ECON302_Assignment8_F11

ECON302_Assignment8_F11 - ECON 302 Macroeconomic Theory 2...

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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?
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ECON302_Assignment8_F11 - ECON 302 Macroeconomic Theory 2...

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