test2s07 - Your Name Econ 202 Second Test Spring 2007 TA's...

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Your Name ____________________ E con 202, Second Test, Spring 2007 TA’s Name ___________________________ Mr. Coppock/Miss Hastedt Discussion Day & Time ________________ 90 Points Possible (12 questions) 1. (10 points) You work in the loan department at SunTrust Bank in Charlottesville. The owner of Bodo’s comes in and borrows $5,000 for one year, at an interest rate of 6%. Over the course of the same year, inflation increases to 10%. A. What is the real interest rate on the loan to Bodo’s? B. Which side of the loan arrangement benefits from this increase in inflation? Who is harmed? C. What do you expect to happen to interest rates in the next year as a result of the inflation? D. Suppose the government places a cap on interest rates equal to 5%. What will this do to the equilibrium level of investment? E. Ten percent inflation is a substantial increase over current inflation rates. What was the CPI inflation rate between February 2006 and February 2007?
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2. (16 points) Robert Solow published two papers that still serve as the basis for growth theory (these are the papers we have called Solow I and II). A. Approximately when were these papers published? B. What political developments occurred over the next decade to give economists a unique opportunity to apply Solow’s growth models?
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This note was uploaded on 04/07/2008 for the course ECON 202 taught by Professor Coppock during the Spring '08 term at UVA.

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test2s07 - Your Name Econ 202 Second Test Spring 2007 TA's...

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