Part 1 (20 marks)

GDP and unemployment

a) Analyse the effects of quarantine on GDP, employment and the unemployment rate. Which

industries are likely to be most affected and which industries are likely to be least affected

by quarantine measures?

b) Choose any country that introduced quarantine as an example. What was its GDP growth

rate in 2018, 2019? (Indicate the source of information.) Is this country likely to be in

recession this year? Refer to two definitions of recession.

c) Are your answers consistent with (general) Okuns law?

Part 2 (20 marks)

Inflation

a) What do you think would happen to inflation in your chosen country in the coming year?

Explain.

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manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types: Under 25: q^r=18-5p Over 25: q=10-2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make. If the manager cannot identify to which group his customers belong, what is the uniform monopoly price? If the manager can identify to which group his customers belong, what price will he charge each group. Assume the manager can only charge a single price to each group. If the manager can charge a separate entry fee and a price per drink for each group, what two-part price will the manager set for reach group. Now suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both customers, what entry fee would the manager set?

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A student has to decide whether to go to a party on the night before an exam. If they go to the

party, then they have the probability ? of writing a good exam and the probability 1 ? of writing

a bad exam. If they do not go to the party, then they have the probability > ? of writing a good

exam.

The student has the utility u = x1/2 + H if they go to the party and get the mark x on the exam.

But, if they do not go to the party they have the utility u = x1/2. The professor gets to choose xb

(the mark she gives to bad exams) and xg the mark she gives to good exams. Students also have

the option of going to the party and then quitting the course. This gives them the utility U + H

where U > 0.

(a) What is the students expected utility from going to the party and her expected utility from

not going to the party?

(b) Assuming students do not quit the course, what marks (xg, xb) can the professor set to stop

students partying? Draw a picture of this set of marks with yg = pxg on one axis and

yb = pxb on the other. Explain how this set changes as H and ? change.

(c) What marks can the professor set so the students prefer partying and taking the exam to

quitting the course? What marks can the professor set so the students prefer not partying and

taking the exam to quitting the course? Show these sets on a new picture.

(d) Suppose that the professor wants to promote equity and thus aims to make the di?erence

xg xb as small as possible while still stopping students from going to the party, but she

ignores the possibility that students will quit the course. What marks (xg, xb) should she set

to achieve her objective? Will this result in the outcome she planned?

(e) Suppose now the professor wants to minimise xg xb while still getting students to not party

and attend the course. Plot the contours of her objective function on your (yg, yb) picture.

What marks (xg, xb) should she set to achieve her objective now?

(f) The professor has other variables that she can control: she can make the exam harder, which

decreases and ?, and she can make the party fail by calling the campus authorities, which

decreases H. How does each of these variables a?ect her ability to achieve the objectives

described above?

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