as follows: Supply, S(Q)=MSC(Q)=10+0.2Q; and Demand, D(Q)=MSB(Q)=40-0.4Q, where Q is millions of gallons per day and MSC and MSB are in cents per gallon.
46.
If the city provides drinking water for free (i.e., at a price of $0 per gallon) then city residents would consume million gallons of water per day.
a. 50 .
b. 83.33.
c. 100 .
d. 150 .
e. 180 .
f. 250 .
47.
The quantity of water consumer in Question #46, denoted Qc, is
a. socially efficient because MSB = MSC at Qc.
b. socially inefficient because MSC > MSB at Qc.
c. socially inefficient because MSC < MSB at Qc. d. socially inefficient because MSC = MSC at Qc. e. socially efficient because total social benefit, TSB, is maximized at Qc. f. socially efficient because MPB MPC at Qc. 48. Which one of the following water pricing schemes would you recommend to City of Milwaukee officials? a. A flat fee (uniform) pricing scheme where the price of water is 1 c cent per gallon. b. A flat fee (uniform) pricing scheme where the price of water is 5 c cents per gallon. c. A flat fee (uniform) pricing scheme where the price of water is 20 c cents per gallon. d. A decreasing block pricing scheme where the price of water is 20cgal for the first 20 million gallons, 10cgal for next 20 million gallons, and free for more than 40 million gallons. e. An increasing block pricing scheme where the price of water is 20cgal for the first 20 million gallons, 40cgal for next 20 million gallons, and 60cgal for more than 40 million gallons.

Megan is an architect. She designs a new apartment block that is built in West End. The building is praised by many, winning various awards. As a result, many people visit West End to see her building. Select the item from the list provided to make the following statements true.
Marco owns a cafe across the road from the apartment block. The increase in customer numbers visiting the building and then Marco’s cafe is an example of a.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Eloise lives next to the apartment block designed by Megan. The building casts a large shadow on Eloise’s property, killing her prized sunflowers. For Eloise the building has created a.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Local councils often deal with issues associated with building heights through setting maximum building heights for certain suburbs. This is an example of the use of a to deal with externalities.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Negative externality
Positive externality
Tax
Subsidise
Command and control
Negotiate
Possible
Impossible
Private
Efficient
Inefficient
Social

Short-run versus long-run costs and expenditures
The following graph shows isoquants for the technologically efficient bundles of labor and capital for producing 100 and 200 units of output (labeled q=100 and q=200, respectively). Suppose the firm is initially using the cost-minimizing bundle of labor and capital for producing 100 units of output, represented by point A.
Assume that the expansion path is a straight line in this case. Use the grey line (star symbol) to show the expansion path for this firm on the graph.
Complete the following table by entering the total amount the firm would have to spend on capital and labor at each level of production in both the short run and the long run if the wage rate (w) is $20 and rental rate of capital (r) is $40.
Quantity Produced
Short-Run Costs (Dollars)
Long-Run Costs (Dollars)
0
100
200
The following graph is intended to help you answer the question that follows.
First, use the orange points (square symbols) to plot the total long-run costs when producing 0, 100, and 200 units of output. Then, use the blue points (circle symbols) to plot the total short-run costs associated with producing 0, 100, and 200 units of output.
Note: Select and drag the curve from the palette to the graph. To move a point on the curve, select and drag to the desired position. You will not be graded on your placement of any objects on the graph.
Long-run Costs
Short-run Costs
True or False: According to this graph, the firm’s long-run costs are never higher than its short-run costs.
True
False

Consider an overlapping generations model in which agents live two periods. Each agent inelastically supplies one unit of labour services when young. For an agent born in period t, utility is given by:
Ut = c1t1-θ1-θ + (1/(1+ρ)) c2t+1 1-θ
where c1t is consumption when young, c2t+1 is consumption when old, 0<ρ<1 is the rate of time preference, and θ>0 is a parameter. The agent’s budget constraint in each period of life are given by:
st + c1t = wt (1 – τt),
c2t+1 = (1 + rt+1) st
where st is savings when young, wt is the wage rate, τt is the tax rate on wages, and rt+1. The production function is:
Yt = A Ktα Lt1-α
where A is a fixed parameter representing technology, Kt is the aggregate capital stock, and Lt is the number of workers, equivalently the population of the young generation. To simplify, assume that population is fixed over time. The government spends all of its tax revenue each period such that:
Gt = Lt wt τt
Derive the Euler equation relating consumption when old to consumption when young as a function of the interest rate. Interpret θ – 1.
B.
Now, set θ = 1, and solve for the consumption in both periods and for savings as a function of the wage rate and the interest rate. Does saving depend on the interest rate? Explain in terms of income and substitution effects.
C.
Assume perfectly competitive markets, write expression for the real wage rate and the interest rate. Use these results to solve for the reduced form for the steady-state stock of capital.
D.
How does increase in government spending affect the capital stock? Compare the effects in the OLG model with those of representative agent Ramsey model. Explain.

2. Discouraged workers
Which of the following statements correctly describe discouraged workers? (If none of the choices apply, leave all of the checkboxes blank.) Check all that apply.
They have given up on looking for a job.
They are counted as part of the labor force by the Bureau of Labor Statistics.
They are employed workers who want to earn higher wages.
They have not looked for a job in 4 weeks (or longer), but they would like a job and are available for work.
The following table contains U.S. employment information from August 2019.
Category
Value
Civilian Population (Persons 16 years old and over)
259,432,000
Employed (Persons)
157,878,000
Unemployed (Persons)
6,044,000
Discouraged (Persons)
467,000
The Bureau of Labor Statistics has several measures of joblessness in addition to the official unemployment rate. One alternative is the U-4 measure of labor underutilization, which is calculated as follows:
U-4 = 100 × (Unemployed + Discouraged) / (Labor Force + Discouraged)
Fill in the following table by calculating the official unemployment rate and the U-4 measure of labor underutilization.
Measure
Value (Percent)
Official Unemployment Rate (Percent)
U-4 Measure of Labor Underutilization (Percent)
The official unemployment rate and the U-4 measure of labor underutilization are two different measures of joblessness in the economy. If the Bureau of Labor Statistics were to include discouraged workers in the official unemployment rate, the reported unemployment rate would be higher.