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Unformatted text preview: Middle East Technical University Fall, 2011 Department of Economics ECON 202 Dr. Pınar Derin-Güre Name___________________________________ Due Date: Tuesday, November 25 , 2011 FRIDAY (Room A26) . No late problem sets will be accepted. Note: Please keep your answers short ! In most cases one or two sentences will be more than enough. If your answers are too long or contain obviously irrelevant information you may incur a penalty, i.e. brevity in your responses is strongly recommended. If you would like, you may work in small groups of 2-4 people to discuss the problem sets. However, you must write up answers individually. If you decide to work in a group, please list the names of the group members on your problem set. A note on academic integrity: As the syllabus clearly states, work that you hand in should be your own work: “A student shall not submit work […] that is not the result of the student’s own effort.” Please show your work for full credit on analytical questions, i.e., show the formulas, calculations (if appropriate). Do not report only the final answers for the essay questions. MULTIPLE CHOICE ANSWERS WILL BE HANDED IN USING THE OPTICAL FORMS. I WILL HAND IN THE EMPTY OPTICAL FORMS IN CLASS ON TUESDAY. This Problem Set covers material from Chapters 6, 7 in Blanchard and Lecture Notes. SHORT QUESTIONS Multiple Choices 1) Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for a tax cut. This fiscal expansion will, in the medium run, have no effect on which of the following? A) the interest rate B) employment C) the price level D) all of the above E) none of the above 2) The aggregate demand (AD) curve presented in the textbook has its particular shape because of which of the following explanations? A) An increase in the money supply (M) will cause a reduction in the interest rate, an increase in investment, and an increase in output....
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