Econ102_Exam3_V1_Winter08_

Econ102_Exam3_V1_Winter08_ - Winter Semester 2008 Economics...

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Winter Semester 2008 Form 1 Economics 102 – Principles of Economics II Department of Economics – University of Michigan Examination No. 3 – Section 200 Circle the correct answer for each of the following questions . 1. Your form number is A) 1 B) 2 C) 3 D) 4 2) If prices and wages were perfectly flexible and Congress had control over central bank decisions, Congress would have A) no political incentive to adjust the target rate of inflation. B) a long-run incentive to lower the target rate of inflation. C) a short-run incentive to raise the target rate of inflation. D) a short-run incentive to lower the target rate of inflation. 3) A temporary tax cut, financed by government bonds, shifts the aggregate demand schedule A) rightward if consumers are forward-looking. B) leftward if consumers are myopic. C) leftward if consumers are forward-looking. D) rightward if consumers are myopic. 4) Suppose consumption is given by C = a + .75(Y – T), tax revenues are given by T = T 0 + .2Y, and imports are given by M = .1Y. Then the shift in the aggregate demand schedule, at a given inflation rate, caused by a one unit increase in exports is A) 3.33. B) 2.5. C) 2. D) 4. 5) Ceteris paribus, if there is an increase in the interest rate paid on checkable deposits, there will be a(n) A) decrease in the demand for money at any interest rate, raising the interest rate. B) increase in the demand for money at any interest rate, reducing the interest rate. C) decrease in the demand for money at any interest rate, reducing the interest rate. D) increase in the demand for money at any interest rate, raising the interest rate. 6) Suppose that the Fed sets a lower inflation target. Then the initial response of the economy will be a A) leftward shift in aggregate demand, a decline in investment, and a rise in net exports. B) rightward shift in aggregate demand, a rise in investment, and a rise in net exports. C) leftward shift in aggregate demand, a rise in investment, and a decline in net exports. D) rightward shift in aggregate demand, a decline in investment, and a rise in net exports. (OVER)
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Winter Semester 2008 Form 1 7) The inflation adjustment line shifts slowly in the economic fluctuations model because A) prices adjust slowly since they are written over multiple staggered periods. B) inflation expectations change slowly. C) wages adjust slowly because they are renegotiated slowly and contracts are staggered. D) all of the above. 8) Suppose that the Fed’s preferences change, making it more determined to hit its inflation target in the Taylor monetary policy rule (there is no output target). Starting at the inflation target, this means that A) an increase in the inflation rate above the target rate of inflation would cause a larger increase in the real interest rate. B)
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This note was uploaded on 11/14/2009 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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Econ102_Exam3_V1_Winter08_ - Winter Semester 2008 Economics...

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