ECMC61_Sample_Midterm - ECMC61 Sample Midterm Questions The...

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ECMC61 Sample Midterm Questions The followings are collections of part midterm questions. These questions are compiled from different midterms (the total marks do not add up to 100) and are for your practice only. You should also practice the review questions and assignment. Instructions: Answer all questions. Point form is acceptable. Re-grade will not be done for penciled answer. You must submit this question sheet with your examination booklet(s) in order to receive the grade. If the question has more than one part, label each part of your answer. Latter part(s) of the question will not be graded if you failed to label your answer. Do not write E/q/E e increases/decreases in your answer, you have to answer whether the currency appreciates/depreciates. POINTS WILL BE SUBTRACTED IF YOU DO NOT FOLLOW THIS INSTRUCTION . Label your graph; otherwise, marks will be subtracted. No credit will be given if you do not show your work. Your answer should be structured in a way such that those know little about economics will have no difficulty understanding your argument/answer. Question 1 (15 points) The world consists of two open economies only, FinCity and TradeTown. The following table provides some macroeconomic data for these countries. FinCity TradeTown Gross domestic products 7500 Consumption 9000 Investment Government spending 3000 Current Account Non-reserve portion of financial account Official reserve transactions 300 Capital account 0 0 Note: Empty cell only means the data is not given in the question. Additional information given about both economies: In FinCity, consumption, investment, and government spending represent 75%, 15%, and 20% of the economy’s output respectively. The level of GDP in TradeTown is two times of FinCity’s GDP. The level of investment in TradeTown equals to 15% of its GDP. The stock of official reserves of TradeTown increase by 300. a) Fill in the empty cells of the above table (The table is reproduced in the answer sheets). No need to show your work. (10 points) b) Which economy runs a current account deficit? Is running a current account deficit a problem? Explain. (5 points) 1
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Question 2 (10 points) a) Is it possible for a country to have a current account deficit and at the same time it has a surplus in its balance of payments? Explain (Hint: you don’t have to answer what happens to the official reserve transactions). (4 points) b) What are the implications of current account deficit? Is it a problem if a country runs a CA deficit? Explain. (6 points) Question 3 (10 points) “An increase in national saving leads to a current account improvement.” True/False/Uncertain, explain. Question 4 (15 points)
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This note was uploaded on 12/21/2011 for the course ECONOMICS ECMC61 taught by Professor Dr.irisau during the Fall '11 term at University of Toronto.

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ECMC61_Sample_Midterm - ECMC61 Sample Midterm Questions The...

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