Test 1B Answer Key

Test 1B Answer Key - MIDTERM EXAM 1: MARCH, 2008 ECON 0110:...

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MIDTERM EXAM 1: MARCH, 2008 ECON 0110: MACROECONOMICS DR. KENKEL THIS IS TEST 1B WITH ANSWERS 20 questions worth 12.5 points each. Total Points = 250 1. You just won a lottery prize. The prize states that you will receive $150,000 two years from today and an additional $250,000 three years from today. Assume you could invest money at 7% annual interest elsewhere in the economy. What is the present value of the prize? a. Less than $300,000 b. $300,000 to less than $319,999 *c. $320,000 to less than $339,999 d. $340,000 to less than $360,000 e. none of the above ANSWER: 150,000/(1.07)^2 + 250,000 /(1.07)^3 = 131,015.81 + 204,074.47 = 335,090.28 2. If Mary's taxable income is $20,000, then her taxes will be $4,000. If her taxable income is $40,000, then her income taxes will be $6,000. This is an example of a. A progressive tax b. A proportional tax *c. A regressive tax d. None of the above ANSWER: When income is $20,000, Mary pays 20% in taxes (4,000/20,000 = .20). When income is $40,000, Mary pays 15% in taxes (6,000/40,000 = .15). Thus, the tax is regressive. 3. The following points lie on the linear PPF for the China: Suits Cell phones A 0 5,000 B 8000 2500 C 16000 0 In China, the opportunity cost of a cell phone is a. Between 0 and 0.95 suits *b. between .96 and 3.37 suits c. between 3.38 and 4.63 suits d. between 1000 and 3000 suits e. more than 3000 suits ANSWER: If we move from C to B, we gain 2500 cell phones but we lose 8,000 suits. The OC of a cell phone is 8,000/2,500 = 3.20 suits per cell phone. If we move from B to A, we gain 2500 cell phones but we lose 8,000 suits. The OC of a cell phone is 8,000/2,500 = 3.20 suits per cell phone. If we move from C to A, we gain 5000 cell phones but we lose 16,000 suits. The OC of a cell phone is 16,000/5,000 = 3.20 suits per cell phone. ANSWER: OC(cell phone) = 16,000/5000 = 3.2 suits
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4. The following points lie on the linear PPF for Korea: Cars Refrigerators A 0 40,000 B 4000 30,000 C 16000 0 In Korea, the opportunity cost of a car is a. Between 0 and 0.55 refrigerators *B. between .56 and 2.61 refrigerators c. between 2.62 and 4.63 refrigerators d. between 1000 and 3000 refrigerators e. more than 3000 refrigerators ANSWER: If we move from A to B, we gain 4000 cars but we lose 10,000 refrigerators. The OC of a car is 10,000/4,000 = 2.50 refrigerators per car. If we move from B to C, we gain 12,000 cars but we lose 30,000 refrigerators. The OC of a car is 30,000/12,000 = 2.50 refrigerators per car. If we move from A to C, we gain 16,000 cars but we lose 40,000 refrigerators. The OC of a car is 40,000/16,000 = 2.50 refrigerators per car. ANSWER: OC(car) = 40,000/16,000 = 2.50 refrigerators
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This note was uploaded on 05/12/2008 for the course ECON 0110 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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Test 1B Answer Key - MIDTERM EXAM 1: MARCH, 2008 ECON 0110:...

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