Midterm Exam 2, Econ 102
March 15, 2010
This exam has two parts: a multiple choice section consisting of 20 questions, and a short
answer/graphing section, also worth 20 points. You will submit all exam materials (scantron, question
booklet and completed short answers) and sign yourself out at the end of the exam.
Given the following information about the economy of Lorch, what is the level of investment
spending and private savings?
rGDP=100 million , C=80 million,
T=10 million, TR=5 million, G=15 million,
X=10 million, IM=12 million
The government of a country decides to run a higher budget deficit than before, and banks and
savers realize that this increases the government’s risk of defaulting. What do you expect to happen
to the equilibrium in the loanable funds market?
interest rate increases, quantity increases
interest rate increases, quantity decreases
interest rate increases, quantity unchanged
interest rate increases, quantity is indeterminate
Mr. C. Pig is considering an investment in a business project.
By his original estimates, the
project’s revenue is $22, and his rate of return will be 10%.
An economist tells him that the project
will actually earn him $30.
What is the highest interest rate that Mr. Pig will now be willing to pay
up to what in order to carry out the investment?