Sample mid-term (2014).docx

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ECON 0207 / 2222 Mid-Term Test Name: __________________________________ UID: ____________________________________ Time: 90 minutes Number of Questions: 5 Total Points: 50 Number of pages: 13 (including this cover page) This is the term test for Monetary Economics in 2014. Please note that the materials covered in 2014 and this year vary quite a bit and hence the materials covered in the term test can be quite different. (1) In 2014, we did not talk about the Shadow Banking System as we do this year (Handouts 1 and 2). Hence, the term test in 2014 did not have any question on Shadow Banking but you can expect questions in this area this year. (2) In 2014, we spent some time on the Classical model and hence Q. 2 and Q.3 in this term test covered the Classical model. However, we do not go over the Classical model this year and hence you do not have to prepare for the materials covered in Q.2 and Q.3 in this term test. ********************************************************************************** For Grader’s use only Q. 1 Q. 2 Q. 3 Q. 4 Q.5 Total _____ _____ _____ _____ ______ _________ ********************************************************************************** 1
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Q. 1 (12 points) Suppose that in a particular period of time, an economy experiences a simultaneous decrease in the general price level and the aggregate output. For both parts (a) and (b) below, use Diagram 1 on the next page. (a) (6 points) Can the Keynesian Model that we study in class provide an explanation of the above phenomenon as an outcome in the short-run? Use Diagram 1 on the next page and brief explanations to answer this question. You can consider a change in one exogenous variable only. If you claim that the model can be used to explain the phenomenon given, you should give an example of the exogenous variable (and how it changes) that can lead to the above phenomenon. If you claim that the model cannot be used to explain the phenomenon given, you should explain why not. You can start your analysis with the initial reference point at ´ E with ´ P and ´ Y in Diagram 1 on the next page and label the short-run equilibrium as E SR with Y SR as the equilibrium output level and P SR as the equilibrium price level. (b) (6 points) Without any intervention from the government or the Central Bank, how will the economy evolve from the short-run equilibrium you draw in part (a) to the new long run equilibrium?
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