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Econ 320  001
Midterm Exam #1, February 15, 2008
The exam has a total of 17 questions (150 points). You will have 50 minutes to complete the exam. Good
Luck!
Print your Name_______________________________
Sign the honor Pledge affirming that you have neither given nor received aid on this exam and have
complied with all of the rules of this exam.
Signature______________________________________
Turn this sheet and the scantron sheet in with your answers.
I. Multiple Choice (50%)
Instructions:
For
questions
115,
mark the letter for the best answer choice for each question on the computer
readable (scantron) answer sheet. Each question in this section is equally weighted.
Read each question carefully
Tips:
For the Cobb – Douglas production function (Y=AK
α
L
1
α
), the MP
K
=
α
AK
α
1
L
1
α
and
the MP
L
= (1
α
)AK
α
L

α
1.
(5 pts) If the real interest rate is 6 percent and inflation is 3 percent, then the opportunity cost of
holding money is ______ percent.
a.
2
b.
3
c.
6
d.
9
2.
(5 pts) The inconvenience associated with reducing money holdings to avoid the inflation tax is
called:
a.
menu costs.
b.
shoeleather costs.
c.
variable yardstick costs.
d.
Fixed costs.
3.
(5 pts) If the real interest rate and real national income are constant, according to the quantity
theory and the Fisher effect, a 1percent increase in money growth will lead to rises in:
a.
inflation of 1 percent and the nominal interest rate of less than 1 percent
b.
inflation of 1 percent and the nominal interest rate of 1 percent
c.
inflation of 1 percent and the nominal interest rate of more than 1 percent
d.
both inflation and the nominal interest rate of less than 1 percent
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 Fall '08
 NEDITA

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