Final_Examination__ECN_1B_--_Winter_2010_--_KEY_

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Unformatted text preview: Page 1 of 15 University of California, Davis Department of Economics ECN 1B Final Examination Winter Quarter 2010 B. Modjtahedi Question 1 Which of the following will NOT be included in 2009 GDP? A. The value of lawn mower engines that Briggs and Stratton made in 2009 but could not sell. B. The value of a computer chip produced in 2009 and used in the production of a personal computer. C. The value of a piece of land Brad sold to Abe in 2009. D. The value of a computer chip produced in 2009 that was not used in any personal computer. E. None of the above. Question 2 You bought some stock of Dell Computers newly issued in 2009 for $5,000 and sold them in the same year for $5,500. By how much did the 2009 GDP change as a result of all these transactions? A. By $5,000, because this was the value of the new issues. B. By $5,500, because this is the amount that affects your profit and income. C. $500, because this is the profit that you make and profits are included in GDP (the income aspect of GDP) D. $10,500, because both the purchase and sale of the stocks generate incomes in the society. E. None of the above. Question 3 Which of the following events will cause the aggregate demand function to shift to the right, ceteris paribus ? A. Government spending increases by 100 units while taxes increase by 120 units. B. Government spending increases by 100 units and taxes increase by 100 units. C. Taxes increases by 100 units and transfer payments increase by 100 units. D. Taxes increases by 100 units while transfer payments increase by 80 units. E. None of the above. Question 4 An individuals disposable income increases by $10,000 in 2009. According to the permanent income hypothesis, under which of the following scenarios this individuals consumption will increase the most? A. The individual wins that money in Los Vegas. B. The individual is a farmer and in 2009 the weather was exceptionally favorable. C. The individual is a government employee who receives a promotion in 2009. D. The individual is a small-time actor in Hollywood who is lucky enough to be cast in a good movie in 2009. E. None of the above. Page 2 of 15 Question 5 Suppose the Fed purchases $100 worth of Treasury bonds from commercial banks. Suppose also that the required reserve ratio is 10%. How much reserves will be created in the banking system? A. $100 B. Less than $100 C. At most $1,000 D. More than $1,000 E. None of the above. Bank Balance Sheet Assets ($) Liabilities and Net Worth ($) Loans 900 Treasury Bonds 800 Deposits 1000 Borrowing 500 Question 6 The table above shows a part of the hypothetical balance sheet of a banking system. The required reserve ratio is 10% and currently the system is fully loaned out. The Fed conducts an open market purchase worth $20. What will be the maximum potential increase in the amount of new loans (if banks dont hold any excess reserves and the public dont hold any currency)?...
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