Spring 06 Exam 2 Ans

Spring 06 Exam 2 Ans - Name_ANSWERS(Last name first name...

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Spring 2006 (IS-LM Model) 1 Name: ____ ANSWERS _______ (Last name, first name) SID: ____________________ Lecture (1 or 2): ____________________ UGBA 101B Macroeconomic Analysis for Business Decisions Dr. Steven Wood Spring 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 March 23, 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. c. The first shift of any line(s) and the new equilibrium points MUST be drawn in red. d. Any subsequent shifts in curves and new equilibrium points MUST be drawn in another color, first blue and then green. Do NOT open this test until instructed to do so.

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Spring 2006 (IS-LM Model) 2 A. Multiple Choice Questions . Circle the letter corresponding to the best answer. (3 points each; total of 30 points.) 1. Suppose that a fall in tax rates always raises potential output. If unemployment starts at the NAIRU and tax rates are reduced, then a central bank stabilizing the economy at potential output will: a. Raise interest rates. b. Reduce interest rates. c. Leave interest rates unchanged. d. Leave the money supply unchanged. e. Cannot be determined. 2. Suppose that unemployment is below the NAIRU. Then we know that: a. The actual budget balance is below the structural budget balance. b. The actual budget balance is above the structural budget balance. c. Output growth is greater than potential output growth. d. Output growth is less than potential output growth. e. The output ratio is negative. 3. In the IS-LM Model, a rise in savings causes: a. An equal increase in investment and the IS curve does not shift. b. An outward shift of the IS curve. c. An inward shift of the IS curve. d. An indeterminate shift of the IS curve. e. A fall in the money multiplier and an inward shift in the LM curve. 4. Suppose the government increases expenditures by \$100 billion and output increases by \$80 billion. This could be due to: a. A rise in the marginal propensity to consume. b. A decline in interest rates. c. A fall in consumption as a result of crowding out. d. Inside lags in fiscal policy. e. An outward shift of the IS curve.
Spring 2006 (IS-LM Model) 3 5. Suppose that investment is now given by I = I0 - I(r) + I(Y). That is, investment now depends positively on income as well as negatively on interest rates. In this case, the multiplier is: a. Larger, the IS curve is flatter and monetary policy is more powerful.

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Spring 06 Exam 2 Ans - Name_ANSWERS(Last name first name...

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