PS1 Answer Key (1) - Econ 3140 Fall 2009 Problem Set 1...

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Unformatted text preview: Econ 3140 Fall 2009 Problem Set 1 Answer Key 1. Classicals see wage and price adjustment occurring rapidly, while Keynesians think that wages and prices adjust only slowly when the economy is out of equilibrium. The classical theory implies that unemployment will not persist because wages and prices adjust to bring the economy rapidly back to equilibrium. But if Keynesian theory is correct, then the slow response of wages and prices means that unemployment may persist for long periods of time unless the government intervenes. 2. (a) Exports/GDP 2009( II ) 0 : 1049 2008 : 1268 2007 : 1176 Imports/GDP 2009( II ) 0 : 1683 2008 : 1758 2007 : 1294 Trade Imbalance/GDP 2009( II ) & : 05070 2008 & : 04901 2007 & : 02458 (b) Receipts/GDP 2009( I ) 0 : 1612 2008 : 1733 2007 : 1909 Gov Expenditures/GDP 2009( I ) 0 : 1049 2008 : 1268 2007 : 1176 Budget De&cit 2009( I ) & : 0881 2008 & : 0544 2007 & : 0218 3. A classical economist might argue that the economy would work more e ciently with- out the government trying to inuence trade. The imposition of taris increases tradeout the government trying to inuence trade....
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PS1 Answer Key (1) - Econ 3140 Fall 2009 Problem Set 1...

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