2017F_ECON303_final_sol2 (1).pdf - UNIVERSITY OF CALGARY...

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UNIVERSITY OF CALGARYDEPARTMENT OF ECONOMICSECON 303 (L3)FINAL EXAMINATION with Suggested SolutionsStudent Name:____________________________Student Number:_______________________Fall 2017Instructor: 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 on this page and on the answerbooklet.3. This examination consists of5 (°ve) questionsand? printed pages(including the title page).4. Show all your working to get full credit.5. You are allowed to use non-programmable scienti°c calculators in thisexam.1
1. The following equations describe the domestic economy:C=20 + 0:8Y;I=G= 0;X=0:03Y°andQ=0:3Y:And the following equations describe the foreign economy:C°=200 + 0:8Y°;I°=G°= 0;X°=0:25(Y+ 300)andQ°=0:1Y°:Suppose the real exchange rates in both economies are °xed and equalto one.(a) Find equilibriumYandY°.[4 marks]
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(b) Suppose that the domestic economy experiences a10%drop in itsautonomous consumption, i.e.the consumption function changestoC= 18 + 0:8Y:The foreign consumption function remains the same:C°= 200 +0:8Y°. Find the percentage decline in equilibriumYandY°.[3 marks]
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