Midterm Exam 2 2011

# Midterm Exam 2 2011 - Econ 352 Intermediate Macroeconomics...

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Econ 352 YiLi Chien Intermediate Macroeconomics Spring 2011 2nd Midterm Exam March 30 th Name:________________________

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Part One (25pts) 1. (7 pts) In the 2 nd homework assignment, you downloaded the personal saving rate data from year 1980 to 2009 at BEA webpage. Please briefly describe what you see in this data. 2. (18 pts) Consider an economy as in chapter 3, but with consumption depending on disposable income and the interest rate, i.e., C = C(Y – T, r) . More specifically, we suppose that consumption is an increasing function of Y – T , but a decreasing function of r. (,) Y FKL Y = 0 , 0 ) ( ), , ( < > = r C T Y C r T Y C C 0 ) ( ), ( < = r I r I I T T G G = = , where, T,G,K and L are constant and exogenously given. a. (4 pts) What is the relationship between total saving and interest rate? Plot total saving against r (i.e., the supply of funds) b. (4 pts) Plot the investment function in the same graph. Define the equilibrium interest rate and total saving on the graph. c. (10 pts) Suppose there is an increase in government spending. Use a graph and equations to analyze what happens to consumption, investment, private saving, public saving, total saving and interest rate.
Part Two (75pts) Instruction: In the answer sheet, mark your answer on the test form. Note that you must use pencil no. 2. (3 points each) 1. The unemployment rate announced by Bureau of Labor Statistics is a ______ data. A. weekly B. bi-weekly C. monthly D. quarterly 2. In country A, the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 5 percent per year, and the nominal interest rate is 5 percent. Then, the real interest rate is: A. 2% B. 3% C. 4% D. 5% 3. When a firm sells a product out of inventory, GDP: A. is not changed. B. increases. C. decreases. D. increases or decreases, depending on the year the product was produced. 4. With a Cobb-Douglas production function, the share of output going to capital A. decreases as the amount of capital increases.

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## This note was uploaded on 04/02/2012 for the course ECON 352 taught by Professor Staff during the Fall '08 term at Purdue.

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Midterm Exam 2 2011 - Econ 352 Intermediate Macroeconomics...

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