Econ 199
Macroeconomic Theory I
Assignment 2
(Chapter 4,5 &6)
Due: in TA’s tutorial, March 26th, 2009, Thursday
1. Label each of the following statement true, false, or uncertain. Explain
briefly.
a)
Income and consumption are both examples of stock variables.
b)
The central bank can increase the supply of money by decreasing the reserve
ratio.
c)
By construction, bond prices and interest rate always move in the same direction.
d)
The changes of the money supply will lead to a shift of the IS curve since it will
affect the interest rate.
e)
If government spending and tax increase by the same amount, the IS curve does
not shift.
f)
It is not possible for government policy to increase output without changing the
interest rate.
g)
Bargaining power of workers only depend on the labor market condition and the
nature of the job.
h)
The natural rate of unemployment is unaffected by policy changes.
2.
Question 7 of Chapter 4 in the textbook.
3. Question 8 of Chapter 4 in the textbook.
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Suppose that the consumption function is given by
)
(
1
0
T
Y
C
C
C
−
+
=
, the
investment function is given by
i
b
Y
b
b
I
2
1
0
−
+
=
, and the goods market equilibrium is
given by
G
I
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 Spring '09
 JennyXu
 Macroeconomics, Monetary Policy, lm curve, equilibrium real wage

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