Midterm 2 _Key_

# Midterm 2 _Key_ - Spring 2007 Name Circle one 10:10 section...

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Spring 2007 Name: __________________________ Circle one: 10:10 section, 11:10 section 1/5 Principles of Macroeconomics Midterm 2 (Key) You’ll have fifty minutes to complete this exam. Be sure to label all your curves and axes. If you have any questions during the course of the exam, feel free to ask me. Good luck! 1) Demographers use “population pyramids” as an easy way to visually depict a country’s age distribution. The diagram takes its name from the shape you would normally expect to see. For instance, consider this very typical example: Interestingly, because of a spike in births following World War II (i.e., the “Baby Boom”), America’s current age distribution looks nothing like the above example. Here is America’s 2007 population pyramid: This figure shows that within the next ten to twenty years, the U.S. will experience an unprecedented surge in workers retiring from the labor force.

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2/5 A) Holding capital (K) and technology (T) constant, the surge in retirement brought on by the Baby Boom would be expected to cause... ... LAS to increase, decrease, or remain the same? Briefly explain your answer. [5 points] The LAS curve shifts due to changes in K, T, or L FE . While K and T aren’t changing in this problem, the size of the full-employment labor force will decrease as Baby Boomers retire. This will cause a decrease in LAS, shown as a leftward shift of the LAS curve. ... SAS to increase, decrease, or remain the same? Briefly explain your answer. [5 points] The LAS curve shifts due to changes in K, T, or L FE , and also due to changes in input prices. As I said above, the size of the full-employment labor force will decrease as Baby Boomers retire.
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