6. a) What is duration? What is modified duration?

b) What is Macaulays duration?

c) What is crucial to formulating both active and passive strategies?

d) How is immunization of a fully funded plan accomplished? What is a more direct form of

immunization?

7. a) Consider an economy where the dominant industry is automobile production for

domestic consumption as well as export. Now suppose the auto market is hurt by an increase in the length of time people use their cars before replacing them. Describe the probable effects of this change on (i) GDP, (ii) Unemployment, (iii) The government budget deficit, and (iv) Interest rates.

b) Suppose the government wants to stimulate the economy without increasing interest rates. What combination of fiscal and monetary policy might accomplish this goal?

c) Hypothetically, large tax cuts in 2001 were followed by relatively rapid growth in GDP. How would demand-side and supply-side economists differ in their interpretation of this phenomenon?

d) In which of the business cycle would you expect the following industries to enjoy their best performance? (i) Newspaper, (ii) Machine tools, (iii) Beverages, (iv) Timber.