M3 S3 - SCARBOROUGH COLLEGE, UNIVERSITY OF TORONTO...

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SCARBOROUGH COLLEGE, UNIVERSITY OF TORONTO Department of Economics ECMA05: Principles of Macroeconomics Midterm #3: March 27, 2008 Duration – 1 Hour Aids Allowed: Non-programmable calculators only Time Allowed : 1 Hour The total marks in this test are 50. The test is divided into two parts: Part I - problem format - is worth 40 marks (40 of the total mark of 50) Part II - multiple choice- is worth 10 marks (10 of the total mark of 50) (5 multiple choice questions worth 2 marks each) Show your work where applicable . Please use pen instead of pencil . Print your name and student number clearly on the front of the exam and on any loose pages. Name: . (Family Name) (Given Name) Student # : . There are 5 pages to the exam. - 1/5 -
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ECMA05 : Midterm Test #3, March 27, 2008 Name: ______________________ Part I: Place your answers (and work where necessary) in the space provided. Clearly label all axes, curves, and points. 1. Spending and Monetary Equilibrium: Fiscal Policy (10 marks) Use an AE/Y, Md/Ms, and MEI diagram to show the impact on equilibrium income, the interest rate, and investment of an increase in government spending. Be sure to demonstrate ‘crowding out’. Label your axes carefully and use different subscripts to distinguish between the original equilibrium (‘o’) and subsequent changes. AE AE Y/GDP Mo Mdo r r I M/P ro Io Yo r1 Md1 I1 Y1 AE2 AE1 1 mark: initial equilibrium ro at intersection of vertical Ms and downward sloping Md 1 mark: initial equilibrium Io from downward sloping MEI at ro 1 mark: initial equilibrium Yo from intersection of positively sloped AEo and 45 0 line 1 mark: an initial increase in AE (AE1 say) 1 mark: increase in equilibrium Y to Y1 (say) > Yo at AE1 intersect the 45 degree line 1 mark: an increase in Money Demand 1 mark: an increase in r to r 1 > ro at MD 1 interesect Ms(Mo) 1 mark: I1 < Io from negatively sloped MEI at r1 1 mark: a fall back of AE between AEo and AE1 1 mark: Y (not shown) between Yo and Y1 from 45 degree line and the middle AE - 2/5 -
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ECMA05 : Midterm Test #3, March 27, 2008 Name: ______________________ 2. Monetary Demand and Supply Equations (15 marks) Suppose that the following equations describe an economy (r is in decimal form). Money Demand:
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M3 S3 - SCARBOROUGH COLLEGE, UNIVERSITY OF TORONTO...

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