Econ222 Test1 Spring2006

Econ222 Test1 - Econ 222 Signature*4 Spring 2006 Print last mante— S.S Jones Circle time class meets 8 9:30 TEST#1(100 points Directions Turn in

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Unformatted text preview: Econ 222 Signature *4 Spring 2006 Print last mante— _ S.S. Jones Circle time class meets: 8 9:30 TEST #1 (100 points) Directions: Turn in both this test and your Scantron. On your Scantron please put the following: Last name (circled), First name; “subject” as 222, “time” as either 8am or 9:30 am; and “test no.” as T#1. . market mechanism . laissez— aire . material incentive/profit motive (Recall principles model capitalism) . perfect competition private ownership l0 1. “let them do it” attitude (“them” is business), unbridled by the public sector 2. land and capital are property of households and businesses, not of government b 3. conservatives believe this principle should dominate, even if imperfect competition results d 4. designates vast number of rival sellers, each so insignificant that if one were to fail to show in the market, price and quantity would not be changed to any noticeable extent S 5. pursuance of t_h_i_s results in inequalities in income. The engine of capitalistic economies. a, 6. both big business and labor unions violate this a. consistent with economic liberalism b. consistent with economic conservatism (left) (right) Q1 7. criticizes the use of transfers and progressive taxation a 8. argues that so-called “big business” justifies the rise of labor unions as “countervailing power blocs” (imperfect competition on the buyers’ side of the labor market begets imperfect competition on the sellers’ side of the labor market) %3 9. pro “survival of the fittest”(Herbert Spencer) 10. argues unequal income distribution is a motivating factor, resulting in greater output 1 $1 . favors mandatory regulations to protect labor, land, and/or consumers despite dampening effect on profits and the obvious Violation of laissezfaire __Q,_ 12. favors practice of market justice _Q_ 13. argues that the demise of competition in business results in a decrease in allocative efficiency— That is, imperfect competition reduces “consumer sovereignty” a. evolved capitalism b. mixed capitalism (mixed market economy) c. unbridled capitalism (1. model capitalism e. “patched — up” capitalism Q 14. John Kenneth Galbraith’s term for a renovated/improved form of capitalism 15. based on Adam Smith’s 6 principles (Does not exist in reality)-static, not dynamic 1 16. failings exist in this form, including lack of egalitarianism and lack of competition(Not c.) Q 17. allows both imperfect competition m government intervention (Do not put e.) a. imperfect competition in product and services market b. collective consumption goods (ex. highways and dams) c. “invisible hand” and “consumer sovereignty” d. “public use”(recall article) e. “public purpose” (recall article) £2 18. due to excessive costs and a lack of material incentive, provision of t_h§ does not result naturally from the operation of unbridled or evolved capitalism Q 19. coined by Adam Smith 95 20. existence of a few large competitors in an industry (oligopoly , for example) Q 21. existence of this is classified a market failure by liberals Q: 22. as firms increases, “producer sovereignty” escalates [Q 23. eminent domain may be used to ultimately provide tips for the community at-large Q 24. eminent domain used to promote economic development and profits, enhancement of the tax base, and/or reduction in unemployment would best be described as mi; (Recall recent Supreme Court ruling) Q 25. Federal government condemnation of property and compensation to private owners of such property may be used in New Orleans. If such properties were subsequently sold to private developers, it would be best classified as m. (Choose either d or e) a. GDP b. final sales c. aggregate expenditures (Recall Glossary) d. inventories ' e. withdrawals (W) C, 26. savings, taxes, and imports (Increases in these result in lower domestic spending) E 27. negative changes in this result in future increases in production 8 28. actual expenditures on finished output. Based on collected data 29. equals sum of all output produced within a nation’s borders 30. output produced, but not sold Directions: Label each of the following as true (a) or false (b). Some require application/ analysis. L31. The “invisible hand” mechanism describes how sovereign consumers will automatically receive their most desired combination of output; and resource owners, whose resources will produce those most-wanted outputs, will be most rewarded. ! 