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# Test32006 - 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 10, 2006 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 6 total

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Page 2 of 6 Question 1 (21 points) C = 10 + 0.8 YD T = 5 + 0.25Y I = 30 The price level is fixed. All amounts are in \$billions. G = 25 X = 14 M = 0.1Y (a) What is the marginal propensity to save out of disposal income? What is the marginal propensity to consume out of national income? (b) What is the equilibrium level of national income? Show your calculation. (c) What is the level of unintended inventory investment at the equilibrium level of national income? Why? (d) If the government increases employment insurance benefits (payments to unemployed workers) and the level of taxes by \$2 billion, what happens to the equilibrium level of national income? Explain your answer.
Page 3 of 6 Question 2 (15 points) Three families use a private road to drive to their cottages. After a cold winter, the road needs to be maintained. The cost for maintenance is \$1000. Each of the families has a different value for a well-maintained road. Family 1: \$400 Family 2: \$300 Family 3: \$600 (a) Should the road be maintained? Why? (b) Will the road be maintained? Why? Suppose the law allows any family to order the road to be maintained. However, this

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Test32006 - Page 1 of 6 Last Name First Name Student Number...

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