Test 1A Answer Key

Test 1A 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 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.
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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 1.21 refrigerators *c. between 1.22 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 1A Answer Key - MIDTERM EXAM 1 MARCH 2008 ECON 0110...

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