# Midterm I_answers - ECON 202 Macroeconomic Theory Fall 2011...

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ECON 202 Macroeconomic Theory Fall 2011 MIDTERM I Thursday, 3 November 2011 17:40-19:30 in G110 Please answer the following questions. Write your answers clearly on the midterm. You can achieve a total 100 points. There are 6 short questions followed by two long questions (weighed 70/100). You should read all of the questions first. There is a blank page attached at the end of the midterm to be used as scratch paper. GOOD LUCK! NAME ………………………………………………………. NUMBER …………………………………………………… (This table is for the instructor use only) Total Short Questions Long Questions Total

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SHORT QUESTIONS (30 points) Multiple Choices (5 points each) (For partial points write your explanation) 1) Consider a closed economy where T=G, I>0. Then, private saving is: A) Equal to public saving. B) Cannot answer this question with the available information. C) Bigger than public saving. D) Bigger than investment. E) Smaller than public saving. S + (T-G) = I T-G=0 S=I > 0 > (T-G) = 0 2) Which of the following combinations of monetary and fiscal policies is sure to decrease interest rates? A) Increase MS, Increase T B) Increase MS, Decrease T C) Decrease MS, Increase T D) Decrease MS, Decrease T 3) The money multiplier A) May be equal to 1 if and only if people decide not to deposit their money in banks. B) May be equal to 1 if and only if banks put in reserves all the deposits they get. C) May be equal to 1 if and only if people decide to have all their money in currency or banks don’t lend or buy bonds with the deposits they get. D) Must always be greater than 1.
Money multiplier= 1/c + ɵ (1-c), When c=1 or ɵ =1 the multiplier is equal to 1. Please state whether the following two statements are TRUE or FALSE (there is no uncertain choice) with a short explanation (3 or 4 lines).

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