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test4_solns

# test4_solns - Department of Economics University of Toronto...

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Page 1 of 6 Department of Economics Prof. Gustavo Indart University of Toronto March 23, 2005 ECO 100Y – L0101 INTRODUCTION TO ECONOMICS Midterm Test 4 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 50 minutes. 2. This exam consists of two parts. 3. This question booklet has 6 (six) pages. 4. Aids allowed: a simple calculator. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I /12 Part II 1. /14 2. /14 TOTAL /40 /100 SOLUTIONS

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Page 2 of 6 PART I (12 marks) Instructions : Circle the most appropriate answer. Each question is worth 3 (three) marks. No deductions will be made for incorrect answers. 1. A hypothetical economy has a consumption function of C = 100 + 0.8 Y , investment equal to 150, government purchases equal to 250, exports equal to 100, and an import function of Q = 0.1 Y (where Q represents the volume of imports). What is the level of income when the economy is in equilibrium? a) 1,400 b) 1,800 c) 2,000 d) 2,200 e) none of the above 2. Consider the same economy as in question 1 above. When the level of income is 1500, a) aggregate expenditure exceeds output by 150 b) output exceeds aggregate expenditure by 150 c) the level of consumption is 1200 d) the level of net exports is –150 e) both a) and c) are correct 3. At the equilibrium level of output, a) consumers’ purchases of goods and services equal total income b) firms will hold no inventories c) aggregate expenditure will equal total output d) aggregate expenditure will equal total output minus inventories e) government expenditures equal government revenues 4. If the Bank of Canada sells government bonds in the bonds market, a) the money supply will increase b) the bank rate will decrease c) the deposits of the public in the chartered banks will increase d) the reserves of the chartered banks will decrease e) none of the above
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