W2008 - Solution to Test 2 - ECO209 - December 5, 2008

W2008 - Solution to Test 2 - ECO209 - December 5, 2008 -...

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Page 1 of 11 Department of Economics Prof. Gustavo Indart University of Toronto December 5, 2008 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test # 2 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the course : L5101 L0301 L0401 M – 6-8 W – 2-4 R – 2-4 INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. Aids allowed: a simple , non-programmable calculator. 3. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I /36 Part II /16 Part III 1. /12 2. /12 3. /12 4. /12 TOTAL /100 SOLUTIONS
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Page 2 of 11 PART I (36 marks) Instructions : Multiple choice questions are to be answered using a black pencil or a black or blue ball-point pen on the separate SCANTRON sheet being supplied. Be sure to fill in your name and student number on the SCANTRON sheet! Each question is worth 3 marks. No deductions will be made for incorrect answers. Write your answers to the multiple choice questions ALSO in the table below. You may use this question booklet for rough work, and then transfer your answers to each multiple choice question onto the separate SCANTRON sheet. Your answers must be on the SCANTRON sheet. In case of a disagreement, the answer to be marked is the one on the SCANTRON sheet. 1 2 3 4 5 6 7 8 9 10 11 12 E D B B C C B D B C A E 1. Suppose that income per capita in Mexico is 45,000 pesos and that the nominal exchange rate for Mexican pesos is 0.10. Further suppose that a given consumption basket of goods and services costs $2,250 in Canada and 15,000 pesos in Mexico. Using the PPP exchange rate, income per capita in Mexico is A) $4,500. B) $6,000. C) $7,500. D) $9,250. E) None of the above. 2. When the economy is in a liquidity trap, expansionary monetary policy is ineffective with respect to income because A) investment is insensitive to changes in the rate of interest. B) the public already holds all the money they want. C) the real demand for money is insensitive to changes in the rate of interest. D) the public is willing to hold any amount of money being offered at the current rate of interest. E) none of the above. 3. Consider a fixed price model of a closed economy. A reduction in savings at each level of disposable income will A) shift the IS curve to the left. B) shift the IS curve to the right. C) shift the LM curve down. D) shift the LM curve up. E) leave both the IS and the LM curves unchanged.
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Page 3 of 11 4. The BP curve will be flatter A) the larger is the marginal propensity to import. B) the larger is the interest responsiveness of capital flows. C) the larger is the money supply. D) the larger the marginal propensity to consume. E) the smaller the interest sensitivity of investment. 5.
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This note was uploaded on 04/26/2011 for the course ECON 209 taught by Professor Indart during the Fall '06 term at University of Toronto.

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W2008 - Solution to Test 2 - ECO209 - December 5, 2008 -...

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