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RHW3 – ANSWERS TO SELECTED QUESTIONS GRADE DISTRIBUTION Final Score Number of Points Number of Students 0 - 5 4 >5 - 10 2 >10 - 15 5 >15 - 20 15 >20 - 25 19 >25 - 30 27 >30 - 35 42 >35 - 40 74 >40 - 45 54 >45 - 49 18 Submissions 260 Total Score Possible 49 Mean 34.31 Median 36.5 Mode 39, 42 2 13 18 19 23 25 37 41 Question2 - Single Correct 1.0 Point Suppose the economy is initially in long-run equilibrium. Which of the following events leads to a decrease in the price level and real GDP in the short run? A a decrease in health insurance premiums paid by firms raises the cost of employing labor B an increase in government transfer payments C an increase in the cost of a key input such as oil D a sharp fall in stock market prices FALL IN DEMAND WILL LOWER P&Q (SEE GRAPH, MOVING FROM AD2 TO AD1. THIS COULD BE CAUSED BY STOCK MARKET DECLINE, LOWERING WEALTH AND REDUCING CONSUMPTION THROUGH THE WEALTH EFFECT
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Price level SRAS 2 DS R A S 1 C B A AD 2 1 Real GDP per year Y p Y b P d P C P b P a Question13 - Single Correct 1.0 Point Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways? A To fund the government spending, more money must be printed. The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending. B The initial change in spending will cause an increase in real GDP and it also becomes income to someone else. As a result, the government's tax revenue increases which in turn allows the government to further increase its spending.
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This note was uploaded on 10/09/2011 for the course ECON 103 taught by Professor Lin during the Spring '08 term at Rutgers.

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