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Unformatted text preview: ECON 1210 - Intermediate Macroeconomics January 23, 2009 Final The exam is made of 10 short answer questions, each worth 10 points. You have 80 minutes (1h20m). Points add up to 100. You are given two blue books. Please use the first blue book for the first 5 questions (1-5) and the second blue book for the the last 5 questions (6-10). Good Luck. 1 [10 Points] Problem: 1. Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label: (i) the axes; (ii) the curves; (iii) the initial equilibrium values; (iv) the direction curves shift; and (v) the terminal equilibrium values. 2. State in words what happens to: (i) the real interest rate; (ii) national saving; (iii) investment; (iv) consumption; and (v) output. 2 [10 Points] Problem: The Federal Reserve has three tools to control the money supply: open- market operations, the discount rate, and reserve requirements. 1 1. How should each instrument be changed if the Fed wishes to decrease the money supply? 2. Will the change affect the monetary base and/or the money multiplier? 3 [10 Points] Problem: 1. In April 1995, Michel Camdessus, managing director of the Interna- tional Monetary Fund (IMF) criticized U.S. economic policy for allow-tional Monetary Fund (IMF) criticized U....
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