mt2-f2003 - Midterm #2 Econ 100B 125 points total; 62...

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Midterm #2 Fall 2003 Econ 100B Questions 125 points total; 62 minutes total. Question 1 (20 points; 10 minutes) a. (5 points) When real interest rates fall, investment rises. Explain why. b. (5 points) When domestic real interest rates fall, gross exports increase. Explain why. c. (5 points) When nominal interest rates fall, real money demand rises. Explain why. d. (5 points) The IS curve slopes down. Explain why. Question 2 (28 points; 14 minutes) Last week, the U.S. government reported that real GDP increased at an annual rate of 7.2 percent during the third quarter of 2003. a. (8 points) Suppose as a result of this news, businesspeople become optimistic about their future sales. What effect should this have on investment spending? Explain. b. (10 points) In the short run , what effect does this change in investment have on real output? Clearly and in detail, explain why. Supplement your answer with a graph. c.
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mt2-f2003 - Midterm #2 Econ 100B 125 points total; 62...

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