Solution-simulated 1st prelim 09292009

# Solution-simulated 1st prelim 09292009 - Solution simulated...

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Solution – simulated 1 st prelim 09292009 <The actual exams are clearer and easier than the simulated exams, as what is supposed to be> (1) President Reagan’s tax – cutting program had two components – a) The predictive part: Reduced tax revenue leads to reduced government spending and activity b) The prescriptive part: Reduced government activity qualifies as a desirable political reform. Thus, economists may differ among themselves in their support or opposition of Reaganomics, on either the means or the ends, or both of Reagan’s program. (2)To be analytic means to be conceptually precise by introducing symbols for the magnitudes in the discussion. Let there be two types of goods: x(1, t) and x(2, t) produced or c(1, t) and c(2, t), consumed, in year t, with corresponding unit prices p(1, t) and p(2, t), respectively. For definiteness, denote computer as good 1, and all others as good 2. The comparison is between the two periods: t’ = 0 and t” = 15. It is given that i. There is a change of relative prices -: p(1, t”) < p(1, t’), p(2, t”) > p(2, t’). or, p(1, t »)/p(1, t’) < 1 < p(2, t )/p(2, t’), which implies the relative desirability of computer to other goods has declined.

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