13 Suppose that GDP in Newland is $700 billion and the government increases spending by $30 billion. Interest rate (%) 6 5 4 3 1 0 Graph A 30 60 90 120150180210240270300330 Quantity of money (billions of dollars) MS MD, Tools MD₂ Interest rate (8) 12 11 10 9 28 7 65432 2 1 0 Graph B 10 20 30 40 50 60 70 80 90 100 Investment spending (billions of dollars)

3.12 and 3.16

Study: 30-Year Life Expectancy Gap in 2 Chicago Communities The life expectancy of people living in an affluent community on Chicago's North Side is decades more than people living in a poor African American community on the city's South Side, according to a new study. A New York University School of Medicine analysis reveals that on average, Streeterville residents live to be 90 years old, the Chicago Tribune reported. The typical life expectancy of residents of Englewood, about 9 miles to the south, is roughly 60 years. NYU researchers said the 30-year divide between the two neighborhoods is the nation's largest disparity. The academics studied life expectancies in neighborhoods in America's 500 largest cities based on information from the Centers for Disease Control and Prevention from 2010 to 2015. Mayor Lori Lightfoot has vowed to improve schools, generate jobs and nurture economic development on struggling neighborhoods in Chicago's West and South Side communities. The study…

Suppose that education does not affect worker’s productivity, but it is more costly for low-ability workers to obtain the education. If firms cannot distinguish between different workers they must pay them all the wage equal to the expected productivity. If they can distinguish between workers with different abilities, they pay each worker their marginal product of labour and make zero profits. 70% of workers in the population have low ability. The productivity of low-ability workers is YL = 20000, and the productivity of high-ability workers is YH = 50000. The cost of education to high-ability workers is CH(S) = S 4 , and the cost of education to low-ability workers is CL = S. (Answer 4.5.6 only) 1. Suppose firms cannot observe worker’s education. What wage will they offer to a highability worker? What is the optimal level of schooling for the high-ability worker? Why? 2. Suppose that firms can observe worker’s educational attainment and believe that workers with the level of…