2 32. Allocative efficiency is the achievement of the greatest output from a given amount of input. £2 5 33. The right to inherit is theoretically inconsistent with market justice, yet consistent with conservatism, if taken from the viewpoint of the deceased who practices freedom to bequeath his private property as he chooses. (Think this through— What is market justice?) a4 34. In (laissez (dire) capitalism, free markets provide the coordinating mechanism for the allocation of resources and distribution of output. Consumers signal their demand, and business responds accordingly. b 35. Conservatives argue that consumers ultimately suffer from higher prices due to regulations on business and labor union demands. & 2 36. Conservatives favor greater egalitarianism and greater intertemporal efficiency. b_3 7. Liberals and conservatives agree that greater income equality and maintenance of competition are necessary. Both agree inequality and imperfect competition are significant market failures. (Recall articles)- Apply course concepts to articles! 38. Over the past four years, GDP and incomes have both increased. Q2 39‘. According to the 2004 census report, about 50% of income goes to 20% of households, with the top 5% being the only incomes to show real income gains. Q £1 40. Income inequality has been increasing. If stock holdings were included, the inequality would be even greater. L41. Employer-provided health care benefits fell last year. t 2 42. For the fifth straight year, median household incomes rose- the longest stretch of income increases on record. b 43. The poverty rate fell last year for those ages 18 to 64. (X 44. According to the editorial “Life in the Bottom 80 Percent,” the administration and Congress do not recognize income inequality as an economic ill, and are pushing for lower taxes and cuts in transfers (income supplements). From the tone of the editorial, it may be assumed that the author of the article is most probably a liberal who favors greater practice of distributive justice. a) 45. Conservatives argue that the Endangered Species Act curtails people’s ability to use their own land, a violation of capitalism’s principle of maintaining private property ownership. CL 46. Recently, more weight has been given to the economic impact of the Endangered Species Act and has lead to the reduction of the size of species’ critical habitat. In addition, President Bush has been less aggressive than President Clinton was in putting species on» the endangered list. 47. Current conservative draft legislation would take the Endangered Species Act off the books in 2015. Such a move is supported by a coalition of ranchers, farmers, and business interests, such as logging industry. Freedom to pursue the profit motive could be argued in support of such draft legislation. @148. The extension of tax cuts as proposed by the President and the impact those tax cuts will have on income distribution are consistent with the practice of economic conservatism. b 49. The proposed changes in the Endangered Species Act would most likely result in both greater nationalization and a more restricted pursuance of the profit motive. & 50. Over the last few years, both wealth and poverty have decreased as the number of middle income household have increased dramatically. Econ 222 Print last name _ Spring 2006 CIRCLE TIME 8 am S.S. Jones TEST #2 a. aggregate supply b. net change in inventories c. aggregate expenditures d. final sales e. injections 1. 2 composite actual purchases by households, businesses, government, and foreign sector (minus imports) 2. negative changes in this result in increases in production , 3. C+Ig+G+(X-M). Assume lg does include net change in inventories (theoretical) 4 equals aggregate expenditures plus theoretical net change in inventories 5. e: forms of purchases others than C 6. & this is negative if aggregate expenditures exceeds aggregate supply a. savings b. withdrawals c. disposable income d. replacement capital e. net exports 7. a this is negative at low levels of income 8. this is positive if current Yd exceeds C 9 this is included in m the expenditure approach and income (cost) approach to GDP calculation (Carefiilly consider formulas) 10. g! equalsC+S a. pure inflation b. deflation c. disinflation d. premature inflation e. escalating inflation 11“ causes debtors and current spenders to suffer (Recall booklet reading) 12. _Q§.