ECO202: Tutorial Worksheet 2
1. Using the multiplier. Consider the following economy (similar to the one described in
I = 150
G = 150
T = 100
Worksheet 1): C = 160 + 0.6YD
a. Consider a decline in real GDP of 2%. How many units of real GDP equal 2% of
equ
ECO202: Tutorial Worksheet 7
1. Consider the following prices for government bonds and foreign exchange in Canada and
the United States. Assume that both government securities are one-year bonds, paying the
face value of the bond one year from now. The ex
ECO202: Tutorial Worksheet 1
1. Suppose that the economy is characterized by the following behavioral equations below.
C = 160 + 0.6YD
I = 150
G = 150
T = 100
a. Solve for equilibrium GDP (Y).
b. Solve for disposable income (Yd)
c. Solve for consumption s
ECO202: Solutions to Worksheet 2
1. Using the Multiplier
a. Equilibrium output is 1000. 2% of 1000 = 20 units
b. Output falls by 20 units. The multiplier in the simple economy is 1/ (1-c1): Y =
(1/ (1-c1)I. Since c1 = 0.6 and Y = -20 , I = -8 I falls by 8
ECO202: Tutorial Worksheet 12
1. Spending Shocks: Using the AS-AD model, show the effects of each of the following
shocks on the position of the WS, PS, IS, LM, AD and AS curves in the medium-run.
Then show the effect on output, the interest rate, and the
ECO202: Tutorial Worksheet 13
1. The estimated Okuns law for Canada is given by u t u t 1 0.33( g yt 3.7%) .
a. What growth rate of output leads to an increase in unemployment rate of 1% per
year? How can the unemployment rate increase though the growth r
ECO202: Tutorial Worksheet 9
1. Consider two fictional economies, one the domestic country and the other the foreign
country. Construct a balance of payments for each country given the following list of
transactions:
a. The domestic country purchased $100
ECO 202: Homework Assignment 2
Due Wednesday, January 4th, 2012 at the start of class.
1. True/False/Uncertain. Read the statements carefully. Decide whether the statement is
true, false or uncertain. Explain your answer. Answers without an explanation wi
ECO202: Solutions to Homework Assignment 2
1. True, False or Uncertain
a. Uncertain, as this statement may be True or False depending on the assumptions made.
If we assume that individuals did not transfer from the employed pool to the
unemployed pool (me
The Science of Macroeconomics
Gross Domestic Product: Expenditure and Income
Two Definitions:
Total expenditure on domestically-produced final goods and services
Total income earned by domestically-located factors of production.
Expenditure equals income
ECO202: Tutorial Worksheet 6
1. Coordination and Fiscal Policy
a. Y = C + I + G + X Q = 20 + 0.8*(Y - 10) + G + 0.3Y*- 0.3Y
Y = [1/(1 - .8 + .3)](12 + G + 0.3Y*) = 2*(12 + G + 0.3Y*) = 44 + 0.6Y*
The multiplier is 2 (=1/(1-.8+.3) when foreign output is fi
ECO202: Tutorial Worksheet 6
1. Consider the following open economy. Suppose is fixed and equal to one.
Consumption, investment, government spending, and taxes are given by:
C = 10 + 0.8(Y T)
I = 10
G = 10
T = 10
Imports and exports are given by:
M = 0.3Y
ECO202: Solutions to Homework 1
1. True/False/Uncertain. Read the statements carefully. Decide whether the statement is true, false
or uncertain. Explain your answer. Answers without an explanation will not receive credit.
a. An increase of one unit in go
ECO202: Solutions to Test 1
1a. False a real appreciation indicates domestic goods are now relatively more expensive and
that foreign goods have become relatively cheaper.
