Question Econ 102 – Final Exam This exam has 50 multiple choice questions, each worth

Econ 102 – Final Exam

This exam has 50 multiple choice questions, each worth 2 points. You do not lose any points for incorrect answers. You will have 2 hours to complete the exam. Make sure you fill in your name and form number on your scantron sheet. If you do not, you will lose 5 points for each item you neglect.

1. The nominal interest rate on a one year loan was 8% and both borrowers and lenders anticipated an inflation rate of 3%. Reality didn’t match expectations, however, and the economy experienced deflation of 2%. The real interest rate the borrower expected to pay was _______, the real interest rate she actually paid was _______, and the Fisher effect will drive the nominal interest rate at the end of the year to _______.
a. 11%; 9%; 11%
b. 5%; 11%; 10%
c. 10%; 11%; 3%
d. 9%; 5%; 10%
e. 5%,; 10%; 3%
2. If currency in circulation is $100 million, checkable deposits are $500 million, savings deposits are $300 million and travelers’ checks are $10 million, M1 is:
a. $610 million
b. $900 million
c. $410 million
d. $910 million
e. $100 million
3. Liquidity traps arise when
a. Nominal interest rates are low and the Fed tries to increase the money supply.
b. Real interest rates are low and the Fed tries to decrease the money supply.
c. Inflation rates are low and the Fed tries to decrease the money supply.
d. Nominal interest rates are low and the Fed tries to decrease the money supply.
e. Real interest rates are low and the Fed tries to increase the money supply.
4. The classical model of prices is a better description of the economy when
a. unemployment is near the NAIRU level.
b. rates of inflation are unusually high.
c. the aggregate supply curve is upward-sloping, not vertical.
d. changes in the money supply serve to boost rGDP.
e. wages and prices are slow to adjust to changes in the money supply.

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