Spring2012MT1_Solutions - Name Banner Economics 304 Spring...

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1Name: Banner #: Economics 304, Spring 2012 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 75 points total on the exam. WRITE NEATLY. Part 1: Definitions (2 points each)
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2Part 2: Long Question on AS-AD Model (30 points total) I-Comparative Statics of a Decrease in Animal Spirits(SP)(20 points) Show what our AS-AD model predicts will happen to the variables in the table below in both the short-run (SR) and long-run (LR) in response to a decrease in SP. Show all of your work. No points will be awarded for unjustified answers. Use back of page if necessary. All graphs should be fully labeled. P Y r C I W/P N SR LR Covered in class after midterm. Also, see notes. To show that investment must fall in SR and LR, you can use the savings function, the savings diagram, or the fact that C must rise in the long-run.
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