ECON202midterm_solutions_Winter_2008

ECON202midterm_solutions_Winter_2008 - M idterm # 1 ECON202...

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Midterm # 1 ECON202 Macroeconomic Theory 1 Department of Economics University of Waterloo lnstnlctor: l)erekF)nrre I)ate: Thursday, February 7, 2008 General Instructions 1. 1)0 not turn the page until you are instnlcted. 2. Answer all questions. 3. Each multiple choice question in part B is worth 2 marks. Each short answer question in part A is worth 20 marks. 4. Show and explain all your work for each short answer question. 5. Properly label all graphs. 6. Part A questions written in pencil cannot be remarked ifthere is a dispute. The computer cards for part B should be filled out in pencil. 7. To make it easier to return these midterms in class, while at the same time following the university's privacy policy, you should not put both your name and student number on the cover page. Please put your name on the :first page but your student number on the second page. That way, other students will not see your student number if! let them search through a pile ofmidterms to find their own. 8. The examination will end at 3:45.
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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 ofinterest 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 ofC, I, and r? b) (8 marks) What are the values ofprivate 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 ofa small open economy to illustrate graphically the impact ofthese trade policies on the U.S. exchange rate and the trade balance. Assume that the country starts from a position oftrade 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 ofMr. Buchanan's proposed policies. Specifically state what happens to the exchange rate, the trade balance, the volume ofimports, and the volume of exports. 2
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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. 2. When studying the short-run behaviour ofthe economy an assumption of is more plausible, in contrast to studying the long-run equilibrium behaviour ofan economy, when an assumption of is more plausible. A) inflation; unemployment
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ECON202midterm_solutions_Winter_2008 - M idterm # 1 ECON202...

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