Key for Midterm 2 Spring 2006

Key for Midterm 2 Spring 2006 - Economics 100 Key for...

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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 skill-biased 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.

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Key for Midterm 2 Spring 2006 - Economics 100 Key for...

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