If domestic consumers observe that domestic goods are relatively more expensive tha
ECO202: Solutions to Worksheet 1
1. A Simple Economy
a. Y = 160 + 0.6*(Y 100) + 150 + 150 Y = 1000
b. YD = Y T = 1000 100 = 900
c. C = 160 + 0.6*(900) = 700
2. The Concept of Equilibrium
a. If output is 900 units then total demand= C + I + G = 160 + 0.6(9
ECO202: Tutorial Worksheet 3
1. Suppose that a persons wealth is $50,000 and that her yearly income is $60,000. Also
suppose that her money demand function is given by: Md = $Y(0.35 i). Note: Here the
function we discussed in class, L(i), is replaced by (
ECO202: Solutions to Worksheet 3
1. Money Demand
a. i=0.05: Money demand = $18,000; Bond demand = $32,000
i=0.10: Money demand = $15,000; Bond demand = $35,000
b. Money demand decreases when the interest rate increases because bonds, which
pay interest, b
ECO202: Tutorial Worksheet 4
1. A bond promises to pay $100 in one year.
a. What is the interest rate on the bond if its price today is $75? $85? $95?
b. What is the relation between the price of the bond and the interest rate?
c. If the interest rate is
ECO202: Solutions to Worksheet 4
1. Bonds and the Interest Rate
a. i=(100/$PB) - 1; i (rounded) = 33% ; 18% ; 5% when $PB =$75; $85; $95.
b. Negative.
c. $PB =100/(1.08) $93
2. The Multiplier Revisited
a. Y=[1/(1-c1)]*[c0-c1T+I+G]
The multiplier is 1/(1-c
ECO202: Tutorial Worksheet 5
1. Suggest a policy mix to achieve the following objectives:
a. Increase Y while keeping i constant.
b. Decrease the deficit while keeping Y constant. What happens to i? To
investment?
2. Consider the following prices for gove
ECO202: Solutions to Worksheet 5
1. Policy Recommendations
a. Fall in T shifts IS right. Increase in M shifts LM right. Output could increase
without an increase in the interest rate
b. A contractionary fiscal policy (IS left) would decrease the deficit e
ECO202: Solutions to Worksheet 7
1. Interest Parity
a. The nominal return on the Canada bond is 10,000 / (9615.38) 1 = 4%. The nominal
return on the US bond is 5%.
b. Uncovered interest parity implies that the Canadian dollar is expected to appreciate by
ECO202: Tutorial Worksheet 8
1. Consider the following IS and LM equations in the open economy:
Ee
IS : Y C (Y T ) I (Y , i ) G NX Y , Y *,
1 i i *
M
LM :
YL(i )
P
a. Show the effect of a decrease in foreign output Y* on domestic output Y. Explain
in wo
ECO202: Solutions to Worksheet 8
1. The Effects of Changes in Foreign Variables
a. IS shifts left, because domestic exports fall given any exchange rate (and hence
any value of the interest rate). Output falls.
b. E increases, given any value of the home
The Focus of Macroeconomics
Macroeconomics focuses on the behaviour of Key Macroeconomic Variables
including:
Real GDP a measure of aggregate output, income, and spending (under certain
assumptions)
Inflation Rate a measure of how fast prices, in general,
National Income: Where it Comes From and Where it Goes
Outline of Model
A closed economy, market-clearing model
Supply side
o factor markets (supply, demand, price)
o determination of output/income
Demand side
o determinants of C, I, and G
Equilibrium
Chapter 9
In this chapter, you will learn:
Facts about the business cycle
How the short run differs from the long run
An introduction to aggregate demand
An introduction to aggregate supply in the short run and long run
How the model of aggregate demand a
Macroeconomics Theory and Policy
Exchange Rates in the Medium Run
Chapter 13
Masoud Anjomshoa
1
Flexible Regime):
Open Economies in Medium Run (Flexible Regime
IS : Y
co
I (Y , i ) NX Y , Y * ,
c1 ( Y T ) G
EP *
P
ML
LM :
M
P
Y L( i )
UIP : i i *
AD :
Ee