# Test32008 - Page 1 of 6 Last Name First Name Student Number...

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Page 1 of 6 Last Name: ____________________ First Name: ____________________ Student Number: ________________ Economics 100 Professor James E. Pesando Term Test 3 – March 7, 2008 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 examiner’s report: question points 1 2 3 4 5 6 total

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Page 2 of 6 Question 1 (16 points) Consider an economy with fixed prices. The following relationships hold: C = 90 + 0.8Yd I = 70 G = 240 T = 0.25Y X = 140 M = 0.14Y (a) Calculate the AE schedule and the equilibrium level of national income. If national income were lower than this equilibrium, what would be the relationship between desired and actual inventory investment by firms? How would firms respond? (b) (This question does not require numerical answers. Numerical answers are not an explanation.) Explain what will happen to the multiplier if the marginal-propensity-to- tax increases from 0.25 to 0.35.
Page 3 of 6 Question 2 (15 points) The DD and SS curves for a university education are shown below. The benefit to society as a whole for each university graduate is \$10,000. The social value of a university education is also shown. SS

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## This note was uploaded on 12/22/2009 for the course BIGBOOK_01 Bigbook_01 taught by Professor Bigbook_01 during the Spring '09 term at University of Toronto.

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Test32008 - Page 1 of 6 Last Name First Name Student Number...

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