ECON482 Midterm: ECON 482 UofA E482B1A212
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This assignment will be marked out of 350. The maximum number of marks that can be earned on a question is given in brackets next to the question. Your answers should be concise and to the point. Aggregate supply: yt = y rt + (gt - g ) + t, rt = (et-1pt pt-1) + (et-1yt yt-1), yt - y = (pt et-1pt) + ut, = expenditure shock, v =government expenditure shock, pt = the price level in period t, Et-1 = expectation taken knowing all period t-1 information. The subscript t indicates the value of the variable in period t. The variables ut, vt and t are exogenous mean zero independent stationary random variables with variances. Find an equation for the equilibrium value of et-1pt as a function of exogenous variables and parameters only as well as, perhaps, the lagged values of yt and pt. (10) Is the expectation found in (a) consistent with adaptive expectations.
