Final 2006 - “624527” 1 Art BenaVie Econ 1 3 0 Final...

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Unformatted text preview: “624527” 1 Art BenaVie May 10, 2005 Econ. 1 3 0 Final Exam (Symbols defined on request.) (Show your work.) 1. Assume the following estimated behavioral coefficients: 1:1 92 A9 60 A_1 ANX 1 AC/ADI = :6, AY = ~48, AY =13; AP = — Ar = "' 30, AY = — - AL AL ANX ANX Ar = -10, E: .,2 AP =— 80, Ae = 50, and LRRR= ..2 In addition, _assum_e that the initial equilibrium values are: Y= 1000, M= 500, P = 1, r = 8%, the budget deficit— = 150, and the trade deficit— = 200. Now, assume the following autonomous changes: AT 1=50, AP=+.,5 andAr=-3%. Given this information, compute the following: AY ‘ B.AE C. The value of the multiplier D. The equilibrium change in Y, and the total equilibrium changes in consumption, saving, investment, the budget deficit, the trade deficit, nominal M, real M, and the total required open market action (indicate whether a purchase or sale and how much). E. Graph this problem, showing both deficits, the money market, and the YD and P schedules. Show on your graphs, using the magnitudes you have computed, the initial and final equilibrium values for Y, real M, and both deficits. 2. Explain the reasoning behind the following behavioral assumptions. AS Arf> AC ZE< O ANX AG AL D. X‘? >0. ANX E. fi<0. A. 0 >0. 3. Suppose the economy is at full employment and the goverment decides to reduce both income taxes and government spending on investment by$100 billion. Assume that Greenspan and the Federal Reserve Board institute a monetary policy which successfully prevents any autonomous change in aggregate demand. Given the estimated behavioral coefficients in question 1, compute the following: A. The required Ar B. The equilibrium ATD C. The equilibrium AI D. The equilibrium ANI E. The equilibrium ADef F. The equilibrium ANS Write a paragraph explaining how this policy affects the present generations versus the future generations. 4. Give 2 examples of “good’ deficits and explain why they are “900d”. ...
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