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2004 - (AV University ol'Toronto Department of Economics...

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Unformatted text preview: (AV University ol'Toronto Department of Economics Principles of Economics [or Non-Specialists ECONOMICS IOSY [Professor M. J. Hare] Year: 2004/2005 TEST 1: Tuesday, November 23, 2004 Duration: 2 hours [IZO minutes) W l. The test duration is two hours |l20 minutes]. 2. Answer all FOUR Questions in Part A [IS marks each] and FOUR out of EIGHT Questions in Part B [10 marks each] TWO pages are allowed for each question in Part A. In Part B, mark clearly the questions which you wish answered or the iirst four questions attempted will be counted In the determination of grades. 3. Take a clear position on each quotation [or on each pan of the quotation]; draw a clearly labeled diagram [or a set ofdiagrams] when relevant and provide a succinct explanation for your position in each question. Marks will be awarded on an evaluation basis. No marks will be y'ven for the correct position without a complete diagram and an explanation. “ Full marks will only be awarded when a satisfactory explanation is included in your answer i.e., a technically correct answer will not receive full marks. Each question carries the possibility of one or two bonus marks [or an excellent explanation which will only be granted at the discretion of the marker. - 4. Complete the lead sheet and print your name on each page in the space provided. Please ensure that your correct tutorial is identified on the first page as requested. Tests may be returned in the tutorial program. 5. Nonsprogranunable calculators are allowed. 6. All students must stop writing IMMEDIATELY when time has been called. A 10% penalty may be imposed, at the discretion of the proctor, if this condition is violated. 7. ALL STUDENTS WILL REMAIN SEATED AT THE END OF THE TEST UNTIL ALL PAPERS HAVE BEEN COLLECTED. W Student Name: [PRINT] _ Student Signature: I - 4 Student Number: Student Program: Tutorinl/Day/Tinie] _._ A’ i mm: 4 [Am mu 1. 4.5... 5. L 9. .12.. 2 LL 6. ; to. lo— 3. L 7. _; ll. ;_ 4. 1L 8. L 12. ;_ Sub—Totals 9A [LG ,i Final Grade Percentage: iZ— % belt 47. (‘t (QED EC0105Y (Test l) —- 2004-2005 2 STUDENT NAME: .h‘. PART A: ANSWER ALL FOUR QUESTIONS [15 marks each] I. “The first Millennium Goal indicates that there should be a reduction in ove v -' “fl - year 20l5. The World Bank and U. N. indicated that about 1.3 billion populzlionlin iiieiiilZiiihi less than Sl U.S.‘per year for the year 2000. In fact. 2 billion people [about one-third ot'the world's population] earned less than 52 US. per day in the year 2000. Economic growth is considered by many economists as the most promising way for the reduction ofpoverty and the attainment of the Millennium poverty reduction goal. However, the 1990 analysis ofThirlwalS establishes the ‘Mission lmposstble' scenario for possible convergence of the low-income countries. Harvard President Lan-v Summers updated the Thirlwall data for 2002 and the overall details have not changed significantly; Required: a. Identify the goal of convergence; 1). Evaluate the analysis f‘I‘liirhanl; c. On the basis of Readings and Lectures, what expectations do you have . about the pover reduction Mille in goal. Wit?“ . 319 6i: W24 N’fl ”7"” ‘cl‘m‘wa P #044991 W rusmztmtq, pm. .917; inmmmwwww rflw - W W fi/SMWW stms%fi W7“ it ' ,. mile m 620? CAM—h)» to W m anpfimmbjw g $“QWW WM, ill m Lift/{HQW Willie (ff/c) _ w rs mm} 1? mammoth. ”‘ M ”W“ "7” NM 024%,. W M Yule com/or afloat) Yum (3 MM». PM mm M Q Pitt :3 3‘7. m (if Lto i3 7/“, .HJ- Waste: 4 Worms. ’t wwffi-rw m LIL to ”WWII/VA MN. Ward M 7/ t7.o0‘t(t+ 21.)