325_Fall2010_MidtermExamPart1

# 325_Fall2010_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 2010 October 12, 2010 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 / 20 Problem 2 / 30 TOTAL PART 1 / 50 TOTAL PART 2 / 50 TOTAL / 100

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1 Problem 1: European and U.S. Consumption-Leisure Choices (20 points). Europeans work fewer hours than Americans. There are likely very many possible reasons for this, and indeed in reality this fact arises from a combination of many reasons. In this question, you will consider two reasons using the simple (one-period) consumption-leisure model. a. (10 points) Suppose that both the utility functions and pre-tax real wages / WP of American and European individuals are identical. However, the labor income tax rate in Europe is higher than in America. In a single carefully-labeled indifference-curve/budget
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## This document was uploaded on 11/01/2011 for the course ECON 325 at Maryland.

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325_Fall2010_MidtermExamPart1 - Department of Economics...

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