11F_Mid2_Sol - ECONOMICS 204 PAGE NUMBER 1 UNIVERSITY OF VICTORIA ECONOMICS 204 ANSWERS MIDTERM 2 FALL 2011 Section 1(20 marks Answer ALL 20

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ECONOMICS 204 PAGE NUMBER 1 UNIVERSITY OF VICTORIA ECONOMICS 204 ANSWERS MIDTERM 2 – FALL 2011 Section 1 (20 marks) Answer ALL 20 multiple-choice questions. 1. B 2. C 3. B 4. A 5. D 6. B 7. A 8. A 9. C 10. C 11. D 12. B 13. C 14. D 15. B 16. C 17. A 18. B 19. A 20. C Section 2 (20 marks) Answer BOTH questions. 1. Given: Output (Aggregate production function) ± ²³´ µ ¶ · ¸ ¹ Consumption º ± º³ » ¼¹ Investment ½ ± ½³¾¹ Net export ¿À ± ¿À³Á¹ Government policies  ±  à ¶ ¼ ± ¼ ¸ National account identity ± º Ä ½ Ä Â Ä ¿À ; Interest rate ¾ ± ¾ Å (a) Define in a diagram: trade deficit, i.e. NX < 0 (i) From national account identity we have ¿À ± ³ » º » ¹ » ½ ± Æ » ½ (ii) Assumption of small open economy implies ¾ ± ¾ Å (iii) Solve the model: ¿À ± Æ » ½³¾ Å ¹ +0.5 Given: Æ Ç ½³¾ Å ¹ implies ¿À ± Æ » ½³¾ Å ¹ Ç È +0.5 +1 for clear labeling; +0.5 for indicating r * is below r c (a.k.a. the Autarky interest rate r A – the equilibrium interest rate in a closed economy); +0.5 for indicating NX < 0 as the difference between saving and investment at r * . (b) Define in a diagram: equilibrium real exchange rate.
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This note was uploaded on 01/27/2012 for the course ECON 204 taught by Professor Beryl li during the Spring '11 term at University of Victoria.

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11F_Mid2_Sol - ECONOMICS 204 PAGE NUMBER 1 UNIVERSITY OF VICTORIA ECONOMICS 204 ANSWERS MIDTERM 2 FALL 2011 Section 1(20 marks Answer ALL 20

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