# mid1f07 - Econ 302 Midterm Exam #1 Wednesday, October 10,...

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Unformatted text preview: Econ 302 Midterm Exam #1 Wednesday, October 10, 2007 • You have 80 minutes. • Each of the multiple-choice questions (1–15) is worth 3.4 points (15 × 3 . 4 = 51). Mark your answers on the exam sheet. • Questions 16 through 20 are worth a total of 49 points. Write your answers in the bluebook. • If you find a question to be ambiguous—which is highly unlikely, try to interpret in a way that is the most sensible to you. • Good luck! 1. What is the DEFINITION of (annual) GDP? (a) Consumption+Investment+Government Spending+Net Export in a given year (b) Labor Income + Capital Income in a given year (c) Total value of output produced domestically in a given year (d) Total value of all domestic transactions in a given year 2. What would happen to GDP if the government hired an unemployed person, who had pre- viously been receiving \$1,000 in unemployment benefits, as a government employee and now paid him \$1,000 to do nothing? (a) GDP rises by \$1,000. (b) GDP goes down by \$1,000. (c) GDP is not affected. 3. Cartman buys a one-year government bond on January 1, 2006 for \$500. He receives principal plus interest totaling \$545 on January 1, 2007. Suppose that the CPI is 200 on January 1, 2006, and 214 on January 1, 2007. This increase in prices is more than Cartman had anticipated. His guess was that the CPI would be at 210 by January 1, 2007. Which of the following is correct? (a) The nominal interest rate is 4.5%. (b) The inflation rate is 14%. (c) The ex-post real interest rate is 2%. (d) Cartman’s ex-ante (expected) real interest rate was lower than the ex-post real interest rate. 1 4. The country of Rhodesia is endowed with 2 units of labor ( L ) and 3 units of capital ( K ). The aggregate production function is: Y = AK α L β . At the beginning of this year, Rhodesia received 1 unit of capital from foreign donors, and its domestic capital stock rose to 4 units. Which of the following is true? (a) Real capital rental rate goes up. (b) Real wage goes up. (c) Capital income share goes up. (d) Labor income share goes up. 5. Think of two countries, A and B. The production function of Country A is more capital intensive than that of Country B. More specifically, Y A = K . 7 A L . 3 A , (Production function of Country A) Y B = K . 5 B L . 5 B . (Production function of Country B) Which of the following must be true?...
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## This note was uploaded on 03/27/2008 for the course ECON 302 taught by Professor Gold during the Spring '07 term at University of Wisconsin Colleges Online.

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mid1f07 - Econ 302 Midterm Exam #1 Wednesday, October 10,...

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