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(YT)
.
(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, SI) 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 alltime 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., twindeficit) go hand in hand.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 '10
 Shieh,YeungNan
 Economics, Macroeconomics, Inflation, real exchange rate, United States public debt, stimulus plans

Click to edit the document details