Key_to__314_2_2007Prelim1 - Prelim1 Economics314...

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Prelim 1 Economics 314 Professor Henry Wan Spring 2007 Instructions: For each question that you choose to answer please circle the letter corresponding to your answer. There are 2 optional questions at the end. Each optional question may be answered in the place of 2 of the questions marked 1 to 25. For each optional question that you choose to answer please place a large “DNG” (for “Do Not Grade”) in the margin next to two of the first 25 questions that you do not wish to be graded. If more than 100 points of questions are answered then questions 1-25 will be graded first and grading will continue until 100 total points of questions have been graded. Good luck! Part A: 4 points each 1. Positive analysis of economic policy (a) examines the economic consequences of policies but does not address the question of whether those consequences are desirable. (b) examines the economic consequences of policies and addresses the question of whether those consequences are desirable. (c) generates less agreement among economists than normative analysis. (d) is rare in questions of economic policy. 2. Adam Smith’s idea of the “invisible hand” says that given a country’s resources and its initial distribution of wealth, the use of markets will (a) insulate a nation from the effects of political instability. (b) eliminate problems of hunger and dissatisfaction. (c) eliminate inequalities between the rich and the poor. (d) make people as economically well off as possible. 3. Classical economists argue that (a) the government should have an active role in the economy. (b) government policies will be ineffective and counterproductive. (c) the government should actively intervene in the economy to eliminate business cycles.
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(d) wages and prices don’t adjust quickly, so the economy is slow to return to equilibrium. 4. Keynes assumed that wages and prices were slow to adjust in order to explain (a) persistently high unemployment. (b) high inflation. (c) the high level of interest rates. (d) why inflation fell in recessions. 5. The primary factor that caused most economists to lose their faith in the classical approach to macroeconomic policy was (a) the high levels of unemployment that occurred during the Great Depression. (b) the presence of both high unemployment and high inflation during the 1970s.
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This note was uploaded on 10/08/2008 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell University (Engineering School).

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Key_to__314_2_2007Prelim1 - Prelim1 Economics314...

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