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examkey99 - Comments on ARE 201 exam 1999 Here are some...

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Comments on ARE 201 exam 1999 Here are some comments about Questions 3 and 4 of the exam. Question 3. Most people knew what the terms meant. For part ii I wanted you to say something like the following: If Home transfers T, this reduces its demand for imports at the initial ( pretransfer ) price by the amount mT, and increases Foreign’s demand for the good that Home imports by the amount (1-m*)T at the initial price . (Define m, m*.) Thus, the increase in aggregate demand for Home’s import good at the initial price is [1-m*-m]T. This increase is positive if and only if 1 > m + m*. If this inequality holds, the transfer increases the aggregate demand for Home’s imports at the initial price . In this case, price must rise to restore equilibrium and Home suffers a secondary burden. For part iii you needed only point out that if price rises when excess demand is positive (and falls when excess demand is negative) then the equilibrium is stable. Thus, the final part of the argument in part (ii)
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This note was uploaded on 08/01/2008 for the course ARE 201 taught by Professor Karp during the Fall '07 term at Berkeley.

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examkey99 - Comments on ARE 201 exam 1999 Here are some...

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