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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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posted:8/11/2011
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