MIDTERM EXAM 1: MARCH, 2008
ECON 0110:
MACROECONOMICS
DR. KENKEL
THIS IS TEST 1A 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 5% 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/(1.05)^2 + 250,000 /(1.05)^3 = 136,054.42 + 215,959.40 = 352,013.82
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 $8,000.
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 20% in taxes (8,000/40,000 = .20).
Thus, the tax is proportional.
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 1.27 suits
*c.
between 1.28 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.