Economics 102h                             Spring 1997 Final Exam

1) Complete each of the following diagrams by labeling the axes, the curves and any important
points in the diagram or attributes of the
curves.  (17 points)














































































2) Explain the following "equation of exchange", M*V=P*Y.  What are each of these variables? 
Monetarism places special emphasis on V.  What is this emphasis and what implications follow? 
(11 points)
























3) Many people argue that the government budget should be balanced.  Criticize bad reasons for
budget balancing and explain good reasons for balanced budgets.  (15 points)4) For each of the following cases, use ?,  or  to depict what happens to the listed economic
variables.  Unless otherwise indicated, assume the aggregate supply curve is upward sloping. 
You may use the space provided to draw diagrams justifying or deriving your results. (42 points)

     A.  Government spending is increased.

____ Real GDP ____ Price level ____ Interest rates _____ Consumption ____ Investment

____ Unemployment ____ Quantity of Money















     B.  Oil producing countries raise the world price 

____ Real GDP ____ Price level ____ Interest rates _____ Consumption ____ Investment

____ Unemployment ____ Quantity of Money

















     C.  Europe's economy expands rapidly

____ Real GDP ____ Price level ____ Interest rates _____ Consumption ____ Investment

____ Unemployment ____ Quantity of Money















     D.  The Federal Reserve sells government bonds

____ Real GDP ____ Price level ____ Interest rates _____ Consumption ____ Investment

____ Unemployment ____ Quantity of Money
     E.  Consumer confidence about the future rises

____ Real GDP ____ Price level ____ Interest rates _____ Consumption ____ Investment

____ Unemployment ____ Quantity of Money












     F.  A supply-side tax cut takes effect

____ Real GDP ____ Price level ____ Interest rates _____ Consumption ____ Investment

____ Unemployment ____ Quantity of Money
5) Define the following terms. (10 points, 2 points for each)
     1.  Comparative advantage




     2.  Exchange rate




     3.  Required reserve ratio




     4.  Structural budget deficit




     5.  Inflationary gap




6) Describe the "simplified multiplier".  (How is it computed?)  Why is this multiplier an over
estimate of the true multiplier?   (10 points) 7) Describe the "simplified" money multiplier.  (How is it computed?)  Why is this an upper
bound on the true value of the money multiplier?  (10 points)