ANSWER KEY - EXAM #1



I. Multiple Choice

1)C
2)D
3)B
4)D
5)A
6)A
7)D
8)D
9)B
10)A
11)B
12)A
13)A
14)D
15)B

II. Analytical Problem

a. graphical - points taken off x-axis and y- axis are not properly labeled.
b. Surplus of $4 billion, interest rate should fall
c. 8%
d. graphical - demand curve shifts to the right.  New equilibrium interest rate at 10%, new equilibrium quantity at $8billion
e. In the new homes market, demand should shift to the left, as interest rates rising should lower the demand for new homes.  Equilibrium quantity and price of new homes will fall
f. Equilibrium quantity rises, equilibrium interest rate falls