exam307 - Mid Term Exam Econ 116b March 7 2007 75...

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Mid Term Exam Econ. 116b March 7, 2007 75 MINUTES (one point per minute) ANSWER EACH PART IN A SEPARATE BLUE BOOK (28 minutes—4 minutes each) I. Answer True/False/Uncertain. Explain your answers. No credit without explanation. 1. If the Fed announces today that it is going to raise the short term inter- est rate three months from now (but do nothing until that time) and if this announcement is a surprise, long term interest rates will rise immediately. 2. The aggregate demand curve is the sum of all market demand curves in the economy. 3. A low ratio of inventories to sales is generally good for the future course of the economy. 4. In terms of increasing real output, scal policy is more effective when the AS curve is fairly at and monetary policy is more effective when the AS curve is fairly steep. 5. Fixed weight price indices, like the consumer price index, are biased upward. 6. A government announcement that the unemployment rate was smaller than the market expected will always lead to an increase in stock prices. 7. In principle the effect on real output of a government spending increase can
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