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Unformatted text preview: PRACTICE TEST ECON 0110: MACROECONOMICS DR. KENKEL 1. Assume the West Virginia football coach had a contract which stated that if he left early to coach another team he would be required to pay a buyout penalty of $500,000 two years in the future and a second buyout penalty of $800,000 four years in the future. Assume the coach resigns and his new school wants to pay the buyout penalty today. Assume you could invest money at 8% annual interest. What is the present value of the buyout penalty? a. Less than $800,000 b. Between $800,000 and $899,999.99 c. Between $900,000 and $999,999.99 d. Between $1,000,000 and $1,099,999.99 e. $1,200,000 or more ANSWER: 500,000/(1.08**2) = 500,000/1.16640 = 428,669.41 800,000/(1.08**4) = 800,000/1.36049 = 588,023.88 428,669.41 + 588,023.88 = 1,016,693.29 2. Suppose that, during 2001, nominal GDP was $10,082 billion. During 2001, the value of the Consumer Price Index was 177.1 (using 1983 as the base year). During 2001, real GDP was a. Less than $6,000 billion b. Between $6,000 billion and $6,999 billion c. Between $7,000 billion and $7,999 billion d. Between $8,000 billion and $8,999 billion e. $9,000 billion or more ANSWER: (10,082/177.1) X 100 = 5,692.83 3. Suppose the real rate of interest is 6% and the expected rate of inflation is 2%, the nominal rate of interest will be a.4% b. 4% c. 8% d. 12%. e. none of the above ANSWER: Real rate = Nominal Interest Rate – Inflation Rate Thus, nominal rate = real rate + inflation rate = .06 + .02 = .08 4. Assume the following data apply to a certain country: Year Consumer Nominal Price GDP Index (Trillions) 2001 177.1 10.0 2002 179.9 11.5 2003 182.4 12.9 During 2002, real GDP = a. Less than 6.00 trillion b. Between 6.00 trillion and 6.99 trillion c. Between 7.00 trillion and 7.99 trillion d. Between 8.00 trillion and 8.99 trillion e. 9.00 trillion or more ANSWER: (11.5/179.9) X 100 = 6.392 5. Calculate the taxable income for a single person using the following data: Person is single, living alone Personal exemption deduction is $3,200 per person Standard deduction is $4,900 Gross income = $73,950 a. Less than $20,000 b. Between $20,000 and $21,999.99 c. Between $22,000 and $23,999.99 d. Between $24,000 and $25,999.99 e. $26,000 or more ANSWER: $73,950 – 3,200 – 4,900 = 65,850 6. In the previous problem, calculate the person's tax amount using the following Tax Table: MARGINAL TAX RATES TAXABLE INCOME 10% $ 0  $ 7,150 15% $ 7,150  $ 29,050 25% $ 29,050  $ 70,350 28% $ 70,350  $146,750 a. Less than $2,000 b. Between $2,000 and $2,299.99 c. Between $2,300 and $2,499.99 d. Between $2,500 and $2,599.99 e. $2,600 or more ANSWER: .10 X 7,150 = 715 .15 X (29,050 – 7,150) = .15 X 21,900 = 3,285 .25 X (65,850 – 29,050) = .25 X 36,800 = 9,200....
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 Spring '08
 Kenkel
 Economics, Macroeconomics, Inflation, Progressive Tax

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