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# Problem Set _4 ANSWERS Corrected - Name(Last name first...

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Problem Set #4 (Spring 2011) 1/5 Name: _________________________ (Last name, first name) SID: _________________________ GSI: _________________________ Econ 100B Macroeconomic Analysis Professor Steven Wood Spring 2011 Problem Set #4 ANSWERS Corrected Due: March 29, 2011 (in class before 3:50:01 p.m.) Turn your completed problem set in to your GSI 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. You MUST complete your problem set on this template. 2. Graphs and equations MAY be drawn by hand. When drawing diagrams, clearly and accurately label all axis, lines, curves, and equilibrium points. 3. Explanations MUST be word-processed. Your explanations should be succinct and to the point.

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Problem Set #4 (Spring 2011) 2/5 A. Multiple Choice Questions (15 points) . Circle the letter corresponding to the best answer (3 points each). 1. Finland and Sweden have very similar economies and their aggregate demand curves are similarly responsive to inflation while their aggregate supply curves are similarly responsive to output gaps. If Finland has a larger positive output gap than Sweden, then: a. Inflation is lower in Finland than in Sweden. b. Inflation is higher in Finland than in Sweden. c. Inflation will accelerate faster in Finland than in Sweden. d. Disinflation will be more rapid in Finland than in Sweden. 2. It has been argued that higher inflation causes business firms to become permanently less efficient because they now have more pricing power. If this were true and economic output was initially at its potential level, then compared to the standard model, a fiscal expansion would cause: a. Disinflation. b.
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Problem Set _4 ANSWERS Corrected - Name(Last name first...

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