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Economics 100 – Key for Midterm 2
Spring 2006
Page 1 of 4
Question
Answer
Notes
(3 points each for a total of 75 points)
1
B
See handout 3a.
2
C
See handout 3a.
3
E
The compound interest formula is
(1
)
return
principle
r
=×
+
.
Here
14
200
)
100 (1 0.05)
return
principle
r
=
+
=
⋅
+
4
C
Rule of 70:
n
=
g
/70 where
n
= number of years to double and
g
= average annual growth rate of real GDP per person.
Using the
Rule of 70 formula, growth rate of 5 percent is 14 years and a
growth rate of 2 percent is 35 years.
5
C
Average labor productivity (
Y/N
) depends upon human capital per
worker, physical capital per worker, natural resources per worker
and technology per worker.
6
E
The
marginal increase in packages wrapped
by the third machine
is 3000.
Since the production process is subject to diminishing
returns to capital, the
marginal increase in packages
wrapped
must be less than 3000 and therefore
total packages wrapped
must
be less than 15,000.
7
A
Countries with small amounts of physical capital per worker will
have low levels of average labor productivity (
Y/N
) and thus low
levels of real GDP per person (
Y/POP
)
8
C
According to handout 3b, Julian Simon won the bet as the real price
of all five metals fell.
9
D
In the labor supply decision, the real wage is the cost of
leisure
.
The substitution predicts that an individual will substitute out of the
more costly activity (leisure) and into the less costly activity (labor)
and thus
work more
.
10
B
The profit maximization condition is that firms hire labor until
marginal product of labor = real wage
11
C
According to the skillbiased argument, the marginal product of
skilled labor rose, which
increased
the real wage rate of skilled
labor.
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This note was uploaded on 04/18/2008 for the course ECON 100 taught by Professor Kasilwal during the Spring '07 term at CSU Long Beach.
 Spring '07
 Kasilwal
 Economics, Macroeconomics

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