2 EC 102 AA,BB, Fall 2023, Midterm 2, Version A (1)

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ECON 102: Introductory Macroeconomic Analysis SECOND MIDTERM EXAM, Version A November 10, 2023 This exam contains 30 multiple choice questions. Identify the letter of the choice that best completes the statement or answers the question. Each question is worth an equal number of points. Be sure to answer questions on the bubble answer sheet provided. Any questions answered on the test question sheets will not be counted. Calculators are allowed. _______________________________________________ Please write your name on the test sheet and on the bubble sheet. VERY IMPORTANT : Write “A” in the space provided on the bubble sheet to indicate the version of your exam. Both the test sheet and the bubble sheet must be turned in at the end of the exam. _______________________________________________
Figure 17-1 1.
Refer to Figure 17-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point C , which of the following must be true? a.
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Aggregate demand must have decreased. b .
Short-run GDP at point C must be above potential GDP. c.
The Federal Reserve raised interest rates. d .
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The economy is producing a level of GDP equal to potential GDP. 2.
If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will a.
increase consumption by $7,500. b .
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decrease consumption by $7,500. c.
decrease consumption by $2,500. d .
increase consumption by $2,500. 3.
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The five most important variables that determine the level of consumption are a.
government purchases, saving account balances, wealth, the interest rate, portfolio balances. b .
disposable income, wealth, expected future income, price level, and the interest rate. c.
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government purchases, the interest rate, income, taxes, and transfers. d .
wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances. 4.
The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation. What did this technological change do the short-run supply curve? a.
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It moved the economy up along a stationary short-run aggregate supply curve. b .
It shifted the short-run aggregate supply curve to the left. c.
It moved the economy down along a stationary short-run aggregate supply curve. d .
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It shifted the short-run aggregate supply curve to the right. 5.
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A decrease in transfer payments will a.
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increase aggregate demand. b .
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increase disposable income. c.
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decrease aggregate demand. d .
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decrease aggregate expenditure. 6.
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________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding. a.
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Net Exports b .
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Planned investment c.
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Consumer spending d .
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Tax revenues 7.
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Investment spending does not include a.
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spending on consumer durable goods. b .
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changes in inventories. c.
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spending on new capital equipment. d .
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spending on new houses. 8.
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If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is a.
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1.20. b .
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0.80. c.
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0.70. d .
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0.10. Figure 13-3 9.
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Refer to Figure 13-3. Suppose the economy is at point A . If the economy experiences a negative supply shock, where will the eventual long-run equilibrium be? a.
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A b .
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B c.
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C d .
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D 10.
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Refer to Figure 13-3. Suppose the economy is at point C . If government spending decreases in the economy, where will the eventual long-run equilibrium be? a.
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A b .
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B c.
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C d .
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D 11.
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A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, purchasing power parity predicts that a.
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the zloty is overvalued. b .
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the dollar is undervalued. c.
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the dollar is overvalued. d .
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both the zloty and dollar are undervalued. 12.
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Long-run macroeconomic equilibrium occurs when a.
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the AD and SRAS curves intersect. b .
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actual GDP is above potential GDP. c.
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the AD, SRAS and LRAS curves intersect at a common point. d .
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structural and frictional unemployment equal zero. 13.
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An increase in U.S. interest rates relative to interest rates in the rest of the world will a.
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raise exports and lower imports. b.
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lower exports and raise imports. c.
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raise exports and raise imports. d.
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lower exports and lower imports. 14.
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Assume the U.S. is the domestic country, and India is the foreign country. If the exchange rate between the U.S. dollar and the Indian rupee (rupees per dollar) is greater than P India /P US , which of the following would be true? a.
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Purchasing power parity predicts that the value of the dollar will rise as traders take advantage of arbitrage opportunities. b .
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Purchasing power parity predicts that the dollar is undervalued as traders take advantage of arbitrage opportunities. c.
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There are no arbitrage opportunities for which traders can take advantage. d .
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There are opportunities for profit by purchasing goods in India and then selling them in the United States. 15.
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Investment spending will decrease when a.
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the interest rate falls. b .
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business cash flow decreases. c.
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the corporate income tax decreases. d .
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firms become more optimistic about earning future profits. 16.