__ cost-push, profit-push and structural inflation are forms of this (Do not put 6) 13. , occursinmthRangeZand Range3 14. the type of inflation which exists if unadjusted Ye exceeds fill-employment level of real Y* (This is a thought problem) 15. - 7 price level is decreasing 16. S; price level is rising at a decreasing rate 17. (a inflation rate is negative, less than 0% 18. a the most likely price level response by business to unintended positive changes in inventories. Also most likely during recession (Do not put d) 19. creditors, savers and those on fixed incomes should, theoretically, benefit if this is occurring. However, in actuality, the benefits are not guaranteed (Recall booklet ) 19/222EXAMl-400 l e. AB 20. g i : this percentage increases as income increases 21. g : this percentage decreases as income increases 22. (X : this $ amount remains constant as disposable income increases 23. E : if this increases, the value of the spending multiplier decreases (Recall formula) a. producer price index b. general or composite price index, IPD c. consumer price index d. a core index a 24. used to adjust GDP 25. : excludes food and energy prices 26. C : used to determine COLA’S for transfers and wages 27. , : gauges price level changes at the wholesale level 28. g : measures the underlying price level, omitting volatile components a. the marginal propensity to spend (2) (Recall Glossary) b. the spending multiplier 29. \0 = l/MPW 3o. Ox =1—MPW 31. b Assuming the MPW =.5, this, too, =.5 a. aggregate supply b. real GDP c. potential GDP d. nominal GDP e. actual GDP 32. A the real theoretical output that would be produced if operating at the NAIRU (Recall GDP Gap graph) 33. final sales plus net change in inventories, based on collected data (nominal or real) 34. the 45-degree line on the Keynesian Cross 35. i GDP expressed in current dollars 36. _ GDP expressed in constant base year dollars 37. 36)_ on the Keynesian Cross: AE+ net change in inventories (This is a thought problem) 19/222EXAM1400 2 Directions: Designate each of the following as a (true) or b (false): 38 Importing by the US. causes the slope of its AE curve to be less steep than it would be if the economy were “closed.” 39.T Economic slowdowns exhibit positive, but decreasing growth rates over time. 40. E The purchase of stock is included in the expenditure approach as part of gross investment. However, stock dividends are not included in the income (cost) approach to GDP calculation since they are transfers, rather than purchases. 41. S NDP, NI, PI, and DI would all be virtually equal if there was no government. (Hint: Consider transfers, subsidies, and taxation. Work the math column from NI to DI) / 42. S final sales + net change in inventories=NDP + CCA a. national income, NI b. net domestic product, NDP c. capital consumption allowance (1. gross domestic product, GDP e. indirect business taxes-subsidies 43. GDP—depreciation 44. sum of rent+wages+interest+profits (before taxes) 45. :@ the amount of output produced Within a nation’s borders above and beyond merely replacing what wore out a. 0% unemployment b. full-employment unemployment rate or NAIRU c. the actual rate U d. the theoretical rate U 46. k 2 the lowest rate which is realistically achievable given no cyclical, virtually no structural and a minimal amount of frictional unemployment. l 47. 0 this reached 25% during the Depression of the 1930’s 48. , this decreases as economy moves through Range 2 of the Three Ranges Graph 49. 4 during recoveries, improvements in this may lag behind increases in real output as the workweek lengthens, that is, the existing employed work longer hours 50.& decreases below this are considered inflationary 19/222EXAM1-400 3 a. Range 1 b. Range 2 c. Range 3 (1. Range 2 and 3 51. structural inflation and structural unemployment 52. only frictional unemployment 53. primarily cyclical unemployment 54. no GDP gap 55. demand-pull inflation 56. no inflation 57. inflation caused by a change in the composition of demand 58. unemployment primarily exists due to lack of demand for a particular skill and/or inability to relocate and/or lack of communication between prospective employer and employee I l l l l a. prosperity b. recovery (Recall booklet reading) c. expansion d. recession e. economic slowdown 9/59. a positive, but falling growth rate in real, actual GDP :60. long-term increase in real, actual GDP 61. accompanied by demand-pull inflation 62. ofien just precedes a downturn in economic activity 63. most rapid rate of growth, usually followed by a plateau 64. investment, employment and real GDP are decreasing a. labor force b. discouraged unemployed c. involuntarily unemployed, actively seeking work d. all unemployed (involuntarily, voluntarily, and discouraged) e. all paid employees(full and part-timers), all volunteers (15 or more hours/week), but no unemployed Q 65. the numerator of the formula for rate U, the unemployment rate 66. the denominator of the formula for rate U I : 67. the exclusion of this entire category understates rate U Q 68. although all of these persons should be included in both the numerator and ‘ denominator of the U formula, some cannot be surveyed since they do not have phones! (not d.) 19/222EXAMl-400 4 a. expansionary only (Recall W/J Graph, b. inflationary only Keynesian Cross, c. expansionary and inflationary 3 Ranges Graph. d. contractionary and disinflationary Combine and apply!) e. contractionary and inflationary 69. increased AD in Range 3 70. __ stagflation results from this combination of pressures 71. __ decreased purchases (Don’t forget the ratchet effect) 72. __ increased injections if in Range 1 73. __ increased withdrawals if in Range 2 74. decreased injections and increased withdrawals if pure inflation exists Directions: Cite the theoretical relationship of the following variables as... a. direct b. inverse c. constant (unrelated, autonomous) 75. __ Y and I, G or X (All J’s, right?) 