Exam_02_Key - Department of Economics UNC-Chapel Hill...

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Department of Economics UNC-Chapel Hill Econ420 – Instructor: E. Cabezon Midterm II- Summer S1 2011 Last Name: ___________________________Name:_____________________________ Part I: 60%: Mark the correct answer to each of the questions on your scan page IS-LM with Fixed Prices (questions 1 to 8) 1. In calculating the IS curve, _______ is taken as exogenous a. the interest rate. b. aggregate income. c. the price level.* d. investment. 2. If the consumption function is given by C = 100 + 0.75(Y-T), then a decrease of 10 units in taxes will cause the IS schedule to shift to the a. right by 30.0 units.* b. right by 7.5 units. c. right by 7.5 units. d. left by 30.0 units. 3. According to Keynes' theory of money demand, a low interest rate increases the likelihood of a capital ________. a. gain on bonds. b. loss on bonds.* c. gain on money. d. loss on money. 4. The intuition behind the slope of the LM curve is that a. as the interest rate increases, the money supply increases and income increases. b. as the interest rate increases, investment and income decreases. c. as income increases, money demand increases which increases interest rates.* d. as income increases, money demand decreases which decreases interest rates. 5. An increase in the demand for money for given levels of income and interest rate would shift the: a. IS schedule up. b. IS schedule down. c. LM schedule up*. d. LM schedule down. 1
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6. Assume that investment does not depend on the interest rate. A reduction in government spending will cause: a. no change in the interest rate. b. no change in output. c. no change in investment.* d. an increase in investment. 7. Panel (a) depicts a ___________________in comparison with panel (b) depicts a. lower interest rate elasticity of money demand*. b. higher interest rate elasticity of money demand. c.
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This note was uploaded on 06/16/2011 for the course ECON 420 taught by Professor Na during the Summer '11 term at University of North Carolina School of the Arts.

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Exam_02_Key - Department of Economics UNC-Chapel Hill...

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