Problem Set 3-answers - ECON 202 MACROECONOMIC THEORY...

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1 ECON 202 MACROECONOMIC THEORY Problem Set 3-Answer Key MULTIPLE CHOICE 1) B 2) B 3) D 4) C 5) C 6) E 7) E TRUE/FALSE QUESTIONS 1) In the medium run, the output and the price level always return to the same level. FALSE, the price level does not return to the same level. 2) Fiscal policy cannot affect investment in the medium run because output always returns at its natural level. FALSE, fiscal policy affects the interest rates. The output level returns to the natural level but investments will change as the interest rates change. 3) Consider the peak oil argument (oil production will reach a peak in the near future and will start to decrease that will result in an increase in the price of oil). If price of oil rises in the future because of neutrality of this change, the output level will not change but the price level might rise in US in the medium run. FALSE, natural rate of output falls so medium run output levels fall as well. 4) Expansionary monetary policy has no effect on the level of output in the medium run. TRUE, because of the neutrality of money, as money supply increases, price level rises by the same percentage, leaving the output level constant. LONG QUESTION
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Problem Set 3-answers - ECON 202 MACROECONOMIC THEORY...

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