Fall 06 Midterm I

Fall 06 Midterm I - Midterm I Econ 110 Fall 2006 100 points...

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1 Midterm I Econ 110 Fall 2006 100 points USE DIFFERENT BLUE BOOKS FOR PARTS I AND II Good luck. Part I: 50 points 1. ( 5 points ) What could lead to an increasing elasticity of money demand with respect to the interest rate? Explain. 2. ( 5 points ) The Fed has suggested that it should pay interest on Federal Reserve Deposits. Why? Why does Congress not enact this? 3. ( 8 points ) Is it true that in a closed economy with no investment, a permanent shock to the economy will always leave the interest rate unchanged? Does the moment in which the permanent shock occurs make any difference in the answer? 4. ( 8 points ) How does the volatility of C d depend on the planning horizon of the household? Give specific examples and speak both about permanent and temporary changes in output. 5. ( 10 points ) Suppose a plague leads to a one-time decrease in population. Those who survive are the same as those who died in terms of tastes. Money supply is unchanged. Assume that equilibrium MPL is exactly the same as before. What
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This note was uploaded on 05/22/2010 for the course ECON 110D taught by Professor Schmitt-grohe during the Spring '08 term at Duke.

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