This preview shows pages 1–2. Sign up to view the full content.
Page 1 of 3 Pages
ECON 302
Macroeconomic Theory 2
Instructor: Sharif F. Khan
Department of Economics
University of Waterloo
Fall 2011
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]
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]
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?
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
 Fall '08
 JeanPaulLam
 Economics

Click to edit the document details