Winter 2007 - Telyukova's Class - Practice Final Exam

Winter 2007 - Telyukova's Class - Practice Final Exam -...

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ECON 110A FINAL EXAM SOLUTIONS 1. (25 points, 1 each) Answer True or False. (a) The United States is the economic leader of the world today because it has the highest rate of growth of output. F (b) A recession is the phenomenon of declining output over two or more quarters. T (c) Macroeconomists use the GDP as a measure of a country's standard of living. F (d) Real GDP is the value of all final goods and services in the economy measured in current prices. T (e) Someone who loses his job enters unemployment, by definition. F (f) One effect of inflation is to erode real wages if nominal wages are constant. T (g) The propensity to consume measures how much one would consume even if one had no income. F (h) As the interest rate increases, demand for money goes up. F (i) The reserve ratio is the share of its assets that a central bank keeps as cash. F (j) The role of private banks in the economy is to provide people with access to checkable deposits. T (k) The money multiplier gives the amount by which the overall money supply in the economy goes up when the Fed increases central bank money supply. T (l) The IS curve gives the effect of prices on output. The LM curve gives the effect of output on prices. F
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(m) A fiscal expansion leads to an increase in investment in the medium run. T (n) The wage setting relation suggests that if the unemployment rate increases, the real wage decreases. T (o) A movement along the AD curve associates an increase in output with an increase in prices. F (p) Monetary policy is neutral in the medium run. T (q) The relationship between inflation and expected inflation has been stable over time in the U.S. F (r) If the government wants to reduce inflation, it should increase unemployment. F (s) The Lucas critique states that policy can be reasonably assumed to affect expectations. T (t) There was a large increase in the standard of living in OECD countries between 1950's and 1970's, but since the 1970's, the growth rates in the OECD have dramatically decreased.
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