Solutions_Outlines_for_Midterm_2_ECON202

Solutions_Outlines_for_Midterm_2_ECON202 - = 0 Note There...

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Solutions Outlines for Midterm #2 ECON202 Winter 2009 Part A Question 1: For the answer to this question, please see pages 371-373 of the textbook or slides 23-25 of chapter 12 (the notes to the slides are useful in explaining the institution of the graphs). Question 2: (a) AE = C + I + G = 200 + (2/3)( Y T ) + I + G = 200 + (1 500 − 300) + 300 + 300 = 800 + (1 200) = 800 + 800 = 1 600. AE = 1 600 > 1 500 = Y . There will be inventory decumulation of 100. Y * should be higher. (b) Y* = C + I + G = 200 + ( Y* T ) + I + G = 200 + ( Y* − 300) + 300 + 300 = 800 − 200 + Y = 600 + Y (1/3) Y* = 600 Y * = 1800 (c) C* = 200 + ( Y* T ) = 200 + (1 800 – 300) = 200 + (1 500) = 200 + 1 000 = 1 200 Public savings = T G = 300 − 300 = 0 National savings = Y * − C T = 1 800 − 1 200 − 300 = 300 Private savings = National savings − Public Savings = 300 − 0
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Unformatted text preview: = 0 Note: There are other ways you could find national savings besides the above. (d) It is easiest to answer the second part of this question first. Given C = 200 + ( ⅔ Y – T ), Δ C = Δ ⅔ Y . Thus, MPC = . Thus, the multiplier is ⅔ 3 3 / 1 1 3 / 2 1 1 1 1 = =-=-= ∆ ∆ MPC G Y Thus, if G is reduced to 200 (a reduction of 100), Y * will go down by 300 (−100 × 3). Question #3 Your graph should look something like figure 11-2 on page 333 of the textbook (or your notes for slide 6 of the PowerPoint slides for chapter 11). Your explanation should be similar to the accompanying text. Part B 1. B 2. A 3. C 4. D 5. D 6. D 7. C 8. B 9. C 10. D 11. A 12. D 13. C 14. A 15. A 16. C 17. B 18. B 19. A 20. A...
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