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201M2Win06

# 201M2Win06 - Midterm 2 201 Macroeconomics Winter 2006 Prof...

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Midterm 2 NAME: …………………………… 201 Macroeconomics Winter 2006 Prof. Gordon TA: Jesse De Lille Total points = 17 (Multiple Choice) + 43 (Short answer) = 60 Points ANSWER SHEET MULTIPLE CHOICE (17 Points) 1. B 10. C 2. D 11. B 3. D 12. D 4. C 13. B 5. A 14. D 6. E 15. C 7. A 16. C 8. E 17. A 9. A

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Short Answer Section (43 Points) I. What is the unemployment rate and the labor force in The Sopranos? Tony has a job in waste collection. Carmella is a housewife. Pauli was working as a groundskeeper, but that didn’t work out, so now he’s looking for a new way to be a good earner. Anthony B. was working in massage therapy, but that failed, and while he would like to work, as an ex-convict, he figures that no one will hire him and so he’s not actively looking for paid employment. Adriana works part-time doing weird jobs, but she doesn’t really like it and is actively looking for a more serious job. Meadow is a full- time student. Dr. Melphi works as a psychiatrist. (8 points) a) What is the unemployment rate? 1/4 b) What is the size of the labor force? 4 II. On January 1 st , 2005 you bought 25 IBM shares. The price of a share of IBM on January 1 st 2005 was \$146. Exactly one year later you sell all the shares. The share price rose 17% during the period January 1 st , 2005 – January 1 st , 2006. Inflation in the year 2005 was 2.7%. Tax rate on capital gains equals 12%. What is the real capital gain after taxes of buying and then selling the IBM shares? (4 points) Answer: 17-2.7-0.12*17=12.26%, thus 0.1226*146*25=447.5
III. A Belgian newspaper had a very funny article. Peter S., a genealogy buff, seems to have proof that one of his ancestors Xaverius S., who did business with the De Medici family (a very rich Italian family in the 1600s), has never received the 2 copper coins he was entitled to in August, 1 st , 1634. He wants justice, and wants a transfer from the current De Medici family to his own family. As a historian, Peter S. knows that 2 copper coins in 1634 was not worth that much, he calculated that in today’s terms it would be worth 25 euros. But, Peter S. alleges that his family is not only entitled to the 25 euros, but also on the interest foregone! He proposed to use a moderate average annual interest rate of 4%. How much should the De Medici family pay according to Peter S. in order to correct for this “injustice”? Suppose we are now February, 1 st , 2006. (7 points) a) What is the time period you should use (in years and months)? Answer: 2006-1634 = 371 years and 6 months b) What amount did Peter S. demand in court (in euros)? (Yes, he actually went to court.) You are about to experience the power of compounded interest. Use the logarithm or exponential formula.

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