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akfinals07 - Answer Key for Econ 2 Final Spring 2007 1 2 3...

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Answer Key for Econ 2 Final Spring 2007 1 b 36 d 2 a 37 a 3 d 38 c 4 b 39 b 5 a 40 c 6 c 41 b 7 c 42 a 8 d 43 c 9 b 44 c 10 b 45 b 11 b 46 d 12 d 47 b 13 d 48 a 14 a 49 a 15 b 50 b 16 a 51 c 17 b 52 c 18 c 53 d 19 b 54 d 20 b 55 a 21 d 56 c 22 d 57 d 23 a 58 b 24 a 59 d 25 d 60 a 26 a 61 a 27 b 62 a 28 c 63 a 29 a 64 b 30 d 65 d 31 b 66 a 32 a 67 d 33 c 68 b 34 a 69 a 35 b 70 d 71 c
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Part II (choose 4 out of 5 questions, 5 points each) 1. (1.5 points for the first two answers; 1 point for the next two answers) a) Structural deficit : The deficit that remains at full employment. b) Full Production : All resources are fully and efficiently employed. c) Fallacy of Composition : It occurs when we believe that what is true for a part is true for the whole. d) Fiscal Drag : The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion. e) Laissez-faire economy : An economy in which individuals and firms pursue their own self-interests without any central direction or regulation. f) Federal fund rate: The rate banks are charged to borrow reserves from other banks. 2. Fixed-weighted procedure to calculate the real GDP: use the prices in the base year as weights to calculate real GDP. (2 points) Problems: (1) Many structural changes might have taken place in a long period. The prices in the base year might not be good weights to use for other years. (2) The fixed-weighted procedure does not account for the responses in the economy to supply shifts. (1.5 points for each) 3. UR: The ratio of the number of people unemployed to the total number of people in the labor force. (2 points) The unemployment rate might not be a good indicator to measure the national unemployment. A low national rate of unemployment does not mean that the entire nation is growing and producing at the same rate. (3 points) 4. (2.5 points for each answer; 2 answers) (1) Inflation changes the distribution of income.
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