test4_solns - Department of Economics University of Toronto...

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Page 1 of 7 Department of Economics Prof. Gustavo Indart University of Toronto March 24, 2006 ECO 100Y – L0101 INTRODUCTION TO ECONOMICS Midterm Test #4 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 55 minutes. 2. Aids allowed: a simple , non-programmable calculator. 3. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE P a r t I /12 P a r t I I 1 . /7 2 . /17 3 . /14 T O T A L /50 SOLUTION
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Page 2 of 7 PART I (12 marks) Instructions : Enter your answer to each question in the table below. Only the answers recorded in the table will be marked. Table cells left blank will receive a zero mark for that question. Each question is worth 3 (three) marks. No deductions will be made for incorrect answers. 1 2 3 4 A E C C 1. Consider a simple economy with investment and consumption but no government or trade, and suppose that this economy is experiencing a situation where actual investment exceeds desired investment. Which one of the following might have brought about this situation? a) production levels exceeds sales levels b) production levels fall short of sales levels c) actual saving equals actual investment d) actual investment exceeds actual saving e) actual saving exceeds actual investment 2. If a representative family’s disposable income increases from $40,000 to $42,000 and their desired consumption expenditure increased from $38,000 to $39,600, it can be concluded that a) the average propensity to consume is 0.85 b) the average propensity to save is 0.2 c) the marginal propensity to consume is 0.85 d) the marginal propensity to save is 0.25 e) none of the above 3. If the simple expenditure multiplier is 4 and there is a $10 billion increase in autonomous investment expenditure, then equilibrium income will and the marginal propensity to spend equals . a) decrease by $40 billion; 0.75 b) decrease by $10 billion; 0.25 c) increase by $40 billion; 0.75 d) increase by $10 billion; 0.25 e) none of the above 4. Whenever desired reserves exceed actual reserves, the bank a) can lend out additional funds b) will go out of business c) needs to call in loans d) will borrow funds from another bank e) will borrow funds from the Bank of Canada
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Page 3 of 7 PART II (38 marks) Instructions : Answer all questions in the space provided on question sheet (if space is not
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test4_solns - Department of Economics University of Toronto...

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