midterm1answersspring2008mondaywednesdaylecture - Economics...

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Economics 302 Name _______________________________ Spring 2008: Monday/Wednesday Lecture First Midterm Student ID Number ____________________ March 3, 2008 Section Number _______________________ This 75 point midterm consists of three parts: a short response section with 5 short response questions worth 5 points each or a total of 25 points; a problem section with two problems worth 15 points each for a total of 30 points; and an essay section worth a total of 20 points. You will want to write legibly since illegible answers will be graded as wrong answers. You will want to present your work in an orderly fashion since a lack of organization will be interpreted as a lack of mental clarity and competent expression. You will want to make sure your answers are clear and easy to find on the test. All work should be done on the exam booklet and all answers should provide work and any formulas you used in answering the question. A lack of work for any answer will be penalized by a lower grade on that section. Calculators are fine to use. SCORE: Short Response 25 points 1. __________________ 2. __________________ 3. __________________ 4. __________________ 5. __________________ Problems 30 points 1. 15 points __________________ 2. 15 points __________________ Essay 20 points __________________ TOTAL 75 points __________________ I. Short Response (worth 5 points each or 25 points total) 1
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For each of the following statements write a brief answer. Make sure your answers are well organized, neatly written, and explicit. Do not exceed the space provided under the question: these are short responses. 1. (5 points) What is a market clearing model? What is the difference between sticky and flexible prices, and how does the assumption about price flexibility relate to the time horizon of a particular economic model? Is there any relationship between having sticky or flexible prices and having a market clearing model? Market clearing models assume that markets are in equilibrium and that supply and demand equals each other at the equilibrium price. Flexible prices are ones where the price is allowed to fluctuate and are used in models describing the long-run. Sticky prices are prices that are not allowed to completely fluctuate thus resulting in the possibility that demand does not equal supply. Models with sticky prices are typically reserved for models describing the short-fun. Market clearing models assume flexible prices. 2. (5 points) What are the four different ways of calculating GDP as described in class and mentioned in the book? Describe double counting and how it relates to the calculation of GDP. The four ways of calculating GDP are as follows: tabulating all income to the sellers of products (wages, interest, profits, and rent), tabulating all expenditure on goods and services (consumption expenditure, investment expenditure, government expenditure, and net export expenditure), summing the value of all goods and services produced (price times quantity), and
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midterm1answersspring2008mondaywednesdaylecture - Economics...

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