AK_2M2003

AK_2M2003 - ECON 102(Winter Quarter 2007 Sketch of Answers...

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(Winter Quarter 2007) Sketch of Answers for Second Midterm 2003 February 26, 2007 Part A 1. Skipped (will not be on your exam) 2. False; the size of the rightward shift depends on the sensitivity of money demand to changes in income, not to changes in the interest rate. 3. False; the more sensitive is investment demand to changes in interest output for a given size of increase in government expenditure. supply has no e/ect on real variables, but it does a/ect all nominal variables (prices, wages, etc) 5. False; consider a two period model; if household is originally a lender in the initial period, the rise in real interest rate makes the household unambiguously better o/ This is a rough sketch of how you should approach each question, rather than a complete solution key. In actual exam, more explanations, and graphs where appropriate, will be required for full credit. 1
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AK_2M2003 - ECON 102(Winter Quarter 2007 Sketch of Answers...

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