Time: Wednesday, March 16, 11:00 – 12:15.
Closed-book, closed-note exam
30 multiple-choice questions and 4
No laptop computer nor cell phone
Calculators are allowed
The equilibrium output, income and spending
at the aggregate level
Private consumption and investment
Equilibrium real wage and real interest rate
Price level and inflation
Trade balance and capital flow, exchange
The Circular Flow of Income
Macroeconomics studies the joint determination
of a set of important aggregate variables.
Firms can’t sell more than what households
Households can’t buy more than what the firms
can potentially produce.
Purchases generate income (labor and capital
total output = total income = total spending
The economy achieves the aggregate
equilibrium through adjustment of key prices:
real wage, real interest rate, real exchange rate
Nominal price is just a unit of measurement
($/per output) and is determined by money
supply via the Quantity Theory equation.
Definitions and measurements in Chapter 2
The basic analytical model in Chapter 3 and 4.
Chapter 5 extends to an open economy
Chapter 6 considers various frictions in labor
market that can lead to unemployment
This analysis (or the classical theory) applies to
What are the total output, national income and
What are the equilibrium consumption, saving
What are the equilibrium real wage and real
What is the price level?
To determine price level, we need:
Now add international trade
Question 2 of Chapter 5
Y = 5,000
G = 1,000
T = 1,000
C = 250 + .75(Y-T)
I = 1,000 – 50r
NX = 500 – 500
r = r* = 5