Fall 2008 Final Exam

# Fall 2008 Final Exam - Department of Economics University...

This preview shows pages 1–4. Sign up to view the full content.

Department of Economics University of Maryland Economics 325 Intermediate Macroeconomic Analysis Final Exam Professor Sanjay Chugh Fall 2008 December 18, 2008 NAME: The Exam has a total of five (5) questions and pages numbered one (1) through eleven (11). Each question’s total number of points is shown below. Your solutions should consist of some appropriate combination of mathematical analysis, graphical analysis, logical analysis, and economic intuition, but in no case do solutions need to be exceptionally long. Your solutions should get straight to the point – solutions with irrelevant discussions and derivations will be penalized. You are to answer all questions in the spaces provided. You may use two pages (double-sided) of notes. You may NOT use a calculator. Question 1 / 15 Question 2 / 20 Question 3 / 35 Question 4 / 20 Question 5 / 10 TOTAL /100

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
1 1. A National Service Program (15 points) . Consider the following radical policy proposal: rather than taxes being levied on individuals and the proceeds of those taxes being used by the government to fund various programs, suppose that every individual pays no taxes of any kind but must give ten hours of his time every week to national service. Here you will analyze this national service program in the context of the (one-period) consumption-leisure model we have studied. Thus, there are now three uses of the individual’s time: work, leisure, and national service (the mandatory 10 hours). Assume the following: - Instituting the national service program has no effect on any prices or wages in the economy. - Any time spent voluntarily performing national service beyond the required 10 hours is considered leisure. a. (8 points) Using the notation we developed in Chapter 2 (i.e., c to denote consumption, n to denote hours of work per week, l to denote hours of leisure per week, P to denote the nominal price of consumption, and W to denote the nominal hourly wage), construct the representative agent’s (weekly) budget constraint in this model with a national service program. Recall that there are 168 hours in one calendar week. Provide brief economic justification for your work. b. (7 points) Now recall the standard consumption-leisure model with no national service program and suppose that both the consumption tax rate is zero and the labor tax rate is zero. How does the slope of the budget constraint in this economy compare with the slope of the budget constraint in the economy with the national service program in part a? Provide brief economic explanation.
2 2. Monetary Policy in the MIU Model (20 points). In this question, you will analyze, using indifference curve/budget constraint diagrams, the implications of alternative nominal interest rates on the representative consumer’s choices of consumption and real money balances.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 09/07/2011 for the course ECON 325 taught by Professor Chugh during the Fall '08 term at Maryland.

### Page1 / 12

Fall 2008 Final Exam - Department of Economics University...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online