Exam #2 Fall 2006 solutions - Name: _ANSWERS_ SID : _...

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Fall 2006 (IS – LM Model) Econ 100B 1 of 8 Name: ________ ANSWERS __________ SID : ____________________________ Discussion Section: ________________ Economic 100B Macroeconomic Analysis Professor Steven Wood Fall 2006 Exam #2 ANSWERS Please sign the following oath: The answers on this test are entirely my own work. I neither gave nor received any aid while taking this test. I will not discuss the questions on this test until after 5:00 p.m. on November 2, 2006. ______________________ Signature Any test turned in without a signature indicating that you have taken this oath will be assigned a grade of zero. Graph Instructions When drawing diagrams, the following rules apply: a. Completely , clearly and accurately label all axis, lines, curves, and equilibrium points. b. The original diagram and equilibrium points MUST be drawn in black or pencil. c. The first shift of any line(s) and the new equilibrium points MUST be drawn in red. d. The second shift of any line(s) and new equilibrium points MUST be drawn in blue e. The third shift of any line(s) and new equilibrium points MUST be drawn in green. Do NOT open this test until instructed to do so. Good Luck!
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Fall 2006 (IS – LM Model) Econ 100B 3 of 8 A. Multiple Choice Questions . Mark the letter corresponding to the best answer in the corresponding space at the bottom of the page. (3 points each; total of 30 points.) 1. Suppose that there is a sudden rise in the interest rate. This could have been due to: a. A fall in the monetary base. b. An increase in government expenditures. c. A rise in the money supply. d. a. or b. e. b. or c. 2. In the IS – LM Model, the level of equilibrium income is ultimately determined by: a. The level of the money supply. b. The level of the monetary base. c. The level of aggregate demand in the economy. d. The level of consumption. e. The level of investment. 3. Suppose that the unemployment rate is at the NAIRU and that the government wishes to raise tax revenues this year to reduce its debt-to-GDP ratio. The best way to raise this tax revenue so as to keep output as close as possible to potential would be: a. To cut government spending programs. b. A permanent rise in the level of income taxation. c. A temporary rise in the level of income taxation. d. To raise taxes on those with a high marginal propensity to consume. e. Either a. or b. 4. According to real business cycle theory, a rise in government expenditures brings about a fall in consumption because people feel poorer due to the prospects of future tax increases. If this theory is correct, then the net effect of a rise in government expenditures would be to cause: a. The IS curve to shift outwards. b.
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This test prep was uploaded on 04/01/2008 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

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Exam #2 Fall 2006 solutions - Name: _ANSWERS_ SID : _...

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