# midterm

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```					             Midterm Exam
 Time: Wednesday, March 16, 11:00 – 12:15.
 Closed-book, closed-note exam
 30 multiple-choice questions and 4
numerical/analytical questions
 No laptop computer nor cell phone
 Calculators are allowed
Topics covered
 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
rate
 Unemployment
The Circular Flow of Income
Key points
 Macroeconomics studies the joint determination
of a set of important aggregate variables.
 Firms can’t sell more than what households
demand.
 Households can’t buy more than what the firms
can potentially produce.
 Purchases generate income (labor and capital
income)
 total output = total income = total spending
Key points
 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.
Key points
 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
the long-run.
An Example

Equilibrium
 What are the total output, national income and
total purchases?
 What are the equilibrium consumption, saving
and investment?
 What are the equilibrium real wage and real
interest rate?
 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

```
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 views: 55 posted: 8/11/2011 language: English pages: 10