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PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
Douglas
Figure 35-1
8. Refer to Figure 35-1. If the economy starts at c and 1, then in the short run, an increase in government
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10.
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Douglas
14. All else equal, when people become more optimistic about a company's future, the
a. supply of the stock and the price will both rise.
b. supply of the stock and the price will both fall.
c. demand for the stock and the price will both rise.
d. demand for the stock and the price will both fall.
15. Suppose the Fed purchases $20 million in government bonds. If the reserve ratio is 10 percent, bank reserves
a. increase by $20 million and the money supply may increase by up to $200 million.
b. decrease by $20 million and the money supply may increase by up to $200 million.
c. increase by $20 million and the money supply may decrease by up to $200 million.
d. decrease by $20 million and the money supply may decrease by up to $200 million.
16. Which of the following policies would Keynesians support when the economy is experiencing unemployment
19.
This chart, which you saw several times in class, shows the recent history of the
a. US Unemployment Rate
c. Discount Rate
b. US Inflation Rate
d. Federal Funds Rate
20. If excess demand exists in a market we know that the actual price is
a. below equilibrium price and quantity demanded is greater than quantity supplied.
b. above equilibrium price and quantity demanded is greater than quantity supplied.
c. above equilibrium price and quantity supplied is greater than quantity demanded.
d. below equilibrium price and quantity supplied is greater than quantity demanded.
Douglas
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28.
Year
Price of books
Price of calculators
2006
$20
$10
2007
30
10
2008
35
15
The fixed basket consists of 5 books and 2 calcultors. If 2006 is the base year, the CPI is
a. 120 in 2006, 170 in 2007, and 205 in 2008.
b. 100 in 2006, 150 in 2007, and 185 in 2008.
c. 100 in 2006, 142 in 2007, and 310 in 2008.
d. 200 in 2006, 284 in 2007, and 620 in 2008.
In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many
countries increased the money supply. The central banks might have done this by
a. selling bonds on the open market, which would have raised the value of money.
b. purchasing bonds on the open market, which would have raised the value of money.
c. selling bonds on the open market, which would have raised the value of money.
d. purchasing bonds on the open market, which would have lowered the value of money.
During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action
a. increases the reserve ratio, the money multiplier, and the money supply.
b. increases the reserve ratio, which decreases the money multiplier and the money supply.
c. does not change the reserve ratio or money multiplier, but increases the money supply.
d. does not change the reserve ratio or money multiplier, but decreases the money supply.
Which of the following events would definitely cause a decrease in the price of college?
a. an increase in the number of high school graduates and a decrease in professors salaries.
b. a decrease in the number of high school graduates and a decrease in professors salaries.
c. a decrease in the number of high school graduates and an increase in professors salaries.
d. an increase in the number of high school graduates and a decrease in professors salaries.
Which of the following statements about the Federal Reserve is NOT correct?
a. The members of the Board of Governors are also presidents of the Federal Reserve's
regional banks.
b. The Federal Open Market Committee makes monetary policy.
c. The Fed most often manipulates the money supply through open market operations.
d. The Federal Reserve serves as a bank regulator.
Douglas
29. An economic contraction caused by a shift in AD corrects itself over time as the expected price level
a. rises, shifting aggregate demand right.
b. rises, shifting aggregate demand left.
c. falls, shifting aggregate supply right.
d. falls, shifting aggregate supply left.
30. According to liquidity preference theory, the slope of the money demand curve is explained as follows:
a. interest rates rise as the Fed reduces the quantity of money demanded.
b. interest rates fall as the Fed reduces the supply of money.
c. people will want to hold less money as the cost of holding it falls.
d. people will want to hold more money as the cost of holding it falls.
31. Angela reads financial advice columns and concludes the following. Which of her conclusions are WRONG?
a. Higher average returns come at the price of higher risk.
b. People who are risk averse should never hold stock.
c. Diversification cannot eliminate all of the risk in stock portfolio.
d. All of her conclusions are wrong.
