Econ202_final_07 - NAME Sabancı University ECON 202...

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Unformatted text preview: NAME: Sabancı University ECON 202 / MACROECONOMICS Spring 2007 / Section C FINAL EXAM June 15 CLOSED BOOK AND NOTES ANSWER ALL QUESTIONS TOTAL TIME: 120 minutes Q (1) Q (2) Q (3) Q (4) Q (5) Q (6) TOTAL 2 Question (1) Consider a closed economy that experiences an adverse supply shock. The shock is expected to be permanent, and it lowers the full-employment level of output. Doing an IS-LM-FE analysis and assuming fully flexible wages and prices, determine the effects of the supply shock on the real interest rate and the price level. Note: Consider all possibilities if the effects are ambiguous. 3 Question (2) What is the effect of an increase in G (the government purchases of goods and services) on Y FE (the full- employment level of real GDP) according to (a) classicals economists, (b) Keynesian economists? In each part, explain and justify your answer by referring to demand and supply in the related market(s) in the economy. Also, consider different possibilities of how the increase in G is financed. 4 Question (3) Consider an economy in which (1) firms employ labor along the aggregate demand for labor curve which describes the amount of labor demanded as a decreasing function of the real wage rate, (2) nominal wage rates change only slowly because labor contracts fix the nominal wage rate for a few years, (3) prices of goods and services are flexible, and (4) when labor contracts are rewritten in the long run, nominal wage rates are adjusted to catch up with prices (so that, in the long run, the real wage rates are brought back to a certain real wage value w*)....
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This note was uploaded on 03/16/2012 for the course FENS 101 taught by Professor Selçukerdem during the Fall '12 term at Sabancı University.

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Econ202_final_07 - NAME Sabancı University ECON 202...

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