a.) Moldavia, an open economy currently in long-run macroeconomic equilibrium, has become concerned about its debt levels and the effects those levels might have on its international financial position. The Moldavian parliament decides to implement austerity measures to bring those debt levels down. Suppose the country cuts government spending to reduce its deficit, and this policy reduces the risk premium on Moldavian assets. Economists also note that in the new long-run equilibrium, the quantity of national savings stays the same. Construct a well-labeled, three-panel diagram (the "trifecta") to analyze the impacts of this policy on the Moldavian economy. The supply curve for loanable funds in Moldavia is upward-sloping; the demand curve for loanable funds in Moldavia is downward-sloping. Specifically, what happens to the following variables in Moldavia as a result of this policy: *The real interest rate *The real exchange rate *The quantity of net exports *The quantity of domestic investment

(i) The fall in the risk premium on Moldavian assets ______ foreigners' demand for Moldavian assets (including Moldavian government bonds), thus ______ bond prices.

A. Decreases ; increasing

B. Increases ; increasing

C. Increases ; decreasing

D. Decreases ; decreasing

a.) Moldavia, an open economy currently in long-run macroeconomic equilibrium, has become concerned about its debt levels and the effects those levels might have on its international financial position. The Moldavian parliament decides to implement austerity measures to bring those debt levels down.


Suppose the country cuts government spending to reduce its deficit, and this policy reduces the risk premium on Moldavian assets. Economists also note that in the new long-run equilibrium, the quantity of national savings stays the same.  

Construct a well-labeled, three-panel diagram (the "trifecta") to analyze the impacts of this policy on the Moldavian economy. The supply curve for loanable funds in Moldavia is upward-sloping; the demand curve for loanable funds in Moldavia is downward-sloping.

Specifically, what happens to the following variables in Moldavia as a result of this policy:


*The real interest rate
*The real exchange rate
*The quantity of net exports
*The quantity of domestic investment

(iii) From your results in (a) above, investment in Moldavia _____ , thus _______ the growth rate of real GDP ( Y ) in Moldavia.

A. Increases ; lowering

B. Increases ; raising

C. Decreases ; lowering

D. Decreases ; raising

• Accounting Information Systems
• Data Analysis
• Honors Business Law
• Supply Chain Management
• Taxation of Entities
• Taxation of Individuals

2. A Survey of 500 women revealed 40% wear flats to work.

Use the sample information to develop a 99% confidence interval estimate for the Population proportion of women who wear flats to work.

Suppose we wish to estimate the proportion of women who wear atheletic shoes to work with a margin of error of ± 0.05 at 98% confidence , determine the sample size required.

You are an economic advisor in a developing country with a fixed exchange rate. While your country has an open capital account, your financial markets remain imperfectly integrated with those of the rest of the world. The central bank in your country targets the stock of domestic credit. One day, an IMF team arrives and convinces the Finance Minister that your country’s fiscal deficit is excessive. The Finance Minister persuades the parliament to pass a tax increase to reduce the deficit. Explain what effect you would expect this measure to have on:

a. The aggregate price level and level of real GDP.

b. The level of employment and the real wage

c. The level of exports, of imports, and of net exports

Romeo lives two periods, and he earns m1 =$10,000 in period 1 and

m2 =$12,000 in period 2, respectively. His utility function is u(c1; c2) = c1*c2.

Answer the following questions.

(a) Suppose that market interest rate is 50% (r = 0:5). Write down

Romeo‘s budget constraint. How much does he save or borrow in period 1?

Calculate. Explain your answer. Draw a diagram, too.

(b) The interest rate goes down from 50% to 25%. What happens his

saving or borrowing? Calculate. Draw a precise diagram. Is this change good

news or bad news?

(c) Now, the interest rate further goes down from 25% to 0%. What

happens his saving or borrowing? Calculate. Draw a precise diagram. Is

this change good news or bad news? Do you notice something interesting?

How does international trade increase welfare for consumers according to a monopolistic competition model with increasing returns to scale? And what trade pattern can this model successfully explain?

Under a monopolistic competition model with increasing returns to scale, how would equilibrium differ when the different varieties are closer substitutes for each other compared to when the varieties are not as close substitutes? Explain

How does a situation in which the central bank targets the domestic interest rate differ from one in which capital mobility is perfect, so that the domestic interest rate is pinned down by uncovered interest parity?

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