Ec 302 Final Exam Questons And Answers

EC 302 FINAL EXAM QUESTONS
AND ANSWERS
Anq9increaseq9inq9theq9marginalq9propensityq9toq9consumeq9will:q9-q9ANSWERS--
Leadq9toq9theq9consumptionq9functionq9becomingq9steeper

Whichq9ofq9theq9followingq9areq9characteristicq9ofq9Friedman'sq9'Permanentq9Incomeq9Hy
pothesis'?q9-q9ANSWERS---q9Theq9mainq9influenceq9onq9long-
runq9consumptionq9isq9someq9formq9ofq9long-runq9averageq9income
-q9Consumptionq9willq9tendq9toq9beq9aq9constantq9proportionq9ofq9long-
runq9averageq9incomeq9(permanentq9income)

Inflation/CPIq9Equationq9-q9ANSWERS--Infaltionq9t=q9(CPIq9t+1q9-q9CPIq9t)
q9/CPIq9t



Atq9theq9optimalq9levelq9ofq9investment,q9whichq9ofq9theq9followingq9relationq9holds:q9-
q9ANSWERS--P*F(K)q9=q9PK(r+d)



Marginalq9benefitq9ofq9capitalq9=q9Marginalq9costq9ofq9capital

Inq9theq9Modiglianiq9Life-
Cycleq9Theory,q9ifq9theq9numberq9ofq9yearsq9toq9retirementq9decreases,q9lifeq9resourcesq9
willq9________q9andq9currentq9consumptionq9willq9___________q9-q9ANSWERS--
decrease,q9decrease

Ifq9theq9Keynesianq9consumptionq9functionq9isq9givenq9byq9Cq9=q9150q9+q90.60Y,q9andq9Yq9i
ncreasesq9byq91q9unit,q9thenq9savingsq9-q9ANSWERS--Increasesq9byq90.40q9unit

Ifq9aq9pizzaq9Econlandq9hasq9aq9populationq9ofq960q9peopleq9withq940q9ofq9themq9workingq9
producingq9aq9totalq9outputq9ofq9$600,000.q9Theq9standardq9ofq9livingq9ofq9Econlandq9equa
lsq9________q9whileq9averageq9laborq9productivityq9equalsq9________.q9-q9ANSWERS--
10000,q915000

Standardq9ofq9Living:q9Totalq9Outputq9/q9Population

Averageq9Laborq9Productivity:q9Totalq9Outputq9/q9Populationq9ofq9Workers

Ifq9nominalq9GDPq9isq9$15q9trillionq9andq9realq9GDPq9isq9$12q9trillion,q9thenq9GDPq9deflatorq
9isq9givenq9by:q9-q9ANSWERS--

125,q9andq9thisq9indicatesq9thatq9theq9priceq9levelq9hasq9increasedq925%q9sinceq9theq9base
q9year



GDPq9Deflator:q9Nominalq9/q9Realq9*100

Michiganq9beganq9indexingq9itsq9minimumq9wageq9toq9inflationq9inq92010.q9Consequently,
q9whenq9theq9inflationq9rateq9isq95%,q9minimumq9wageq9earnersq9inq9Michiganq9whoq9areq9

, ableq9toq9stayq9employedq9canq9expectq9____________________________.q9-
q9ANSWERS--Aq9nominalq9wageq9increaseq9ofq95%



Supposeq9thatq9theq9baseq9yearq9forq9CPIq9isq92014.q9Theq9costq9ofq9theq9CPIq9basketq9inq9
2014q9isq9$50;q9theq9costq9ofq9theq9basketq9inq92015q9wasq9$60,q9andq9theq9costq9ofq9theq9b
asketq9inq92016q9wasq9$66.q9Whatq9wasq9theq9CPIq9inq92015?q9-q9ANSWERS--
CPIq9Basketq92014=50$
CPIq9Basketq92015=60$
So,q960/50*100q9(Takeq9yearq9youq9wantq9andq9divideq9byq9baseq9year)

=120

Accordingq9toq9theq9quantityq9theoryq9ofq9money,q9whatq9isq9theq9effectq9ofq9anq9increaseq9i
nq9theq9quantityq9ofq9money?q9-q9ANSWERS--Anq9increaseq9inq9theq9priceq9level


Quantityq9theoryq9ofq9moneyq9isq9givenq9byq9Mq9Vq9=q9Pq9Yq9,q9hereq9weq9assumeq9thatq9Vq9
andq9Yq9areq9constant,q9henceq9asq9Mq9↑q9=⇒q9Pq9↑

Anq9increaseq9inq9theq9sensitivityq9ofq9moneyq9demandq9toq9theq9interestq9rate:q9-
q9ANSWERS--Makesq9LMq9curveq9flatter.q9



-
q9Theq9LMq9equationq9isq9givenq9byq9:q9Mq9Pq9=q9kYq9−hi,q9whereq9hq9isq9theq9sensitivityq9ofq9
moneyq9demandq9toq9interestq9rate.q9Henceq9theq9equationq9canq9beq9rewrittenq9asq9iq9=q9k
Y/q9hq9−q9M/Pq9*1/q9hq9,q9soq9asq9hq9increasesq9whenq9allq9otherq9remainingq9constantq9then
q9k/hq9decreases,q9henceq9slopeq9becomesq9flatter.



Whichq9ofq9theq9followingq9areq9characteristicq9ofq9Keynesianq9theoryq9ofq9money?q9-
q9ANSWERS--

Moneyq9canq9beq9usedq9forq9transaction,q9speculativeq9andq9precautionaryq9purposeq9un
derq9Keynesianq9theory.

Moneyq9demandq9isq9elasticq9withq9respectq9toq9interestq9rate

Supposeq9theq9followingq9changesq9happenq9inq9theq9IS-LMq9model;
I.q9Governmentq9increasesq9taxes.
II.q9Centralq9bankq9decreasesq9moneyq9supply.
III.q9Exogenousq9consumption,q9C0,q9isq9increased.

Whichq9ofq9theq9followingq9statementsq9isq9true?q9-q9ANSWERS--
Ifq9IIq9andq9IIIq9happen,q9thenq9theq9equilibriumq9interestq9rateq9willq9definitelyq9increase.


-q9Aq9decreaseq9inq9moneyq9supplyq9shiftsq9theq9LMq9curveq9toq9theq9left
Henceq9increasingq9interestq9ratesq9whereasq9increaseq9inq9C0q9willq9shiftq9theq9ISq9curveq
9toq9theq9right,q9raisingq9interestq9rate.q9

Henceq9whenq9bothq9happensq9thenq9interestq9rateq9willq9increaseq9forq9sure.
Additionq9inq9taxesq9willq9shiftq9theq9ISq9curveq9toq9left,q9decreasingq9theq9interestq9henceq9
resultq9canq9beq9ambiguous