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ECON 212 exam 1 answer

ECON 212 exam 1 answer - ECON 212 Midterm 1 Answer Key True...

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ECON 212 Midterm 1 Answer Key True or False: 1. False. In the base year, real GDP equals nominal GDP. When there is deflation, real GDP is actually higher than nominal GDP. 2. False. GDP deflator and CPI use different “baskets” of goods and services, so they represent different general price levels. For example, fighter jet price is included in GDP deflator but not CPI. As a result, the inflation calculated from GDP deflator can be different from that calculated from CPI. 3. True. Treasury bond promises to pay back $1,000 at maturity, and the bond price is what buyers pay now for the bond. So the bond yield rate is calculated as (1000 P bond ) / P bond = i, or equivalently, 1000/ P bond =1+i. It is clear that the bond price and its yield rate move in opposite directions. 4. False. Changes in monetary policies affect the financial market and the interest rate, which in turn affects the goods market through investment. 5. True. Changes in fiscal policies affect the goods market and the real GDP, which in turn affects the financial market through changes in money demand. The goods market and the financial market are
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