P_MT2_ANSWER_SP08

P_MT2_ANSWER_SP08 - Economics 1102 Lecture 013 Spring...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
0 Economics 1102 Lecture 013 Spring Semester 2008 Midterm 2 PRACTICE ANSWER April 11, 2008 10:10-11:00 AM Name: . TA name: . Recitation #: (4 pts ) For full credit, graphs must be completely LABELED and math work shown. Be sure to justify your answers clearly and precisely for full credit, even if question does not explicitly ask for justification. Each page may have has its own directions. Follow the directions carefully. The value of the problems sum to 110 points, but a maximum score for this assignment is 100 points. Nothing over 100 points will be counted. Rambling or incoherent responses shall be penalized even if correct. Points are rewarded for answers consistent with those your instructor would give to the same question. This exam is 7 pages (including this front page), numbered 0-7. If questions ask for x parts, only the first x parts will be graded. For grading only: score received on the following PAGE 0 1 2 3 4 5 6 7 . Total
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1 I. ( 20 pts, 5 pts each ) Answer 4 of the following 5 parts. Give the definition for each of the following. a) Bank A bank is a financial intermediary (1 pt) that sells liquid assets (checking and savings accounts) to consumers for currency, (1 pt) and then uses those funds for large illquid asset purchases or investment projects. (1 pt) The distinguishing feature of a bank (from other financial intermediaries) is that consumer can withdrawal funds at any time. (2 pts) b) Adverse selection An insurer has an undesirable selection of people who want insurance c) Asset An object with economic value (either intrinsic or not) that is owned as a store of value and the entitlement of future benefit The most important aspect is the [expectation] of providing future benefit. 3 pts for this. d) Collateral An object of value that is given to a lender if the borrower defaults. Used as incentive for repayment of the loan. e) Potential output The amount of output (RGDP) the economy produces when all prices (including the price of labor, wage) are fully flexible (not sticky or fixed) Do not have to specify wages are flexible, but if say wages are sticky, fixed, or not flexible give only 3 pts.
Background image of page 2
2 II. ( 20 pts, 5 pts each ) Answer 4 of the following 5 questions. a) Explain why the SRAS is upward sloping. In the short run, it is assumed wages (costs of production) are fixed (or sticky). (1 pts) Thus when there is a change to the price level, firms must respond by adjusting output (quantity supplied). (2 pts) (From micro we know EXPLAIN MORE) when price increase firms choose to increase output and when price decrease firms choose to decrease output. (1 pt) Thus output and price move together giving an upward slope. (1 pt) b) Explain the concept of the multiplier. Why is it important? The idea that when there is an injection or withdrawal of funds into the economy, the funds flow
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

P_MT2_ANSWER_SP08 - Economics 1102 Lecture 013 Spring...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online