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Transcript

Midterm Exam 2003 Question 1 Discuss two of the following: a) Paasche and Laspeyeres Indices b) Paradox of thrift c) The money multiplier Question 2 Consider the following numerical version of the IS-LM model: C = 296+0.6YD YD = Y-T Y = tY t = 0.4 I = 200+0.2Y-1000i G=200 (M/P)d = 0.5Y-2500i (M/P)s = 500 a) b) c) c) e) g) h) i) Find the equation for the IS curve Find an equation for the LM curve Solve for equilibrium output (Y) and the equilibrium interest rate (i). Solve for the equilibrium levels of consumption (C) and investment (I). Now assume that the government decides to increase the tax rate (t) to 60%, calculate what happens to the equilibrium values of Y, i, C and I. Using diagrams show graphically the impact of this policy on output and the interest rate. Explain in words how this policy affects output, interest rates, investment and consumption. Setting all variables back to their original levels, calculate the new equilibrium values for Y, i, C and I if the Central Bank increased the money supply from 500 to 600. Using diagrams, show graphically the impact of this policy on output and the interest rate. Explain in words how this policy affects output, interest rates, investment and consumption. Question 3 The data below corresponds to the Austrian economy in 2002. The numbers are given at current prices and in billions of Euros. GDP at market prices Gross operating surplus and mixed income (Profit) Taxes less subsidies on production Gross investment expenditure Government consumption Exports of goods and services Imports of goods and services Balance of primary income to the rest of the world Balance of current transfers to the rest of the world Consumption of fixed capital (Depreciation) 218.4 80.0 26.5 48.9 40.7 115.2 110.4 2.0 1.7 32.2 Compute the following: (i) wages and salaries (ii) consumption of households (including non-profit institutions serving households) (iii) current account balance (iv) capital account balance (v) gross national income (vi) net national income (vii) net national disposable income (viii) net domestic product (ix) net domestic product to factor costs and net national product to factor costs