1
Name:
Economics 320L, Fall 2017
Midterm 1
Please put all papers away.
No calculators, no cell phones, no computers:
nothing electronic is allowed.
The exam is scheduled for 80 minutes.
There are 80 points total on the exam.
WRITE NEATLY
.
Part 1:
Definitions (2 points each)
1)
Ricardian Equivalence:
2)
Tobin’s
Q
3)
Random Walk Hypothesis:
4)
Money Multiplier:
5)
Intensive margin of labor supply:
:

2
Part 2:
Long Question on IS-LM Model
(20 points total)
I-
IS-LM Analysis
a)
Draw the IS-LM diagram and illustrate the effects of a decrease in money technology (
MT
on the interest rate and output.
Be sure to label each axis and curve, as well as equilibrium
values.
(5 points)
b)
Using your answer to part a), demonstrate how a decrease in money technology will affect
consumption, investment, and savings.
Show all of your work.
(5 points)
)

3
c)
What happens to consumption, investment, interest rates and production during an average
U.S. recession?
How does this compare to your answers in parts a) and b) of this question?
What does this tell you about whether changes in money technology are to blame for past US
recessions?
(5 points)
d)