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 (doublesided) 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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Problem 1:
Core Inflation and NonCore Inflation in the TwoPeriod Economy (30 points).
Two distinct measures of inflation – called core inflation and noncore inflation – generally
attract attention by policymakers and the media.
The core inflation rate is the rate of growth of
prices of socalled “core goods” (such as food, clothing, and shelter), while the noncore
inflation rate is the rate of growth of prices of socalled “noncore goods” (generally energy
items).
Consider our usual twoperiod 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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 Spring '08
 chugh
 Economics, Inflation, representative, representative consumer, noncore goods, period1 noncore consumption

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