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# ps1_questions - 14.02 Principles of Macroeconomics Problem...

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1 14.02 Principles of Macroeconomics Problem Set # 1, Questions Posted on Thursday, September 12, 2002, due on Thursday, September 19, 2002. If you staple a copy of this front page on your problem set you will get 3 points for free. Remember to write down your TAs section name and recitation time. Also your name and MIT ID. Name: __________________________________________________ MIT ID: __________________________________________________ TA: __________________________________________________ (Table is for corrector use only) 1 2 3 4 5 6 7 8 Total Part I Part II Part III Part IV Grand Total

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2 Part I: True/ False Questions: Decide whether each statement is true or false and justify your answer with a short argument. (5 points each, 35 points total) 1. Tightening law enforcement against illegal workers in the US can increase real wages. 2. Contrary to what is often stated by politicians, a reduction in the budget does not necessarily lead to an increase in investment 3. The company’s total annual sales of \$200 to the households were generated through only the cost of \$50 wages and \$60 raw material. This means that this company’s contribution to the GNP was \$140 in added value, \$200 in final goods or \$140 in household income. 4. “Exogenous” variables of a macroeconomic model would include policy variables such as government defense purchases. 5. If a new federal budget raises government purchases by \$100 per person and pays for this with a new per capita tax also equal to \$100 per person so that the government deficit is unchanged, and the central bank holds interest rates unchanged, then GDP will also be unchanged.
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