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

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Econ 352 YiLi Chien Intermediate Macroeconomics Spring 2011 2nd Midterm Answer Part One (25 pts) 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. The personal saving rate gradually drops from more than 10% in 80’s to almost zero in year 2007. After financial crisis, the saving rate starts to increase. 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 = = , a. (4 pts) Define total saving in this economy. 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.

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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 Answer 2011 - Econ 352 Intermediate...

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