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ECON202midterm_solutions_Winter_2008

# ECON202midterm_solutions_Winter_2008 - M idterm 1 ECON202...

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Part A 1. Assume that GDP (1') is 6,000. Consumption (C) is given by the equation C 600 + 0.6(Y- 1). Investment (1) is given by the equation 2,000 100r, where r is the real rate of interest in percent. Taxes (1) are 500 and government spending (G) is also 500. Assume a closed economy. a) (12 marks) What are the equilibrium values of C, I, and r? b) (8 marks) What are the values of private saving, public saving, and national saving? 2. In September 1995, Patrick Buchanan, a Republican candidate for president, proposed a 10 percent tariff on Japanese imports to the United States, a 20 percent tariff on Chinese imports to the United States, and an unspecified "social" tariff on imports from third-world countries. a) (10 marks) Use the long-run model of a small open economy to illustrate graphically the impact of these trade policies on the U.S. exchange rate and the trade balance. Assume that the country starts from a position of trade balance, i.e., exports equal imports. Be sure to properly label your graph. b) (10 marks) Based on your graphical analysis, explain the predicted impact of Mr. Buchanan's proposed policies. Specifically state what happens to the exchange rate, the trade balance, the volume of imports, and the volume of exports. 2
Part B: Please use computer answer cards 1. In an economic model: A) exogenous variables and endogenous variables are both determined outside the model. B) endogenous variables and exogenous variables are both determined within the model. C) endogenous variables affect exogenous variables. D) exogenous variables affect endogenous variables.

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ECON202midterm_solutions_Winter_2008 - M idterm 1 ECON202...

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