MT#2_practiceMT#1.pdf - Name UTID Economics 320L Spring...

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1 Name: UTID #: Economics 320L, Spring 2019 Midterm 2 Practice midterm #1 Please put all papers away. No calculators, no cell phones, no computers: nothing electronic is allowed. The practice exam is scheduled for 100 minutes. There are 100 points total on the exam. The actual midterm will be scheduled for 75 minutes with 75 points. Part 1: Definitions (2 points each) 1) Golden Rule level of capital: 2) Ricardian Equivalence: 3) Open market operations: 4) Reservation wage: 5) Stagflation:
2 Part 2: Short Answers (3 each) I- What happens during an average US recession? Why is this important? II- What implications does the Permanent Income Hypothesis have for the response of consumption to temporary versus permanent tax cuts?
3 III- Suppose that investors must pay taxes on dividends at rate τ . Derive the value of stock prices in terms of current and future dividends and taxes and discuss what this implies for the immediate response of stock prices to a future increase in dividend taxes. IV- Why does the labor demand curve slope down? Explain intuitively. ( hint for final: be able to answer this question to any of the curves in our model ).
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