final-10107a-ans

# final-10107a-ans - Final Exam Solutions Economics 101 Fall...

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Final Exam Solutions Economics 101 - Fall 2007 Multiple Choice Versions A, C: 1) a 2) b 3) c 4) b 5) d 6) a 7) c 8) d 9) c 10) d Versions B, D: 1) c 2) b 3) d 4) a 5) b 6) c 7) d 8) a 9) d 10) c Problem 1: Neoclassical Model a) Y s = 10 x 100 1/2 x 100 1/2 = 10 x 100 Y= 1000 . Y d = C + I + G = [100 + 0.5(1000-200)] + [400 - 1000r] + 200 setting Y s = Y d : 1000 = 1100 – 1000r so -100 = -1000r so r = 0.10 or 10% Real wage = MPL = 5(K/L) =5(100/100) W/P=5 M*5 = P*Y, so P = M*5/Y = 400*5/1000 P = 2 Nominal GDP = P *Y = 2*1000 =2000 Nominal wage = W/P * P = 5 * 2 =10 The key equilibrium condition in the goods/financial are supply of goods equals demand (Y = C+I+G) or Saving =investment. The interest rate adjusts so that the demand for loanable funds (for investment) in the financial market equals the supply (saving). b) A fall in M will cause P to fall, real GDP not to change, nominal wage to fall. Versions A,C: (b,c,b); versions B,D: (a,c,a) c) A rise in labor causes a rise in real output and a fall the real interest rate needed to clear the goods market. The MPL falls and hence so does the real wage rate. Price falls. Nominal wage is P*MPL, so this falls also. Versions A,C: (a,b,b,b,b); Versions B,D: (b,a,a,a,a)

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final-10107a-ans - Final Exam Solutions Economics 101 Fall...

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