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Economics for Management Studies
Iris Wu

ECMC61Sample Midterm Suggested Answer KeyNoteThis answer key aims at helping you checking your answerYou WILL NOT receive any credit if you do not show your work and provide explanationQuestion 1Part a 10 points TradeTownFinCityGross domestic products750015000Consumption56259000Investment11252250Government spending15003000Current Account 750750Nonreserve portion of financial account450 450Official reserve transactions300 300Capital account00Part b 5 pointsFinCity runs a current account deficit Is it a problemDepends on the use of foreign borrowingQuestion 2Part aYes it is possible as long as the sum of CA KA and nonrescapital account is positivePart bImplications Exports of goods and servicesimports of goods and servicesBorrowing from abroadIs it a problemDepends on the purpose of the borrowingQuestion 3 Uncertain it depends on what happens to investmentQuestion 4The immediate effect of a fall in Y on E is DC appreciatesIf the Home central bank wants to keep E at its initial level it has to use expansionary monetary policy mention whether it is a temporary or permanent change in MSQuestion 5 Short run RPremains unchanged and CAD depreciatesCANCAN1ECMC61 Sample Midterm Answer Key
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