76. __ 1' (interest rate) and lg 78. __ Yd and X11 79. __ Yd and APC (Recall definition of APC) 80. Yd and APS (Recall definition of APS) a. Carlos Gutierrez b. Elaine Choi c. Ben Bernanke d. John Snow e. Alan Greenspan & 81. the Secretary who heads the department that compiles price indices 3 82. served as Fed Chairman from 1987-1/31/06 83. Treasury Secretary (expected to leave) (J 84. current Fed Chairman El 85. the Secretary who heads the department that releases statistics on inventories and GDP 19/222EXAM1400 5 Directions: Designate each of the following as true(a) or false(b): (Base your responses articles) i 86. Nineteenth century American leaders found income tax more palatable if the revenues went for war. Abraham Lincoln signed the Tax Act of 1862 gamer taxes to fight the Civil War. i 87. The first peacetime income tax was made possible by the 16th Amendment to the Constitution. l 88. Personal and corporate income taxes now comprise a greater percent of federal revenues than ever before! I 89. A.M.T. stands for alternative minimum tax. Next year the AMT will cost middle income Americans about the same amount as the Wealthy will save due to a break on investment income, such as dividends and capital gains. This will decrease progressivity. l: 90. A tax bill being considered in Congress and supported by the President would raise taxes on dividends and profits to 35%, while the top rate on wages would be 15%. E 91. The article “Seizing Intangibles for the GDP” describes the change in accounting of research and development, including it in gross investment since like capital, it generates profits. CALCULATIONS (Write your answers on the answer sheet) Directions: Use the statistics that follow to determine the magnitude of the labor force and the rate of unemployment. (in millions of persons) 6 under 16lover 65 2 institutionalized 4 involuntarily unemployed actively seeking work 8 voluntarily unemployed l discouraged unemployed 12 part-timers (paid 1 or more hours/week) 4 volunteers (unpaid, less than 15 hours/week) 3 volunteers (unpaid, Z 15 hours/week) 23 full-time, paid workers 92. labor force = O millions of persons ulation: Shw c . m ZL%+ 3:; “t 4% ~\- t9~t >1,“ “I 93. U = ’ % (Round to tenths) Show calculation: ~— L: D it) we“- ".1. t V v ’ v. y' ,7; s J j, e ,. i, , \ 1‘} "q 1 J ’ V i i #54. vs l9/222EXAM1—400 ’ 6 94. lfimports increase $20 billion, by what amount will Y change? Assume MPW=33% (Show calculations, circle answer, then write answer in blank.) Hint: This is a multiplier problem. AY=$ 22,9)? ’2’ a.) 95. Directions: Calculate the real GDP using these statistics: nominal GDP = $8,640 billion GDP price index (deflator) = 124(%) real GDP = SS (Show calculation. Circle answer. Put answer in blank above) Directions: Enough information is provided below to calculate GDP using two methods. Calculate the GDP (in billions): 10 NDP 252063;“ net A inventories $4 .f CCA $13.0 business subsidies $5,981.2 consumer spending $2,334.8- purchases by government $186.4 construction, both residential and non-residential $610.0 purchases of net additions to capital $445.2 exports $676.3 imports $568 transfers (income received, not earned by sale of resources) (Show calculations. Circle answer, then write answer in blank here $1 on Answer Sheet) 96. GDP = $ Show formula used: 19/222EXAM1-400 7 Econ 222 Name Spring 2006 Circle time section meets: 8 9:30 S.S. Jones _T_es_tfl Recall Homework #3 and Gloss #3- a. fiscal policy (general term. Applies to both discretionary and non-discretionary forms) b. “contractionary” fiscal policy c. built-in stabilization d. expansionary fiscal policy e. discretionary fiscal policy 1. _Q_: the government’s use of taxation, transfers and productive government expenditures to impact spending and ultimately the level of national income and output, in accordance with the Employment Act of 1946 the automatic change in the relationship of Tu and G which cushions a recession with widening deficits and dampens inflation with widening surpluses new legislation (by Congress and the President) to shift AE by direct control of government purchases and by indirect control of C via changes in taxes and transfers aims to reduce/eliminate recessionary pressure aims to reduce/eliminate Range 3 inflationary pressure already “on the books”-Occurs due to passage of previous legislation surpluses on this graph widened as expansion occurred (Recall 1990’s) proposed after Keynes died. He would not approve! Disinflationary at best! 4 5 6. 