PracticeMT#1 - Name Banner Economics 304 Winter 2014...

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Chapter 3 / Exercise 7
Exploring Macroeconomics
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Name: Banner #: Economics 304, Winter 2014 Practice Midterm 1 Please put all papers away. No calculators, no cell phones, no computers: nothing electronic is allowed. The exam is scheduled for 80 minutes. There are 66 points total on the exam. Part 1: Definitions (2 points each) 1) CPI: 2) Permanent Income Hypothesis: 3) User cost of capital: 4) Okun’s Law: 5) Phillips Curve:
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Exploring Macroeconomics
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Chapter 3 / Exercise 7
Exploring Macroeconomics
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Part 2: Short Answer Questions (5 points each) 1. How can the elasticity of aggregate labor supply be high while the individual labor supply elasticity is low? 2. Illustrate graphically how a decrease in the depreciation rate of capital would affect the optimal capital stock and the level of investment. 3. Explain intuitively why a purchase of bonds by the central bank ultimately increases the money supply by more than the central bank s purchase amount.

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