MT2PVersionASol - ECO 320L Spring 2009 Professor Beatrix...

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ECO 320L Spring 2009 Professor Beatrix Paal Midterm 2 name: 3/11/2009 1. Use the following to answer questions a-b: Let a consumer's marginal propensity to consume be 0.2, and the real interest rate be 50%. Assume that the consumer's current income falls by 100 units and future income increases by 240 units. a. (2 points) Calculate the change in the consumer's PVLR. b. (6 points) By how much do the consumer's consumption and saving change? Version A Page 1
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2. Use the following to answer questions a-d: Let a firm's output in 2009 depend on its capital stock in the beginning of 2009 as 2 2009 2009 2009 () 10 10 =− K YK , where capital is measured in constant dollars. Let the real interest rate be 10% and the rate of depreciation of capital be 20%. The firm's capital stock in the beginning of 2008 was 2008 45 = K . a. (2 points) Calculate the marginal product of capital in 2009, as a function of capital. b. (6 points) Calculate the firm's desired capital stock in the beginning of 2009.
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This note was uploaded on 10/25/2010 for the course ECO 320L taught by Professor Kendrick during the Fall '10 term at University of Texas at Austin.

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MT2PVersionASol - ECO 320L Spring 2009 Professor Beatrix...

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