midterm2_2005fall - ECO320L-Macroeconomic Theory Midterm 2...

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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. Good Luck! 1
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TOTAL GRADE: [. ......... /100] Multiple Choice Questions (3pts each) 1. A distortionary tax is a tax that a can be avoided by strategic behavior. b does not depend on the actions of the economic agent being taxed. c does not depend on the actions of the government. d depends on the actions of the economic agent being taxed. 2. 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 who’s a borrower. a fall; fall b fall; rise c rise; rise d rise; fall 3. 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. 4. If the government cuts taxes today, issuing debt today and repaying the debt plus interest next year, a rational taxpayer will a spend the full amount of the tax cut today and reduce consumption next year. b
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midterm2_2005fall - ECO320L-Macroeconomic Theory Midterm 2...

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