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Midterm%20Exam_Key

# Midterm%20Exam_Key - Izmir Univery of Economics Department...

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Izmir Univery of Economics I. Hakan Yetkiner Department of Economics http://homes.ieu.edu.tr/~iyetkiner/ ECON 202 INTERMEDIATE MACROECONOMICS 26 April 2007 Dr. Yetkiner Key to Midterm Exam 1 . ( 15 Points ) Calculate the GDP of Farmland, a fictitious economy whose numbers are listed below. Do so using all three methods (value added approach, income approach, and expenditure approach). Farmland, year 2000 Farmer Jones, (private firm) FoodCo, Inc Corn Sold to Govt \$35 Sold Corn Flakes to Consumers \$100 Corn Sold to Singapore \$25 Farmland sales tax \$10 Corn Sold to FoodCo, Inc \$20 Revenue of FoodCo, Inc \$90 Paid workers \$40 Bought corn from Farmer Jones \$20 Tax on profit \$15 Corn Inventory Beginning of Year \$0 End of Year \$10 Bought salt from Egypt \$10 Paid workers \$20 Tax on Profit \$15 Farmland Govt Households Taxes \$50 Taxes on wage income \$10 Purchase of Corn \$35 Unemployment benefits \$15 Unemployment benefits Paid \$15 Value-added Approach: 80 + [100-10-10] = 160 5 points Expenditure Approach: 100 + 10 + 35 + (25-15) = 160 5 points Income Approach: 60 + 60 + 40 = 160 5 points W Π TA Grading: 5 points each 1

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Izmir Univery of Economics I. Hakan Yetkiner Department of Economics http://homes.ieu.edu.tr/~iyetkiner/ 2 . ( 10 Points ) Fill in the blanks in the following table: Year Nominal GDP Real GDP GDP Deflator (1994=100) Real GDP Growth Rate 1992 5931 6244 95 - 1993 6240 6389 97.6 2.32% 1994 6611 6611 100 3.47% 1995 7234 6761 107 2.26% 1996 7290 6994 104 3.44% Grading: 1 point each 2
Izmir Univery of Economics I. Hakan Yetkiner Department of Economics http://homes.ieu.edu.tr/~iyetkiner/ 3 . ( 15 Points ) Suppose that utility function of a representative agent is , where is consumption of physical goods and l is consumption of leisure. Assume that non-labor income is 120, the real wage rate is u 25 . 0 .75 0 l c u = c 5 = w and 24 = h hours. Find the optimal values of , , , and u . c l N The Lagrange is: { } 120 120 5 C 25 . 0 0.75 + = l C l L λ . The first order conditions are: 0 C ) 75 . 0 ( 0 25 . 0 0.25 - = = λ l C L (Equation 1) 0 5 C ) 25 . 0 ( 0 75 . 0 0.75 = = λ l l L (Equation 2) (3 points) 0 120 120 5 0 = + = l C L λ (Equation 3) From the first two first-order conditions (i.e., from (1) and (2)), we obtain: l C l l 15 5 C ) 25 . 0 ( C ) 75 . 0 ( 75 . 0 0.75 25 . 0 -0.25 = = λ λ (2 points)

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Midterm%20Exam_Key - Izmir Univery of Economics Department...

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