# Ecn204 Midterm Practice

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ECN 204 - 071 2-29-12 204W12T Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Other things the same, a government budget deficit a. reduces both public and national saving. b. increases both private saving and national saving. c. increases public saving but reduces national saving. d. reduces private saving, but increases national saving. 2. If the current market interest rate for loanable funds is below the equilibrium level, then there is a a. surplus of loanable funds and the interest rate will fall. b. shortage of loanable funds and the interest rate will fall. c. surplus of loanable funds and the interest rate will rise. d. shortage of loanable funds and the interest rate will rise. 3. Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent. a. The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent. b. The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent. c. The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 2 percent. d. The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent. 4. If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is a. 8 percent. b. 4 percent c. 6 percent. d. 12 percent. The following questions are based on the following information: Scenario 24-1 Grant Smith was a doctor in 1944 and made about \$12,000 a year. His daughter Lisa Smith also is a doctor and she made about \$175,000 in 2006. The price index in 1944 was 17.6 and the price index was 192 in 2006. ____ 5. Refer to Scenario 24-1. What is Lisa's income in 1944 dollars? a. \$17,401 b. \$19,322 c.