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# Test32007 - ,Page 1 of 6 Last Name First Name Student...

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,Page 1 of 6 Last Name: ____________________ First Name: ____________________ Student Number: ________________ Economics 100 Professor James E. Pesando Term Test 3 – March 9, 2007 Length: 55 minutes answer ALL questions in the space provided Aids: Pen/ Pencil and non-programmable calculator ______________________________________________ please enter the multiple choice answers in the box below : 1 2 3 4 5 6 7 8 examiner’s report: question points 1 2 3 4 5 total

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Page 2 of 6 Question 1 (22 points) Consider an economy with fixed prices. The following relationships hold: C = 20 + 0.9Yd I = 20 G = 15 T = 0.2Y X = 15 M = 0.12Y (a) Calculate the AE schedule and the equilibrium level of national income. If national income were higher than this equilibrium, what would be the relationship between desired and actual inventory investment by firms? (b) As a result of recent developments, there is a new import function so that M = 0.22Y. What will be the new level of imports? (c) The government increases taxes by \$10 million and increases government expenditures by \$10 million. Explain what happens to the level of autonomous expenditures.
Page 3 of 6 (d) With the new import function in part (b), will the multiplier increase or decrease? Explain your answer. (Calculating the new value of the multiplier is not an explanation.) Question 2 (16 points) Health economists find that “not enough” adults participate in active exercise. These economists estimate that the value to society at large, in excess of the value to participants, is equal to \$200 for each adult who joins a fitness club.

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