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Final Exam Practise 2011 BU - 1 EC140 Final Exam Answers...

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1 EC140 Final Exam, April 12, 2010: Answers PART A: Multiple Choice Version A Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 1.E 6.D 12.D 15.B 19.C 24.E 29.D 35.E 41.D 46.B 2.B 7.A 13.B 16.A 20.A 25.C 30.D 36.D 42.B 47.A 3.A 8.D 14.A 17.E 21.E 26.D 31.D 37.A 43.A 48.C 4.A 9.D 18.D 22.E 27.B 32.B 38.A 44.A 49.D 5.A 10.B 23.A 28.E 33.D 39.A 45.C 50.B 11.E 34.D 40.C PART B: Short Answer Questions Please see the following pages.
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2 Question 1 (10 Marks) a) In the diagram on the LEFT above show the SHORT-RUN effects on the economy of an increase in desired investment spending . Identify the new short-run equilibrium as E 1 and label the new short-run equilibrium levels of real GDP and price level as Y 1 and P 1 . [2 marks] b) In the diagram on the RIGHT above show the LONG-RUN effects on the economy of this increase in desired investment spending. (Assume no change in potential output.) Identify the new long-run equilibrium as E 2 and label the new long-run equilibrium values of real GDP and price level as Y 2 and P 2 . (You may find it useful to redraw the short-run equilibrium from part a) and then show the new long-run equilibrium.) [3 marks] c) Briefly explain what happens during the adjustment process from the short-run equilibrium to the long-run equilibrium and why it happens in that way.
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