E304exam1_mc_B_KEY

E304exam1_mc_B_KEY - ECON 304.013 Exam 1 Part 2 Form B KEY...

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ECON 304.013 Exam 1 Part 2 Form B KEY - Exam 1 is worth 100 points and has three sections. The Short Answer/Essay part was worth 30 points, the multiple choice questions are worth 2 points each for a total of 60 points, and the True/False questions below are worth 2 points each for a total of 10 points. TRUE / FALSE: Bubble in “A” for True or bubble in “B” for false on your scan sheet. Also write the word “true” or “false” on the lines below. This section is worth 10 points, 2 points for each T/F question. 1. FALSE At the start of the year, your firm's capital stock equaled $10 million, and at the end of the year it equaled $15 million. The average depreciation rate on your capital stock is 20%, so your net investment during the year was $8 million. 2. TRUE The employment ratio is 75%, there are 90 million people employed and there are 20 million people not in the labor force. Therefore, the number of people unemployed must be 10 million. 3. FALSE The Obama administration’s forecasts for economic expansion from the proposed $1 trillion dollar stimulus package use an estimated government spending multiplier of 1.5. Economist Robert Barro disagrees with the Obama administration’s estimates. Barro’s research on the government spending multiplier suggests that if the $1 trillion stimulus package passes, Gross Domestic Product (GDP) will expand by a multiplier of 0.8, not 1.5 like the Obama administration estimates. 4. FALSE Assuming the stimulus plan is passed by congress within the next month, over 80% of the $1 trillion stimulus plan will be spend in the current fiscal year, meaning that we can expect it to stimulate the economy as planned. The only real concern about the stimulus packages is the potential for inflation, since this is a dramatic increase in spending over the 2008 government budget. 5. TRUE The current recession was triggered by the subprime mortgage crisis where banks sold many mortgages to risky borrowers. When a large portion of these borrowers began to default, some banks and other firms that invested in these mortgages went out of business and banks dramatically reduced their amount of lending. This crisis in the banking sector kicked off the downward spiral of lowered consumer confidence that can cause a recession. Page  1  of  8
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ECON 304.013 Exam 1 Part 2 Form B Directions: The questions below are multiple choice. Circle the answer you have selected on this test packet AND bubble in the corresponding letter on your scan sheet.
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