Winter 2007 - Telyukova's Class - Practice Exam 1

# Winter 2007 - Telyukova's Class - Practice Exam 1 - ECON...

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ECON 110A Winter 2007 Professor Irina A. Telyukova Practice Midterm 1 SOLUTIONS Note: Spring 2007 students - this exam is provided for you to get an idea of how the class material and homework assignments translate into a midterm exam. However, beware: I will be changing the format of the "concept" part of the exam, from true-false with explanations to another format (these can include short answers, multiple choice, or true- false). The point distribution for the questions may change as well. Use this practice exam as an indication only, but do not expect exact correspondence. However: if you understand the concepts covered in class (use class notes and book for preparation) and if you understand homework problems (do them!), you will be fine. Professor Telyukova 1. (20 points, 2 each) Answer True or False, and provide a short explanation . (a) The European "unemployment miracle" refers to the extremely low unemployment rate that Europe has seen since the early 1980's. False: the unemployment miracle refers to the low rate of unemployment in the 1960's and 1970's; starting in the 1980's, unemployment rate skyrocketed in Europe. (b) The unemployment rate is sufficient for telling how well the labor market is doing. False: the unemployment rate in itself does not give enough information, one also need to look at the participation rate in order to know the conditions in the labor market. (c) Measuring the GDP as the sum of all incomes in the economy and measuring GDP as the value of all final goods in the economy is exactly equivalent. True: the two definitions give exactly the same number for the GDP. (d) Computing the inflation rate using the CPI and computing the inflation rate using the GDP deflator is exactly equivalent. False : the CPI bases the calculation on the consumption basket of U.S. consumers, that is, it includes imported goods that U.S. households buy as well; the GDP deflator is based on domestically produced goods only. (e) The equilibrium in the goods market is the condition that states that consumption equals output. False: the equilibrium in the goods market equates output(supply for goods) with demand for goods. (f) An increase in autonomous spending leads to an increase in output.

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True: an increase in autonomous spending leads to an increase in consumption, which in turn leads to an increase in demand, an increase in output, an increase in income, etc. .. (g) Demand for money is a positive function of the interest rate.
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Winter 2007 - Telyukova's Class - Practice Exam 1 - ECON...

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