mt2-f2007 - Economics 100B Midterm#2 100 points 80 minutes...

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Economics 100B Midterm #2 100 points, 80 minutes, 20% of grade Question 1 (15 points total; 11 minutes total) a. (5 points) Explain why an increase in interest rates in the United States, all else constant, causes a decrease in the nominal exchange rate and a decrease in the real exchange rate. b. (5 points) Explain why an increase in interest rates, all else constant, lowers investment spending. c. (5 points) Explain why an increase in interest rates, all else constant, lowers stock prices. Question 2 (25 points total; 18 minutes total) Suppose the following equations describe the economy. C = 1,000 + 0.7Y D I = 2,000 - 2,000r G = 1,000 g = 100 - 800(r - 0.10) = 180 - 800r T = 0.2Y IM = 0.15Y GX = 600 + 10 g Y* = 10,000 a. (15 points) Solve for the equilibrium value of the real interest rate. If you can’t solve this without a calculator (tsk tsk), set it up and go as far as you can to get as much partial credit as possible. Please put a box around your answer. b.
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This note was uploaded on 02/04/2011 for the course ECON 100B taught by Professor Wood during the Fall '08 term at Berkeley.

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mt2-f2007 - Economics 100B Midterm#2 100 points 80 minutes...

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