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Unformatted text preview: ECO320L-Macroeconomic Theory Midterm 2 Total 100 points NAME: ............................................................. Some Remarks: 1. Books and notes should be closed. 2. You can use a calculator. Exchange of calculator is not allowed. 3. Do not forget to label axes when you draw a graph. 4. Show your work. Good Luck! Total Exam Grade: (........./100pts) Multiple Choice Questions (........./45pts) (5pts each) 1. The Ricardian equivalence theorem implies that a government debt policy must be handled correctly for the economy to prosper. b the amounts of government spending are neutral. c an increase in government spending has no effect on the economy, as long as there is an equal change in taxes. d the timing of taxes collected by the government is neutral. 2. The government wants to reduce current account deficit. To achieve that it increases current taxes to reduce current government deficit. But it does not change its expenditures. This policy would be successful in reducing current account deficit if a there are international capital inflows and outflows. b there are constraints on the level of government spending. c there are constraints on consumers borrowing. d there are constraints on the level of government taxation. 3. If the substitution effect of the real interest rate on saving is larger than the income effect of the real interest rate on saving, then a rise in the real interest rate leads to a in current consumption and a in saving, for someone whos a lender.in saving, for someone whos a lender....
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- Fall '08