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10FR - 1 Econ 102 Spring 2010 Review Questions for Final 1...

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Econ. 102. Spring 2010 Review Questions for Final. ******. 1. Final: Monday, May 24, 2010. 6:30pm – 10:00 pm. 2. You can have 8 pages cheat sheets. 3. Please review your homework carefully. *******. I. Consider a small country economy described by the following equations. _ _ _ (1) Y = Y = F(K,L). (2) Y = C + I + G + NX _ _ (3) C = a + b(Y-T) . (4) I = c – dr. (5) r = r* (6) NX = f - gє _ _ (7) G = G = 500. (8) T = T = 500. where Y = 5,000, a = 250, b = 0.75, c = 1,000, d = 50, r = r* = 5, f = 500, g = 500 Equilibrium Analysis: (a) Based on (1) – (8), write down the equation showing trade balance is determined by the difference between saving and investment. (b) Substitute numerical data into the equilibrium equation in (a) and find the equilibrium є and NX. Also show your answer graphically in a (є; NX, S-I) space diagram. Comparative static: Use this model to predict what happen to є (real exchange rate), NX (trade balance) in response to each of the following events. Also show your answer mathematically and graphically for the following questions c and d. . (c) A Federal tax cut by 100, i.e., T 1 = 500 and T 2 = 400. (d) An increase the world interests from 5 to 10. Application: e. The US trade deficit soared to all-time high of $665.9 billion in 2004. The Bush administration contends the soaring trade deficits reflect the US economy is growing faster than the rest of the world. However, as is well known, trade deficit and budget deficit (i.e., twin-deficit) go hand in hand.
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