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SOLUTIONS MACROECONOMIC THEORY Term Test #1

Page 1 of 10 Department of Economics Prof. Gustavo Indart University of Toronto June 8, 2012 ECO 209Y L0101 MACROECONOMIC THEORY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total time for this test is 1 hour and 50 minutes. 2. Aids allowed: a simple calculator. 3. Use pen instead of pencil.

The larger the aggregate expenditure multiplier, the greater will be the impact of an increase in government purchases on equilibrium income. Therefore, let’s examine how the size of the expenditure multiplier changes when we consider investment to be an increasing function of income. Recall that the expenditure multiplier is α

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