Macroeconomics, partial 2 exam, BE202.01
April 08, 2021
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Macroeconomics, partial 2 exam, BE202.01
Problem 1 (4 x 5 = 20 points)
For each of the next cases, does the AD or AS curve shift, and in what direction? Explain briefly.
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The economy of the European Union has entered a recession. The European Union is the US’ largest exports market.
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Productivity increases (without a change in nominal salaries)
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Sharp increase in investments in Medicare (health care spending by the Federal government)
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An increase in personal income taxes (no change in corporate profit taxes)
Answers:
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AD or AS
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Left or Right
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Explanations
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a)
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b)
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c)
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d)
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Problem 2 (2 x 10 = 20 points)
Assume that the economy from fictitious country Haringland has a Marginal Propensity to Consume (MPC) of 0.85, and experiences high economic growth, with historically low unemployment, and rapidly increasing price levels. Assume that prices are flexible, both upward and downward.
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How large a change in taxes is needed to shift the aggregate demand curve leftward by $50 billion? Should the taxes increase or decrease?
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Explain step-by-step how the change in taxes in a) is going to influence prices and real output.
DETAILED ASSIGNMENT
20210408192348be202.01_partial2_exam_v1