“ : zoom vi claims . , a (i o. \ esstlillct (4333“... a. 31m MP2“ W W WW W . . ”ml K ww Pr Hie l’w UL t’° M” a it one o HlL? Quorum-fl)“, lmem‘I/Q“ \‘MPBSEBLQ t_ I. * Mi’g’bzfiflythct/Mfiz Lit, mole WI” 0‘ ‘0 \t w W to; Ft; W ("JUL * 3733‘ P9" W Hit WWW/Mn)”: new/v2». W a ' g . no nib/um m M it He or W “W :2, Mum a 1M Q10? Qw MIL m "LOVWS 1m in“ m (1 moor I meow-H)”; 36°” 0 HM, r11 "wow :3 ‘v 3 Wm {.45 iii: 3 if“ _\ W l 0t. as“ . — I MW at . Blow/L m Mom“, A 7% warm/ft (14. Mom ii A Wtfla Q W I? mi’ 0644M WW kW' ‘ ECO IOSY (Test 1) — 2004-2005 3 STUDENT NAME: “’75 W W ””1 WNW/u. h WW 2?”;an 0V90W 041”” W lwfi’h ch mVW57 YLIo = [1'00” w)” ' ym- $3Igao amt}: .'.1Lm(‘*l);o7lglhq —tIc/. 1% W nsfbh um, Wm M 0, Mfitm My»; W Norm—Ls, WW ow“ ro 6L Whmflb flown/nod: MC wmgtS (ff I'M/WMSWILW £160va l2 WWW/I MW “thwfiwh‘ ,5 a 12W IL ugh? BVWVW fiat/(limb W2 W1 44,01” WM WWWfiW rm (Wt/WW // 2. Under the Solow model {or the American economic growth in the industrial sector between I909 and 1949. the growth rates for output. labour and capital were 3.5%; 15% and 3.0%. The weight for labour was 75% [or 3/4] and for capital was 25% [orl/4]t The term Solow's ‘SUrprisc' has been used both by Easterly and by the Instructor. although the two definitions of‘Surpn'se' are very differentt Required: a. ldentil’y.using the above input, Solow‘s residual [total factor productivity] and calculate the contribution of labour and the contribution of capital: b.1ndicatethe significance ul‘Solow's residual to the rate of growth of labour roductivity in the American industrial sector for Solow‘s period of analysis; Explain the term ‘Surprise’ under the two uses in this course and relate the significance of each definition to economic growth. Y §.9°/- LiWA 12:;07 a r {3 .L U) (f; uh §f+ r9? g-CV. : ‘1)(I'C7)+ (14) TFl’ ~ I M/ 4} gm $olow/5 mam (Tomi rum MMWII‘Z ’ 5/ 3.1m mmW 0, Law» : z><L : (5) )(IIy), I Iz/// J,’{lu MM» fl ww= fl? (HM) 0757. ./, (b) m MW WMNMI i T a #497 / \l :llfn‘<) 7 menu TFF ( my W: /'on0‘/. g-Vé/ We Um WWW Mm!!! Wow that Silwlv'll (l; the WWW M lAbw Mamba/11991413 Wm wit WM 1,4 lolg WW (.1 “mu/tall pow M MM '1 V FILMSK' ’ 1”“ WW 3‘ 6W? [WW 15 W; I» be r-I'Ig, MW New .3 357.?“ Wm WM. Mam/LA l7t7 YWW hex, Hut myriad/W JLIW/ W” WM MW, WW W WWW Vwfiofirfl/i” Tufimmm MWWWM F's WM w: W n mmsc on 60??“ ”1‘37" Mun/UM me M We W H/ a “W “ *4} 3”; rod» to Wawwm—éé a w W WW W11 amt k 0W (wan W “W“ 9W ,. . \A,’ n ’W?4 VQKJQMULS 0N. —\ Rga kgéomhwo‘L Q 0~ to ' "" U'C'C'CWCU.CU00"UV""_W""UUUUWUU'" ‘tt it HTWWHHU‘HHHEH iiliitiilttitlllili Hitlitlltl ECO 105Y (Test 1) — 2004-2005 6 STUDENT NAME: 3. “Baumol has stated: '1n the long run. nothing is as imponant for econornic welfare as the rate of productivity growth‘. [Reading 5.3] Krugman has stated: ‘A country's ability to improve its standard of livin overtime depends almost entirely on its ability to raise its output per worker‘. 2 ea mg 1.2 Yet in the latter Reading. Krugrnan identifies {our other means through which GDP per person could be increased and the instructor added two additional means." Remind: a. Evaluate the Krngman and Baumol statements above; Iiviu g; ' b. Explain how higher labour productivity would yield higher standards of c. Identify and explain three additional means through which lbeyond productivity increases] the standard of living of residents could be increased; d. Explain why the latter three cases could not lead to higher Maggi“ increases in GDP per capita. W kw - Btu/“M9— J \pw’r'fl—Ji’ " I bwtwhégfi (“Kw Wb m 5W5 01/ ' Huger“, Mimi» vi 6 AW m Mmmboqm W' Lb) MAW mmt WWL‘WM ML “firm [Wow ’ wm’ Aime m 6641 MP” #1,“; we Web {A}; %QI%WM.%XWLL913WIZ WM WWW) m L 33050. WWI- “A; w I w,’ Q i 1.0!“,l‘nnm I’M" 4;» {WW M 7! W W a», Wild M W P ‘ (mark MW : (.2) Waltz)” mm WW *‘L ,. a in}: (620? PM “477’“ ,WemetDPWin/‘M WWW“? 