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Problem Set _3

# Problem Set _3 - Name(Last name first name SID UGBA 101B...

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Name: _________________________ (Last name, first name) SID: _________________________ UGBA 101B Macroeconomic Analysis for Business Decisions Professor Steven Wood Summer 2010 Problem Set #3 Due: July 27, 2010 (at the beginning of class) Please sign the following oath: The answers on this problem set are entirely my own work. I neither copied from the work of others nor allowed others to copy from my work. _______________________________________ Signature Any problem set turned in without a signature will be assigned a grade of zero. Problem Set Instructions 1. When drawing diagrams, clearly and accurately label all axis, lines, curves, and equilibrium points. 2. Graphs and equations MAY be drawn by hand. 3. Explanations MUST be word-processed. Your explanations should be succinct and to the point. Problem Set #3 1/13

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A. Multiple Choice Questions (30 points) . Circle the letter corresponding to the best answer. (3 points each.) 1. An increase in expected inflation is likely to cause: a. A decline in the demand for real money balances. b. An increase in the demand for real money balances. c. No change in the demand for real money balances. d. No change in the demand for real money balances only if the income elasticity of real money demand is zero. 2. If there is a financial panic and increased uncertainty about the returns in the stock market and bond market, what is the likely effect on money demand? a. Money demand declines first, then rises when inflation increases. b. Money demand rises. c. The overall effect is ambiguous. d. Money demand declines. 3. If the income elasticity of real money demand is 0.75 and income increases by 8%, by about how much does the price level change when the asset market is in equilibrium? a. Falls by 6%. b. Unchanged. c. Rises by 6%. d. Rises by 8%. 4. A decrease in the effective tax rate on capital would cause the IS curve to: a. Shift to the right. b.
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Problem Set _3 - Name(Last name first name SID UGBA 101B...

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