325_Fall2009_MidtermExamPart1 - Department of Economics...

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Department of Economics University of Maryland Economics 325 Intermediate Macroeconomic Analysis Midterm Exam – Part 1 Professor Sanjay Chugh Fall 2009 October 13, 2009 NAME: Part 1 of the Exam has a total of two (2) problems and pages numbered one (1) through six (6). Each problem’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 one page (double-sided) of notes. You may not use a calculator. Problem 1 / 30 Problem 2 / 20 TOTAL PART 1 / 50 TOTAL PART 2 / 50 TOTAL / 100
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1 Problem 1: Core Inflation and Non-Core Inflation in the Two-Period Economy (30 points). Two distinct measures of inflation – called core inflation and non-core inflation – generally attract attention by policy-makers and the media. The core inflation rate is the rate of growth of prices of so-called “core goods” (such as food, clothing, and shelter), while the non-core inflation rate is the rate of growth of prices of so-called “non-core goods” (generally energy items). Consider our usual two-period economy (with no government), in which the representative consumer has no control over his nominal income. Rather than there being only one “type” of good the consumer purchases each period, however, suppose that each period there are two
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325_Fall2009_MidtermExamPart1 - Department of Economics...

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