ECON302_Assignment8_F11_Sol

ECON302_Assignment8_F11_Sol - ECON 302 Macroeconomic Theory...

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Page 1 of 4 Pages ECON 302 Macroeconomic Theory 2 Instructor: Sharif F. Khan Department of Economics University of Waterloo Fall 2011 Suggested Solutions to Assignment 8 (Optional) Read each part of the question very carefully. Show all the steps of your calculations to get full marks, unless it is mentioned otherwise. 1. Consider the real intertemporal model with investment which is developed in Chapter 9 of the textbook (3 rd Canadian ed.). a) Explain the effect of a temporary increase in government expenditure on the total demand for goods in the current period. Show that the expenditure multiplier for government spending in this model is 1. Compare the expenditure multiplier of this model with that of the Kenynesian cross analysis. Why are they different? [Diagrams required] See Figure 9.20 and Pages 316-318 of the textbook (3 rd Canadian ed.). b) Explain the equilibrium effects of a temporary increase in government expenditure on current employment, real wage rate, real interest rate, current real output, current consumption, and investment expenditure. [Diagrams required] See Figure 9.21 and Pages 318-320 of the textbook (3 rd Canadian ed.). c) Explain why the equilibrium real output multiplier for government spending in this model less than 1. Compare the equilibrium real output multiplier of this model with that of the Kenynesian cross analysis. Why are they different? [Diagrams required] See Figure 9.21 and Pages 318-319 of the textbook (3 rd Canadian ed.).
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This note was uploaded on 02/05/2012 for the course ECON 302 taught by Professor Jean-paullam during the Fall '08 term at Waterloo.

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ECON302_Assignment8_F11_Sol - ECON 302 Macroeconomic Theory...

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