mt2-f2004 - Midterm #2 Econ 100B 125 points total; 62...

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Midterm #2 Fall 2004 Econ 100B Questions 125 points total; 62 minutes total. (2 points per minute) Question 1 (25 points; 12 minutes) (A) (5 points) When real interest rates fall, what happens to investment spending? Why? (B) (5 points) When nominal interest rates fall, what happens to real money demand? Why? (C) (5 points) When an economy is experiencing hyperinflation, everyone blames the government authorities who control the money supply. Why? (D) (5 points) When the amount of output produced is unchanged from one year to the next but the potential (full-employment) amount of output rises between the same two years, what happens to the unemployment rate? Why? (E) (5 points) What is a “yield curve”? Draw a graph of a typical yield curve at right. Question 2 (10 points; 5 minutes) Explain how the development of information technology (IT, including the internet) may have made the economy more responsive in the short run to Federal Reserve changes in the interest rate. Question 3 (10 points; 5 minutes) Last Wednesday, the Federal Reserve increased short-term interest rates by one-quarter point. In the short run
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mt2-f2004 - Midterm #2 Econ 100B 125 points total; 62...

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