Economics 100B Professor K. Kletzer University of California, Santa Cruz Fall 2008 Sample MidtermInstructions: Do all three parts. Graphs are useful for illustrating and explaining your answer, but you must use words to fully explain what you are showing in a graph. A graph by itself is not an answer. Part A(45%) Choose any 3of the following 4statements. For each one you choose, state whether it is true, false or ambiguous and explain why. You must provide an explanation to receive any credit. A1) An increase in the money supply raises GDP in the short run and in the medium run. A2) An income tax cut raises investment and GDP in the short run but has no effect on investment or GDP in the medium run. A3) In transition from the short run to the medium run, a fiscal expansion reduces unemployment and increases inflation. A4) An oil price shock raises unemployment in the short run but not in the medium run. Part B(25%) Answer each part.
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