BA 101B - Exam1_Fall2003_Answers

BA 101B - Exam1_Fall2003_Answers - Name: _ANSWERS_ (Last...

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1 Name: ___ ANSWERS ________ (Last name, first name) SID: _____________________ Lecture: _____________________ UGBA 101B Macroeconomic Analysis for Business Decisions Dr. Steven Wood Spring 2003 EXAM #1 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 February 13, 2003. ______________________ Signature Any test turned in without a signature indicating that you have taken this oath will be assigned a grade of zero. Do not open this test until instructed to. You have until the end of class to complete this test. Good Luck.
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2 1. Circular Flow of Income and Expenditures . Suppose that private saving is fixed. Explain how each of the following statements can be true, i.e., what else must be happening in order to make the statement true without changing private domestic saving. (12 points.) a. A decrease in the government budget balance and an increase in domestic investment. If both government and businesses borrow more with private domestic savings constant, then net foreign investment must decline or net foreign borrowing must increase, i.e., net exports must fall. b. An increase in the international trade balance and an increase in domestic investment. (6 points.) If businesses borrow more but less is borrowed from abroad while private domestic savings are constant, then government savings must increase, i.e., the budget balance must increase.
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3 2. Output Gap . Assume that the economy’s potential growth rate is 3%, the natural rate of unemployment is 5%, and inflation is at 6%. Suppose that actual GDP is expected to grow this year by 4%. (12 points.) a. What can you infer about what will happen to the unemployment rate?
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This note was uploaded on 02/10/2010 for the course UGBA 10 taught by Professor Xuanmingsu during the Spring '08 term at University of California, Berkeley.

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BA 101B - Exam1_Fall2003_Answers - Name: _ANSWERS_ (Last...

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