# Midterm 1 Answer Key - Economics 002 Professor Feldman...

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Economics 002 Name: ____________________________________ Professor Feldman Midterm Exam # 1 Section: ____________________________________ February 10, 2009 (Time and TA’s name) You have 1 hour 10 minutes to complete the exam, which consists of: 12 True/False questions (circle either “True” or “False”) – Each question is worth 5 points 22 Multiple choice questions (circle the correct answer) – Each question is worth 10 points 2 short-answer questions – The first is worth 30 points and the second is worth 15 points The total number of points is 325. If you are having trouble with a question, you may want to skip it at first and come back to it later. For any calculation that involves averages, use a simple average—i.e., the average of 4 and 6 is (4 + 6)/2 = 5. You may refer to one 3 x 5 card with your written notes and use a calculator, but you may not use any other notes or reference. Good luck. True or False Questions 1. True or False? When a surplus exists in a market, the actual price will begin to decrease. TRUE 2. True or False? The discovery that wearing a hat reduces skin cancer would be likely to move the market from point A to point B. FALSE

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3. True or False? A student who is not looking for work but will graduate in six months would be considered part of the labor force but not unemployed. FALSE 4. True or False? During a recession, people may drop out of the labor force because they are unable to find a job and this would cause the unemployment rate to increase? FALSE 5. True or False? If a woman marries her nanny, who becomes a stay-at- home husband, GDP falls. TRUE 6. True or False? Value added is the final sales value of a firm’s output. FALSE 7. True or False? A nominal interest rate of 50 percent means that the real interest rate must be very high. FALSE 8. True or False? A higher interest rate raises the price of consuming today relative to consuming in the future. TRUE 9. True or False? Potential GDP is the maximum attainable level of real GDP. FALSE 10. True or False? With reference to the spending allocation model, all spending shares must be positive? FALSE 11. True or False? In the spending allocation model, income tax cuts would move real interest rates in the same direction as cuts in government spending. FALSE 12. True or False? Differences in the natural rate of unemployment across countries reflect differences in each countries position in the business cycle. FALSE Multiple Choice Questions 2

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