Midterm2sample1 - CORNELL UNIVERSITY Professor Levon...

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CORNELL UNIVERSITY Professor Levon Barseghyan Econ 302 Second Mid-Term Exam The answers should be short and straight to the point. First provide the answer, and then briefly explain how you got this answer. 1. (30 points) Suppose that the price level is fixed in the short run so that the economy doesn't reach general equilibrium immediately after a change in the economy. For each of the following changes, what are the short run effects on the real interest rate and output? Assume that in the short run firms are willing to produce enough output to meet the aggregate demand for goods. Assume that the goods market and asset market are always in equilibrium. Hint: use the aggregate demand and supply or IS-LM apparatus developed in class to figure what happens to output after the change. If you are using AD-AS framework, also use the asset market equilibrium condition to figure out what must happen to the interest rate in order for demand and supply of real balances to equal each other. a.
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Midterm2sample1 - CORNELL UNIVERSITY Professor Levon...

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