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ESSAYS: A. In microeconomics, the following four factors are considered to be the sources for market failure: Monopoly, Asymmetric information, Externality and Public goods. Please define each of them clearly and in each case, explain why the competitive market does not operate efficiently. B. The world economy is facing large current-account imbalances across major economies, featuring a large current-account deficit of about $800 billion of the United States, matched by an equivalent amount of surplus in a group of economies in Asia, Europe and the oil-exporting countries. The sustainability of the imbalances and how the imbalances could be reversed are major policy concerns. Please write an essay to analyze this issue by focusing on the following points. (1) From the national account framework as follows, show the economic relationship among current-account balance, government budget balance and the gap between investment and savings in the private sector of the economy. GDP = I + C + G +X –M GDP—Gross domestic product I—Gross investment C—Private consumption G—Government expenditure X—Exports M—Imports You may introduce other variables when you derive the relationship, but you should define each new variable clearly. (2) Discuss, in detail: a) the role of exchange rate in causing as well as in adjusting the global imbalances; b) the role of saving and investment behaviors across countries in determining the imbalances; c) the role of macroeconomic policies in determining the imbalances; and d) the policy proposals that can reduce the global imbalances while at the same time avoid any significant contraction in the world economy. C. Please write an essay about the role of technology in determining economic growth. Please focus on the following issues: How is technological progress treated or modeled in the neoclassical growth model? What are the deficiencies of this way of modeling? How do new growth models try to model technological progress? What are the merits and demerits of new growth models’ treatment (modeling) of technological progress? What are the policy implications?
2. a) b) c) d) e) variable costs fixed costs average costs average fixed costs marginal costs If the unit price for y is p. precisely. please define on the figure above (redraw the figure on your answer booklet) the new equilibrium after these two countries open their trade with each other. These two countries have the same indifference curve (with the same tastes). Given the firm’s cost function. 2 . namely at autarky. please derive the following different concepts of cost. By the classic Heckscher-Ohlin trade theory of comparative advantage. in terms of p? Given the cost function above and the unit price p. Before they trade with each other. Briefly evaluate their arguments and provide an assessment. in terms of changes in the production and consumption of these two countries from autarky. country A’s equilibrium between production and consumption is at E1 and country B at E2. c(y) = y2 + 1 . Several prominent economists. please determine the optimal output that maximizes the profit of the firm. and elaborate the key feature of the new equilibrium. including recent Nobel Prize winner Paul Krugman. x and y). 3.2009 Sample Examination (P-2) ECONOMICS QUESTIONS: 1. Alwyn Young and others have suggested that the fast economic growth of the East Asian economies is not sustainable in their work of the early 1990s. where y is output. Y A E1 E2 B X The figure above depicts the production frontiers for country A and B respectively (with two products. what is the profit function for the firm.
u follows iid normal distribution. Give a very brief discussion of its use in macroeconomic analysis.λxt-1 ) + γ ∆ xt +ut where ∆ is the first difference operator. I is investment. Please use the framework below to define the following 2 (two) cases: (you should redraw the framework for each scenario on the answer booklet): (a) By assigning numbers to replace XX as “payoff” so that the game will have one. 6. P is the price level and the letters in lower case are coefficients. what will be the different effects on consumer’s welfare? 7. that is. only two consumption goods. But. Suppose initially the consumer’s budget constraint is: P1 X 1 + P2 X2 = Y. Suppose the government wishes to tax a utility-maximizing consumer to obtain a certain amount of revenue. The government can either impose a sales tax on consumption goods « 1 » or impose a tax on income. M is demand for money. Player B Player A Left Top XX Bottom XX 5.2009 Sample Examination (P-2) ECONOMICS 4. for the same amount of tax revenue.hR)P where Y is income. and all the other Greek letters are coefficients . G is government spending. Define the IS and the LM curves in algebraic form and in graphical form.dR M=(kY . C is consumption. The following framework of model specification for the relationship among variables y and x (x can be a vector) has become popular since the 1990s: ∆ yt = α + β (yt-1 . Given an economy defined as follows: Y= C + I + G C= a + bY I= e . What is the common name for this framework? What is the meaning of λ? What kind of relationship is implied in this model for y and x in both long run and short run? Right XX XX 3 . and only one Nash Equilibrium (b) By assigning numbers to replace XX as “payoff” so that the game will have no Nash Equilibrium Please explain clearly in each of the answers above.
exchange rate regime and monetary policy flexibility.2009 Sample Examination (P-2) ECONOMICS 8. or the so-called “inconsistent trinity”. or the “open-economy tri-lemma”. 4 . Discuss briefly the limitations on the relationship among the following three factors: open capital market.