6% mm M444 M 6U“ 5 '“‘”samM (we CM]! (/1) M ,7“ mm» L a)" @mfipwwl’ W ”J (”We-W3 “ MW wrbuzsu/W‘ 'PgiM’fb-LWWSMW / '©?Wemm 11 wwmbeww W27WWW. ECO lOSY (Test 1) — 2004-2005 8 STUDENT NAME: 4. “Kelly takes the position that the two OPEC price increases in petroleum in I97] and in 1979. when the price ofa barrel of petroleum increased from under $4 a barrel to over-$30 a barrel. were primaril responsible for both th£éeonomic slowdown in industrial countries which started in l971 and th international debt crisis for most Latin American countries. which started In 1982," Required: According to lecture material and the Readings, your detailed assessment at Kelly’s Positions. \WHII/ cm , 0175/0 PIA—(2 ”Mensa; 0L0“ WULM %fiM.Ho’WLVu/WM W5: $011 {ML/7 mot roman/WM W0" 4:: ' s W 7“ ,m (It/m1 w; uX’rb WW1 SM“ , £1214 .h’, 50W} ' may] “M41470 t7" “HZ, W {1 MW (.125ng M W mall wot-4344 plfdM/i’ 1%%%L PM” W .. ( MAM 011473 to?” W ‘1 Nu. basktfdi W ) text‘lt‘HvM“ t " ””6”” MW 01' W W" i» .. ’fiww 50”“ KW h“ V ’ ‘i’D 11- M%Mm W W A i 0‘40"" W“ hfi/aa—MA/L (Mu WW EMMA/MA “31:53:“ ‘1 WM ECU 105Y (Test 1) —— 2004.2005 lO STUDENT NAME: PART B Answer FOUR out of EIGHT Questions no marks each] Ensure that you clearly indicate the Questions which you wish answered or the grades on the first {our questions will be recorded was” 5. “Beverly reviews the work ofMalthus and the one variable input model which generates the law of diminishing marginal productivity [returns]. Beverly observes that the predictions by Malthus were not eonect‘for Europe during the nineteenth century. Beverly then concludes that both Mallhus and the theory of diminishing marginal productivity [retumsi were incorrect." Required: Your position on Beverly's conclusion. In your analysis, law of diminishing marginal productivity [returns the nineteenth century. Use a diagram. MM owl BMW Wow! $62,”th wOLWSW/UYW fivlwm explain the essence of the l and why it failed relative to Europe during A < MU“ we 7 M Bet/Mn"; Wm B Whmingo 0 MW in»? mm AMA/r WHO; Mk: “9?“. MWCQ MMWWVJDWN 1'3 ' WW wr HMJ'TW W MWM M (WW ’ l Wm mt SW? W ”in ft) ”(W W5 614, Lon/MN“ 9‘49"”) W U ’ ‘ ECO lOSY (Test 1) — 2004—2005 l2 STUDENT NANIE: ECO 105\’ (Test I) — 2004-2005 H STUDENT NAME: . _ I 7. "Drew reviews the two readings in the Extracts by Richard Ltpsey, both of which were taken from 6. “Connor reads that his country imported in the current year lOO motor cycles. The import price Lipsey's l996 Benefactor’s Lecture." [Reading 2.4 and Reading 6.5] was $40,000. During the year, 60 motor cycles were sold to domestic consumers for $60,000 and another 30 were exported at an export price “$55,000. The final 10 were held in inventory at their Required: Present and discuss the key findings in Lipsey’s Readings. import price. For the domestic sales $12,000 went to commissions for salesmen; $5.000 went to corporate profits and the remaining $3,000 went to government sales taxes. For the exported sales. “0,000 went to commissions for salesmen and $5,000 went to corporate profits. Connor takes the position that changes would occur for personal expenditure on consumer goods, imports. expotts and inventory changes in the final goods statement and’that wages, corporate profits and indirect taxes would be affected in the factor income statement}; ' Required: Prepare a schedule of individual changes in the final goods statement and in the statement involving {actor income as a result or the above transactions, Show the specific changes in each component of the final goods statement and ot' the statement urine-tor income and GDP. In addition, what is the overall impact on Gross Domestic Product and on Net Domestic income for this country. Show all your work! v---a--.OCCOOIUOOODDOOCOOOOOOOOfi Grit-s 0%er be u) 40‘000110 1 Wt lunatic r O) 4’ Wigwam _, howwtloc) \tlb’otooo vva c 9- W‘tAOMWb Mlle/wit ‘ d ’l‘ioxllwt‘ QVM. a £10300 (\00 ‘3 ‘wwguk i \S’two PM V ‘ ' V ECO iOSY (Test 1) —— 2004-2005 13 STUDENT NAME: 8. “Heather knows that Japan had a report?t2icvel of GDP per capita in US. dollars of abotlt,$38,000 in l997,_ which was significantly above the US. level of GDP per capita. Heather suggests that this comparison is most interesting: Japan has a higher standard of living than the United States. However. Hegan suggests that this is economic nonsense. According to Began, there is no way that the Japanese achieved a higher level of GDP per capita than the residents in the United States in l997. According to Began. if the PPP methodology were used then a more informed comparative standard of living would be derived. Heather asks: ‘What is this PPP method and why might it generate improved standard of living comparisons?