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1 Name: _____ ANSWERS ______ (Last name, first name) SID: _____________________ Lecture: _____________________ UGBA 101B Macroeconomic Analysis for Business Decisions Dr. Steven Wood Fall 2003 EXAM #2 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 October 14, 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 A. Multiple Choice. Circle the letter that corresponds to the best answer. 1. The IS curve slopes: a. Down because a lower interest rate increases investment so output must rise to meet the increase in aggregate expenditures if the goods market is to remain in equilibrium. b. Up because a lower interest rate increases investment so output must rise to meet the increase in aggregate expenditures if the goods market is to remain in equilibrium. c. Down because a lower interest rate decreases investment so output must fall to meet the decrease in aggregate expenditures if the goods market is to remain in equilibrium. d. Up because a lower interest rate decreases investment so output must fall to meet the decrease in aggregate expenditures if the goods market is to remain in equilibrium. 2. If the multiplier increases, the IS curve will: a. Shift to the right. b. Shift to the left. c. Become flatter. d. Become steeper. 3. In the model of the money market used to construct the LM curve, money demand is assumed to depend: a. Positively on both the interest rate and income level. b. Positively on the interest rate and negatively on the income level. c. Negatively on the interest rate and positively on the income level. d. Negatively on both the interest rate and income level. 4. The LM curve slopes: a. Up because increases in income increase the demand for money, so interest rates must fall to restore money market equilibrium. b. Up because increases in income increase the demand for money, so interest rates must rise to restore money market equilibrium. c. Down because increases in income decrease the demand for money, so interest rates must fall to restore money market equilibrium. d. Down because increases in income decrease the demand for money, so interest rates must rise to restore money market equilibrium.
3 5. If the sensitivity of money demand to the interest rate increases, then the LM curve will: a. Shift to the right. b. Shift to the left. c. Become flatter. d. Become steeper. 6.

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