Suppose we live in an exchange economy with two goods. Together, we own 300 of good 1 and 300 of good 2. My tastes are captured by the utility function 
and yours are captured by the utility function 
.
a. Calculate the portion of the contract curve that lies in the interior of the Edgeworth Box.
b. Can you make intuitive sense of your answer?
What will be an ideal response?
and yours is 
. Since your consumption of good 1 is what's left over after my consumption of good 1, we can replace the denominator with 
. At interior efficient allocations, our marginal rates of substitution are the same -- so we can set 
. Solving for 
, this gives us the function 
b.
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Answer the following statement true (T) or false (F)
The primary factor that caused most economists to lose their faith in the classical approach to macroeconomic policy was
A) the high levels of unemployment that occurred during the Great Depression. B) the presence of both high unemployment and high inflation during the 1970s. C) the theoretical proof that classical ideas were invalid. D) the evidence that classical ideas were useful during economic booms, but not during economic recessions.
If banks are fully loaned out, have no excess reserves, and the legal reserve requirement is raised, the amount that banks can lend is
a. reduced and the money supply contracts b. reduced and the money supply expands c. reduced and there is no change in the money supply d. increased and the money supply expands e. increased and the money supply contracts
Most economists support the infant-industry argument because it is so easy to implement in practice
a. True b. False Indicate whether the statement is true or false