32. According to the crowding-out effect, an increase in government spending
a. increases the interest rate and so increases investment spending.
b. increases the interest rate and so decreases investment spending.
c. decreases the interest rate and so increases investment spending.
d. decreases the interest rate and so decreases investment spending.
33. The Peapod Restaurant uses these things to produce vegetarian meals. Which of them is physical capital?
a. The owner's knowledge of how to prepare vegetarian entrees.
b. The money in the owner's account at the bank she borrowed money from.
c. The tables and chairs in the restaurant.
d. The land the restaurant was built on.
34. Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices
a. and output are higher than in the original long-run equilibrium.
b. and output are lower than in the original long-run equilibrium.
c. are higher and output is the same as the original long-run equilibrium.
d. are the same and output is lower than in the original long-run equilibrium.
35. Other things the same, automatic stabilizers tend to
a. raise expenditures during expansions and recessions.
b. lower expenditures during expansions and recessions.
c. raise expenditures during recessions and lower expenditures during expansions.
d. raise expenditures during expansions and lower expenditures during recessions.
36. Other things the same, if a country increased its saving rate, in a few years it would likely have
a. higher productivity, and a higher growth rate of real GDP.
b. higher productivity, but not a higher growth rate of real GDP.
c. the same productivity and growth of real GDP it began with.
d. lower productivity, but a higher growth rate of real GDP.
37. If the short-run Phillips curve never moves, which of the following would be surprising?
a. an increase in government spending and a fall in unemployment
b. an increase in inflation and an increase in unemployment.
c. a decrease in the inflation rate and a rise in the unemployment rate
d. a decrease in the money supply and a rise in unemployment.
Douglas
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42.
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45.
Douglas
Short Answer.
Answer both questions in the space provided.
PRINT NAME:
Your grade will be based on your careful use of analytical tools developed in this class. Use graphs, equations, and c hain
of arrows causation analysis as appropriate. BRIEFLY BUT FULLY JUSTIFY ANY CURVE SHIFTS. Be sure to label
all axes and curves on graphs.
By 1993 investment was weak, in part because of concerns about the federal budget deficit, which was large and
projected to increase over the coming decade. In that year, through a combination of upper-bracket income tax
increases, military cuts, and relative restraint in other areas of the budget, the federal government markedly
reduced current and projected deficits.
1. What would you expect to be the effects of the 1993 deficit reduction effort on interest rates, exchange rates,
investment, and the balance of trade? Are your predictions supported by the facts?
Douglas
2. In fact, following the 1993 deficit reduction legislation, the U.S. economy went into a sustained boom with
low inflation. Some claimed that the legislation aided the boom and discouraged inflation. Others said that
the boom occurred in spite of the legislation. Take a side in this debate, using analytical tools that we
developed in Econ 202 to explain how the tax increases, budget cuts, changes in investors attitudes, (perhaps
in the context of other 1990s economic factors) affected prices, output, and unemployment. Label all curves
and axes, and justify all curve shifts.
ID: A
A
D
A
C
C
C
D
A
D
D
A
D
D
C
A
B
B
B
D
A
A
B
A
C
D
B
B
A
C
D
B
B
C
C
C
A
B
A
C
C
B
C
B
ID: A
44. B
45. C
SHORT ANSWER
1. Tax increase, budget cuts: increase SLF, lower r, increase I, increase NCO, dollar depreciates, NX rises.
Increased confidence: Increase I, increase r, lower NCO, dollar appreciates, NX falls.
2. Background: AS shifted rightward because of baby boom, computers, peace. Caused higher GDP, lower prices.
Legislation Aided Boom: Increased confidence increased I, increasing AD and GDP, lowering U but mitigating
AS-driven fall in prices.
Legislation Reduced Boom: Higher taxes, lower G reduced AD and GDP, mitigating the effect of the AS shift on GDP
and U, but helping keep inflation down.