“ Required: Evaluate the preceding issues and present an understanding of the PPP methodology and why it might be preferred in the Japanese-American comparisons. m wm vvwltwl 1m. Wm», WM {wwmym W ”Ml/$4M lq (P411 W‘ WW h) P0}! VMW. WM PP!” wormed (3 mu not He Pr new WM 150‘le 0; MW QWWW, Romeo/4M, M74 W WIAW¥%WWWIEWW_WW. mm W Mop-4 awn/MW“ . .Wu gm‘rm A w J} mth by, we I’ll/i“; Mi I ,4 my .3 907. ll oi. (El W (MSWMQL {MW “Wu” PX W W99 I P” a used WW“ l O will,» o’Vt/«IFXW’J --n' .r—w- _....__. 5—H... ECO 105Y (Test 1) — 2004—2005 14 STUDENT NAME: 9. "Ryan evaluates the work ofDenison in evaluating the contribution oftotal factor productivity to economic growth. Ryan notes that Denison has broken out three elements which account for total factor productivity. Ryan wants to understand the economic importance of two of these elements: increasing returns to scale and improved resource'allocation." Required: Help Ryan by interpreting these two elements i.e., present an understanding of how increasing returns to scale and improved resource allocation work as sources of economic growth. TFPM}W'- \) ECO rosy (Test 1) _ 2004—2005 It: sTunEm— NAME. E'co 105v (Test 1) — 2004-2005 15 STUDENT NAME: .1 ll. “Michelle is concerned about lost jobs in industrial countries. Michelle argues that large corporations would usually build branch plants in low- income countries to meet sales in these countries because ofsrgmticantly cheaper wage rates. Timothy suggests that more is involved in this decision than cheap Wags. Timothy suggests that the evidence in the Gulub article recommends that when labour productivity is evaluated it is likely that the industrial country would expand its own production and export its product to low-income countries." 10. ASSUme that Japan and the United States only produce computers and television sets; with labour as the only factor of production. In Japan,wtihgla_|3§u1vvould produce logymputed and [W mm“ would produce Mlelmflon 1." n the United States. 290 Isuflab‘our Would W400 computer! and 200 iu'u'ts of labour would'als'o produce 190 televrsmn sets. Under these conditions.’avssume further that these two countries engage in intematronal trade at the trnde ratio of one computer for one television set. Required: Your assessment of the statements otMichelIe and Timothy with specific reference “Colleen notes that under these conditions. Japan has an absolute advantage in both products. "trade to the Gnlub article and the issues which it discusses. mending 8.6] wen: to occur at the preceding rate of exchange [given above], then Colleen holds thntdaptm would gain 50 computers at the scale of [00 units of labour but the United States could not gain from trade at this international exchange rate" 2 X La 1/ Required: Your in-depth assessment ul’Colleeu's statements. Specific calculations are required with an exp!nnntlon and :- diagram. WI. M A. ' W MMZQM’M 6i» ~ 0 : (c, ‘ ,, We Mum JW‘ hon»- PWW2AK‘T’M TT fir (H, m humor), mam“; r (700 WMM ’TV __._ ' '2? 0° W e @mlw’t 0/0 9 WPOYWMM 1MP” ale; (J 00 Trad!- ' ‘ _...... . .0 _ '1 045+ \\ (go) o/wtt _c. ‘1 ' T 0 7 CA? I 7- Armwr,m,-m+ MM». MWPW‘V’L okMprMl-SPW A. W411 Win/”Lilo fit Alt/mama w W M bd'WLe/v 1‘??- fl lfl" MAM/T5 ‘1 MW‘ 034M (90W WIMW“ lax/EA ”flaw/t, nsrrnrm.%sl&anzn W ~..: ECO lOSY (Test 1) — 2004-2005 l7 STUDENT NAME: )2. Take any specific major reading, or n sel of major readings. and identify a major issue which has NOT been included in your answers on this lest. You should introduce Ihe ir'nonance of this issue' refer to at least one Reading in which the issue is addressed and assess the economic importance at: the issue. Note: Marks will be allocated to [he quhllty of the issue raised and to uur analysis A severe mark discount will be struck it the issue has already been seriously nd7lressed in one of your other questions. ...
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