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Suppose the economy at the natural rate of unemployment. A decrease in investment causes the price level to ________ in the short run and ________ in the long run. a.
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decrease; increase b .
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decrease; decrease further c.
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increase; decrease d .
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increase; increase further 17.
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If the U.S. dollar decreases in value relative to other currencies, how does this affect the U.S. aggregate demand curve? a.
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This will move the economy up along a stationary aggregate demand curve. b .
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This will shift the aggregate demand curve to the right. c.
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This will shift the aggregate demand curve to the left. d .
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This will move the economy down along a stationary aggregate demand curve. 18.
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If the exchange rate changes from $2.00 = £1 to $2.01 = £1 then a.
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the British pound has stayed constant in value. b .
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the dollar has depreciated. c.
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the dollar has appreciated. d .
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the British pound has depreciated. 19.
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An increase in the price level will a.
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decrease aggregate demand. b .
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increase aggregate demand. c.
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decrease aggregate expenditure. d .
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increase aggregate expenditure 20.
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US inventories in 2017 were about $1.98 trillion. In 2018, US inventories were about $1.9 trillion. So, the change in 2018 GDP due to inventory investment was a.
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+$1.9 trillion b.
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+ $80 billion c.
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- $80 billion d.
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+$3.88 trillion 21.
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If inflation in the United States is higher than inflation in its trading partners, what will be the effect on U.S. net exports? a.
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Net exports will rise as U.S. exports increase. b .
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Net exports will rise as U.S. imports decrease. c.
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Net exports will decrease as U.S. imports decrease. d .
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Net exports will decrease as U.S. exports decrease. 22.
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Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP? a.
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Unemployment will rise. b .
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SRAS will shift down. c.
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Output will decrease. d .
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Prices will increase. 23.
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The ________ shows the relationship between the price level and aggregate expenditure. a.
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aggregate expenditure line b .
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aggregate demand curve c.
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45-degree line d .
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consumer price index Figure 17-2 24.
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Refer to Figure 17-2. The nonaccelerating inflation rate of unemployment, or NAIRU, is associated with which point rate in the figure above? a.
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A b .
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B c.
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C d .
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all of the above 25.
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Refer to Figure 17-2. Suppose the economy is at point B in the figure above. Which of the following is true? a.
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The current unemployment rate is 5%. b .
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Expected inflation and actual inflation are the same. c.
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The natural rate of unemployment is 3.8%. d .
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The expected rate of inflation is 3%. 26.
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Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result, a.
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the long-run aggregate supply curve will shift to the right. b .
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the economy will move up along the long-run aggregate supply curve. c.
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the economy will move down along the long-run aggregate supply curve. d .
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the long-run aggregate supply curve will shift to the left. 27.
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If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective? a.
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94 b .
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115 c.
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128 d .
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153 28.
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Suppose the economy is at the natural rate of unemployment and firms become more pessimistic about the future profitability of new investment. Which of the following will happen in the short run? a.
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Unemployment will rise. b .
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The aggregate demand curve will shift to the right. c.
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Output will rise. d .
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Prices will rise. 29.
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You're traveling in Ireland and are thinking about buying a new digital camera. You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the exchange rate is 0.85 euros per dollar, what's the highest price in euros you'd be willing to pay for a camera? a.
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105 euros b .
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106.25 euros c.
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110.15 euros d .
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147 euros 30.
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Spending on the war in Afghanistan was essentially categorized as government purchases. How did increases in spending on the war in Afghanistan affect the aggregate demand curve? a.
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They moved the economy down along a stationary aggregate demand curve. b .
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They moved the economy up along a stationary aggregate demand curve. c.
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They shifted the aggregate demand curve to the right. d .
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They shifted the aggregate demand curve to the left.
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EC 102 AA and BB Fall 2023 Midterm 2, Version A Answer Key 1.
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b 2.
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b 3.
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b 4.
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d 5.
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c 6.
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a 7.
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a 8.
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b 9.
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a 10.
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a 11.
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c 12.
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c 13.
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b 14.
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d 15.
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b 16.
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b 17.
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b 18.
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b 19.
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c 20.
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c 21.
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d 22.
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b 23.
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b 24.
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a 25.
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d 26.
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a 27.
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c 28.
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a 29.
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b 30.
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c
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