7 8 W5 b16719 a. net taxes b. transfers c. purchases d. balanced budget changes e. all except a. 9. _Q.__ increases/positive. changes in these should , theoretically, result in expansion 10. itaxes minus transfers 11._b_income supplements, usually based on need (entitlements) 12. €1Lequal, like direction changes in both revenues and expenditure l3 ._Q_1ike transfers, these are classified as expenditures 14. ancreases in these in Range 3 may be intended to create deflation but, more likely than not, will result in contraction and disinflation Directions: Designate whether each of the following is true(a) of false(b): 15. E Supply-siders favor tax cuts that give the most substantial tax breaks to those with the lowest APC. 163 2 Liberals favor reducing tax rates by the same % for all incomes. 17 Liberals favor targeted tax cuts aimed at those with high APC; conservatives favor across-the—board tax cuts, and reduction of taxes on capital gains. 18. E Changes in G cause greater shifts in AB than equivalent changes in Tn“ 19. E A change in transfers will result in an equal, like direction change in disposable income; a change in taxes will result in an equal, opposite direction change in disposable income. 20. ' Due to savings, a reduction in net taxes will result in an increase in C less than the change in net taxes. 21 .flBalanced budgets (G=Tn) are neutral in effect. That is, the contractionary effect of net taxes is equally offset by the expansionary impact of government purchases. 22§Although “We are all Keynesians now,” an active discretionary fiscal policy is still considered liberal relative to supply-side economics. ' 23E 2 Theoretically, balanced budget increases have a net contractionary and/or disinflationary effect; balanced budget decreases have a net expansionary and/or inflationary effect. RI 24. Balanced budget increases are expansionary in-Range-ag expansionary and inflationary in Range 2, and only inflationary in Range 3. 25. E Deficits should, theoretically, raise AE and unadjusted Y; surpluses should, theoretically, lower AE and unadjusted Y. 26. Fiscal drag exists if the fiill employment level of Y (Y*) lies in a position that corresponds to a surplus. Even if Ye lies in a position which corresponds to a deficit, Y* could not be reached due to this fiscal drag! 27. fiThe largest source of revenues to federal government is corporate income taxes. The greatest expenditure is interest on the national debt. 28. Edward P. Lazear is the Chairman of the Council of Economic Advisors. He replaced Ben Bemanke in this position. 29. The EC is in the Administrative(Executive) branch of the federal government. 30. g The existence of the national debt allows for expenditure above and beyond current revenues, re-injects money that would have been saved, and makes possible an expansionary policy that relies on deficit spending. 31.fi_Financing deficits and the resultant debt drives up interest rates causing BOTH Ig and Xn to decrease. The irony of these effects is that deficit spending is an attempt to increase purchases, not decrease them! a. Franklin Delano Roosevelt (FDR) b. Ronald Reagan and the current President, George W. Bush c. John Fitzgerald Kennedy (JFK) d. Bill Clinton e. all except d. 32. racticed mere “pump-priming” during the 1930’s 33. some surplus budgets occurred during his second term 34. g ‘ this Harvard man practiced the least reluctant and most active discretionary fiscal policy 35. lowered taxes in a manner aimed at increasing saving and investment, rather than emphasizing consumer spending 36.Q lowered taxes and raised G for defense spending Built-in Stabilization Graph: $ 37. fideficits 38. surpluses 39. taxes—transfers 40. government purchases 41 rightward movement along this could signify expansion and eventually inflation 42. QL_ dampens inflation 43. b cushions recession a. debt limit b. government securities c. national debt d. deficit e. monetized debt i44. an annual shortfall of revenues relative to expenditures L45. the “outstanding” sum of this equals the federal debt“ £_46. results from the US Treasury selling securities to the Fed (the Federal Reserve System) $47. if this is reached, no new government securities can be sold A48. currently equals about $500,000 billion L49. currently equals over $8.3 trillion, a record amount. Recall “Debt Clock” XLSO. IOU’s against the US Treasury - ' ‘23 