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midterm2_2010_2011_sample_2 - University of Toronto...

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Unformatted text preview: University of Toronto Mississauga Department of Economics ECO 209Y - Macroeconomic Theory and Policy Prof. Kambourov Term Test 2 Sample Questions — ll 1. In the monetary intertemporal model, suppose that the money supply is fixed for all time. (a) Determine the effects of a temporary decrease in the quantity of government purchases on current equilibrium output, employment, the real wage, the real interest rate, the nominal interest rate, and the price level. Explain your results. (b) NOW, suppose that the decrease in government spending is permanent. How does this change your answers from part (a)? Explain. 2. Explain What the Friedman Rule is and carefully provide the intuition for this fundamental result. Suppose that the government could pay interest on money held from this period to the next7 and that this interest on money is the same as the market interest rate on nominal bonds. Will then the economy achieve an efficient allocation or not? Explain. ' 2 6 Explain what the Friedman Rule is and carefully provide the intuition for thisfundamental result. Suppose that the government could pay interest on money held fi-om this period to the next, and that this interest on money is the same as the market interest rate on nominal bonds. Will then the economy achieve an efficient allocation or n0t?EXplain. In “’12 'Wto'me “mm on)! moo/elf " 5 "£5 dNbT MLTc“ 6““ :fi 4) 15f 2 M > cic‘” . 6cm" . - 5/6 HR’ .. — 12:“ M NH} w. :w gr) 11 ll >0 => mastic... U” '46 - W “t “£5 = f I .e 0.54%] 46“ HR: 1 M # m Ffleaitum But/C a mk' 23w! #0 41* rt 23 ' I - . ' (a ' , t - ) flu {MA/mm ;wwzonfj 1:?“ng )Jsk ) if” ~ SW. I , Wt N’M/l m Zfiiciem‘ lam-gem, ‘ mm; » Z111 ‘ ‘ . . r ' W \M V lif'm‘m, Tl’é‘f fiififif mfjf won/d L2, in? swim. ' r would; wad»! Mal fl? oyw' moan? w ‘ ,aw/ In”; «6%e‘cut' Mcmh‘en wet/ale LI ' 9% OWE ...
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