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UNIVERSITY OF CALGARYDEPARTMENT OF ECONOMICSECON 303 (L1)FINAL EXAMINATION with Suggested SolutionsStudent Name:____________________________Student Number:_______________________Spring 2018Instructor: Aamir Ra°que HashmiMarks: 50Time: 2 hoursINSTRUCTIONS:1. Do not start the exam until you are told to do so.2. Write your name and student number above and on the answer booklet.3. This examination consists of5 questionsand6 printed pages(in-cluding the title page).4. Clearly show your working to get full credit.5. You are allowed to use non-programmable scienti°c calculators in thisexam.1
1. Consider the following economy:C=C0+c(Y°T);I=°I;G=°G;andT=°T:(a) Find an algebraic expression for equilibrium income.[2 marks](b) Ifc= 0:75, what is the numerical value of the spending multiplier?If the autonomous consumption(C0)increases by $100, by howmuch will the equilibrium income increase?[2 marks](c) Continue to assumec= 0:75:If bothGandTincrease by $100, byhow much will the equilibrium income increase? What is the nameof this particular type of multiplier?[3 marks](d) Assume thatG=G0°gY, where0< g < c. Plot demand (Z±C+I+G)against income(Y). What is the slope of the line thatyou have plotted? Derive an expression for the spending multiplierin this case.[3 marks][Question 1 total marks: 10]Question 2 is on the next page...2
2. Suppose that the probability of °nding a job when unemployed in a givenmonth is 0.25.(a) What is the probability that a worker will still be unemployed afterone month? Three months? Six months?[3 marks](b) In part(a), the probability of remaining unemployed in a givenmonth is 0.75. Suppose this probability increases with time. Specif-ically, if a person has been unemployed fortmonths or more, theprobability that she will be unemployed in the next month is0:7511+t:The value oftis zero for the person who just became unemployed.What is the probability that a person who just became unemployedwould still be unemployed after three months? How does this prob-ability compare with the probability in part(a)of not having a jobafter 3 months? Explain the di/erence.[5 marks][Question 2 total marks: 8]Question 3 is on the next page...3