51. sold to creditors who aim to have a safe form of investment with a known return a. bonds b. bills c. notes d. all of the above . issued by the US Treasury . sold to domestic and foreign creditors, and to the Fed . earn the greatest interest rate . have an intermediate time to maturity (2-10 years) . long—term alternative to a savings account (Recall its nickname) . available in 13, 26, and 52 week times to maturity . lowest interest, but greatest liquidity (Most quickly converted to money) . sales of these increased once TIPS was instituted a. externally held debt b. internally held debt 0. monetized debt d. all classifications of creditors b 60. domestic households, businesses and government agencies act as creditors ‘ 0K 61. foreign households, businesses and governments act as creditors . 62. most likely to increase domestic inflation (almost like printing $’s) 63. will be paid interest by the US government ARTICLES Directions: Based on your reading of articles, designate each of the following as true(a) or false (b): 64.:In the most recent report, robust sales sent the core consumer price index higher. The title of the article, “Spending Pushes Up Inflation,” might more accurately be titled “Spending Pulls Up Inflation,” indicating demand-pull inflation, rather than cost-push inflation has occurred. 65. l Despite higher gas prices, higher mortgage rates and an automobile industry in decline, the US. economy is still expanding at a rapid rate. The diversified economy shows strength despite the weakness in cars and housing. ' 66. l John Kenneth Galbraith thought the affluent society was too generous to its poor and too attendant to public needs. He argued for greater market justice and greater practice of laissezfaz‘re. 67. l Galbraith helped define the direction of the Republican party, tutoring, advising, and working in the administrations of Dwight D. Eisenhower and Richard M. Nixon. 68. S Galbraith wrote speeches for FDR JFK and Lyndon B. Johnson. For the latter, he helped conceive the so-called Great Society. He organized price controls in W WII, was ambassador to India, and opposed the Vietnam War, breaking with LBJ on this issue. 69. l Galbraith, educated at Berkeley, and teaching at both Princeton and Harvard, . was a liberal and a Keynesian. Directions: Assume an economy is suffering fiom a severe, prolonged recession without inflation. If this economy were to practice discretionary fiscal policies, in which direction should/could each of the following be changed? a. increase b. decrease 70. b : taxes 71. (L : productive expenditures by government 72. g : transfers 73. : net taxes Directions {#74-77 ): Designate whether each of the following would be... a. inflationary only b. both expansionary and inflationary c. contractionary and disinflationary d. contractionary and inflationary e. expansionary only (Assume an active ratchet effect) 77. 74. CA i a greater deficit budget if a significant GDP gap exists. 75. 22 z‘ a balanced budget change in Range 2 (consider one-way direction of arrow) 76. a greater deficit budget if at Y* initially an intentional surplus budget if in Range 3 78‘ If YE is $600 billion less than Y* (GDP gap = $600 billion), which of the following changes would mt result in closure of the gap? Assume MPW = .25 and z = .75 a. a $150 billion increase in G b. a balanced budget increase of $600 billion (E) a $150 billion decrease in Tn 79. If both government purchases and net taxes decreased by $64 billion, Y would change by what amount? a. zero (no change in Y) negative $64 billion . cannot determine without MPW, z or multiplier 80. If Yactual is in a deficit position and Y* is in a surplus position, which of the following could achieve an expansionary impact? (Recall build-in stabilization graph) /a./ decreased purchases by government (E) decreased taxes and/or increased transfers 0 ” fiscal stance is already expansionary since Yamal is in a deficit position and deficits are expansionary (Hint: Consider fiscal stance, budget at Y*). increased taxes and/ or decreased transfers V.’ 81. Which of the following would result from an increasing national debt? a. some wealth is lost to foreign sector decreased exports and increased imports \g higher interest rates and lower real investment . greater inequality in income distribution 6. all of the above ...
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This homework help was uploaded on 02/08/2008 for the course ECON 222 taught by Professor Lindahl during the Spring '06 term at Cal Poly.

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Econ222 Test1 - Econ 222 Signature*4 Spring 2006 Print last mante— S.S Jones Circle time class meets 8 9:30 TEST#1(100 points Directions Turn in

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