FinalAnswers 2007 - Department of Economics Professor...

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Unformatted text preview: Department of Economics Professor Kenneth Train University of California, Berkeley Fall 2007 ECONOMICS 1 FINAL EXAMINATION SUGGESTED SOLUTIONS NOT FOR DISTRIBUTION December 14, 2007 INSTRUCTIONS 1. Please fill in the information below: Your Name: Your SID #: Your GSIs Name: Your Section Day/Time: 2. This exam ends at 8:00pm. 3. If you finish before 7:45pm, turn in your exam to your own GSI and leave quietly. 4. If you finish after 7:45pm, please remain in your seat until the end of the exam. 5. There is a total of 180 points, nine questions and sixteen pages, including this cover- sheet. Points for each question are in parentheses, as is a suggested time allocation. 6. Answer the questions in the space provided. NO BLUE BOOKS. If you need extra room to answer the questions, use the backs of the pages. 7. Calculators are not permitted. Do not turn the page until you are told to begin the exam. Page 1 of 16 Question 1. (20 points, 20 minutes) True, False or Uncertain. Decide whether the following are true, false, or uncertain. Your grade is determined by your explanation; an answer without an explanation receives no credit. a) (5 points) When calculating the inflation rate, it doesnt matter which market bun- dle of goods we use to compute the consumer price index. FALSE. Different market bundles weight prices differently. Therefore, they lead to differ- ent inflation rates. However, different base years lead to the same inflation rates. b) (5 points) When the Canadian dollar appreciates Canadian goods become relatively more expensive for people in the United States. TRUE. The price of Canadian goods in the United States is the Canadian price multiplied by the exchange rate (number of U.S. dollars per Canadian dollar). If the Canadian dollar appreciates, the exchange rate rises. This leads to more expensive Canadian goods in the United States (assuming the Canadian price remains constant). Page 2 of 16 c) (5 points) Excise taxes are the most common kind of tax considered in class. If the government wants producers to bear the burden of an excise tax, it should tax firms, not consumers. FALSE. The distribution of the burden from a tax depends on the sizes of the elasticities of supply and demand. If the elasticity of supply is small (relative to the elasticity of demand), then producers will bear most of the burden of the tax. If the elasticity of supply is large (relative to the elasticity of demand), then producers will bear less of the cost of the tax, regardless of whether they are notionally responsible for paying the tax. d) (5 points) Even if a country has absolute advantage in producing all goods, it can gain from trading with other countries....
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FinalAnswers 2007 - Department of Economics Professor...

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