c. Consumers become more confident about the economy and increase their spending.Econ 102, Section 100 NAME: (print) _______________________________ Final Exam, Form 1 UM ID # _____________________ Section #______________ Econ 102/100 Final Exam April 19, 2007 Section Day Time Location GSI 101 Friday 2:30-4 140 Lorch JB 102 Friday 11:30-1 1202 Ed. School Sue 103 Friday 1-2:30 140 Lorch Angus 104 Friday 10-11:30 1202 Ed. School Sue 105 Friday 2:30-4 140 Lorch Angus 106 Friday 10-11:30 1202 Ed. School Omar 107 Friday 1-2:30 140 Lorch JB 108 Friday 11:30-1 1202 Ed. School Omar 109 Friday 11:30-1 140 Lorch Brian Instructions • Do NOT open this exam booklet until instructed to do so! • Please take a moment to complete the identification information on the scantron. Indicate your NAME, discussion SECTION number, FORM number, and UM ID number. THIS IS WORTH TWO POINTS ON THE EXAM! • The exam has 139 points and you will have 2 hours to complete the exam. Check that you have all 14 pages of the exam. • Read the questions and these instructions carefully! • Use the space provided in this booklet and the back of the pages to work out the answers to the multiple choice problems. Use the space provided on the actual page for the short answer questions. • You can use only NON-graphing calculators. • For multiple choice questions, you get 3 points for a correct answer, 0 points for a blank, and 0 points for a wrong answer. There are NO penalties for guessing. • Sign the honor code below! Honor Code: I did not use any unauthorized aid on this exam. Signature: _____________________________________ 1Part I: Multiple Choice: (39 questions, 3 pts each=117 points) 1. Which of the following would NOT shift the US Aggregate Demand curve? a. A decrease in reserve requirements for US commercial banks. b. A rise in the US price level. c. A decrease in the US money supply. d. A deep recession in Europe. e. A cut in the US income tax. 2. Using the AD-AS model, which of the following COULD explain a short-run rise in the price level with no change in the level of unemployment? a. A rise in oil prices. b. An increase in government spending. c. An investment tax credit. d. An investment tax credit combined with a decrease in government spending. e. An investment tax credit combined with a rise in oil prices. 3. Which of the following changes is MOST LIKELY to shift the Long Run Aggregate Supply (LRAS) curve to the right? a. A permanent increase in the minimum wage to $10 per hour. b. A decrease in the expected price level. c. The introduction of new import quotas, which will remain in place forever. d. An increase in the capital stock. e. An expansion of the number of troops in the volunteer army. 4. In the AD-AS model, which of the following describes the transition from short-run to long run equilibrium? a. After a demand shock, the AD curve shifts back to its initial position. b. After a supply shock, the AS curve shifts back to its initial position. c. After a supply shock, AD shifts in the opposite horizontal direction to that of AS. d. After a demand shock, AS shifts in the same horizontal direction as AD. e. None of the above. 5. Suppose the Fed increases the money supply. Which of the following statements about the short-run effects of this policy is false? a. The interest rate decreases. b. Output goes up. c. Investment increases. d. Consumption increases. e. All of the above statements are correct. 26. Suppose a rumor spread through Wall Street that Fed Chairman Ben Bernanke has changed his opinion about inflation and is now more tolerant of higher price levels. The rumor is false, but people believe it anyway. Which of the following would be a short-run effect of this rumor? a. Money supply increases, shifting AD to the right and leading to higher output and a higher price level. b. Expected prices are higher, shifting AS to the left and leading to lower output and a higher price level. c. Businesses become more optimistic about future profitability. As a result, they increase their investments, shifting AD to the left. d. People increase their savings in anticipation of higher future prices. This leads to a decrease in consumption, shifting AD to the left. e. Expected prices are higher, shifting AS to the right and leading to a higher output and lower price level. 7. The country of Econostan produces and consumes fruits, vegetables, and electronic gadgets. It imports and consumes olive oil, cars, and chocolate. If the prices for oil and cars increase and the prices of vegetables go down, then: a. CPI goes up while the GDP deflator goes down. b. GDP deflator goes down while the change in CPI is ambiguous. c. GDP deflator goes up while CPI remains the same. d. CPI goes up while the change in GDP deflator is ambiguous. e. None of the above. Answer the following question using the information provided in the table below: year 2001 2001 2002 2003 Real GDP 100 120 140 150 Nominal GDP 110 140 150 170 8. To the nearest percent, and based on the GDP deflator, what is the inflation rate between 2002 and 2003? a. 3% b. 4% c. 6% d. 5% e. None of the above. 39. Which of the following is a CORRECT statement about the GDP deflator? a. The GDP deflator rises in proportion to the amount of real output in the economy. b. When unemployment increases, the GDP deflator must fall. c. The GDP deflator reflects the prices of goods and services produced in the economy regardless of whether they are consumed. d. If you are given nominal GDP and the CPI, you can calculate the GDP deflator. e. The GDP deflator and the CPI will show the same rate of inflation. 10. In 2006, Brian (a U.S. citizen) rented an apartment in a building owned by a U.S. company. The building was built in 1974. Brian paid the rent using money that he earned by working in the U.S. in 2006. Which of the following statements is CORRECT? a. Since we don’t know who paid Brian for his labor, we can’t say how Brian’s rent affects U.S. GDP. b. Because the apartment building is an existing structure, Brian’s rent does not affect U.S. GDP. c. If the U.S. company does not spend Brian’s rent, the rent will decrease U.S. GDP. d. Brian’s rent adds to U.S. GDP. e. None of the above. 11. Consider the market for Loanable Funds in a closed economy. Which of the following