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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 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
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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
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