{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

M1w11ans - Economics 502.02 Professor S McCafferty Winter...

Info iconThis preview shows pages 1–15. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 10
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 12
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Background image of page 14
Background image of page 15
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Economics 502.02 Professor S. McCafferty Winter, 2011 Midterm Examination I / Name: é i ids QUSES . Directions: Answer all questions. There are two sections to this exam. Part 1: Multiple Choice. Each question is worth two (2) points. Please circle the letter corresponding to the best answer. 1. Macroeconomics is the study of while microeconomics studies a. the cosmos; particle physics ® the overall performance of an economy; an individual market 0. an individual market; the overall performance of an economy (1. the overall performance of the economy; the individual firm e. consumer behavior; firm behavior 2. Which of the following does macroeconomics endeavor to answer: i. Why is the typical person in the United States today more than 10 times richer than the typical person a century ago? ii. Why has the unemployment rate been nearly twice as high in Europe as in the United States in recent years? iii. What determines the rate of inflation: What determines how rapidly the overall price level in an economy is increasing? a. i only @ i, ii, and iii 0. ii only d. i and ii e. ii and iii 3. The National Income and Product Accounts allows us to relate to to a. household income; government income; firm income b. total output; total spending; inflation 0. total output; inflation; total income d. household income; household expenditure; total output @ total output; total spending; total income 2 4. Using the expenditure approach, consumption expenditures include @ household purchases of durable and nondurable goods and services. b. household purchases of durable and nondurable goods. 0. household purchases of durable and nondurable goods and taxes. d. household purchases of durable and nondurable goods and residences. e. household purchases of nondurable goods. 5. According to historical data, the wages in ancient Greece and Rome were in sixteenth century Britain or eighteenth-century France a. somewhat lower than b. a lot higher than c. a lot lower than @) about the same as e. None of the above. 6. Economic growth is defined as the percent change in per capita income, or GDP. b. the percent change in prices, or GDP. 0. the decline in the unemployment rate. d. the difference between the nominal and real GDP. 6. changes in technology. 7. Between 1960 and 2000, which country(ies) was(were) among the fastest growing? a. South Korea b. Ireland c. Thailand d. Hong Kong All of the above. 8. The benefits of economic growth are which of the following? a. the gradual release of individuals from physical labor b. better health c. more pollution d. All of the above. @ a and b only 9. Mathematically, an economic model is a. a fake world b. a spreadsheet c. an accurate representation of reality @ a set of equations e. the actual macroeconomy 10. The two main inputs we consider in a simple production function are a. land and labor. b. capital and land. @ capital and labor. d. utilities and capital. e. natural resources and labor. 11. The solution to the firm’s maximization problem is (a) how much capital and labor to hire given the rental rate of capital and laborfs wage rate. b. how much capital and labor to hire given the rental rate of capital only. c. how much capital to hire given the rental rate of capital. d how much capital and labor to hire regardless of the rental rate of capital and labor’s wage rate. e. how much labor to hire given labor’s wage rate. 12. Differences in output across economies with the same per capita capital stock can be explained by a. differences in labor. (b) differences in total factor productivity. 0. similarities in total factor productivity. (1. differences in physical capital. e. similarities in physical capital. 13. The Solow model of economic growth a. endogenizes labor. ® endogenizes physical capital. 0. exogenizes physical capital. (1. exogenizes investment. e. endogenizes investment. 14. In the Solow model, in every period, a fraction of total output . , which a. is saved; reduces next period’s capital stock b. depreciates; adds to next period’s capital stock @ is saved; adds to next period’s capital stock (1. is consumed; adds to next period’s capital stock e. is consumed; reduces next period’s capital stock 4 15. The amount of capital in an economy is a (an) , while the amount of investment is a (an) a. flow; stock stock; flow . final good; intermediate good d. intermediate good; final good e. None of the above. 16. In the Solow model, if we assume that capital depreciation rates are the same across all countries, differences in per capita output can be explained by a. the steady-state capital stock. b. the initial capital stock and savings rates. differences in productivity and savings rates. . the labor stock and savings rates. e. None of the above. 17. Which of the following are (an) example(s) of idea(s)? a. new irrigation techniques b. turning sand into computer chips c. the assembly line @ All of the above. e. None of the above. 18. Increasing returns to scale is characterized by a. constantly declining fixed costs. b. diseconomies of scale; that is, the average cost falls as output rises. c. economies of scale; that is, the average cost rises as output rises. d. diseconomies of scale; that is, the average cost is constant as output rises. @ economies of scale; that is, the average cost falls as output rises. 19. The production of new ideas in the Romer model is research and development. decreasing in the efficiency of creating knowledge and increasing the fraction of labor in research and development. c. increasing in the efficiency of creating knowledge and decreasing in the fraction of labor in research and development. (1. increasing in the population growth and capital accumulation. e. decreasing in the efficiency of creating knowledge and in the fraction of labor in research and development. (9 increasing in the efficiency of creating knowledge and the fraction of labor in b 20. In the combined Solow-Romer model, an exogenous increase in the savings rate a. pushes the economy to a lower per capita output balanced growth path. Q pushes the economy to a higher per capita output balanced growth path. 0. pushes the economy’s growth rate of per capita output to infinity. d. pushes the economy to a new steady-state level of per capita output. e has no impact on the growth rate or level of per capita output. 6 Part II: Problems. Answer all questions. Be sure to show all of your work if you want to be eligible for partial credit. Points are as indicated in each question. 1. Consider an economy that consists of a steel producer and an automobile manufacturer. There is no government in this economy. The Steel producer produces and sells $3,000 worth of steel. Part of the steel ($2,400) is sold to the automobile manufacturer and the rest of the steel ($600) is exported. The steel producer buys no raw material inputs and pays $2,000 in wages to its workers. The steel producer has no other costs of production. The automobile manufacturer produces and sells $10,000 worth of cars to domestic consumers. The automobile manufacturer’s only raw material cost is the $2,400 worth of steel purchased from the steel producer. The automobile manufacturer pays $5,600 in wages to its workers. The automobile manufacturer has no other costs of production. a.) Fill out the provided production statements for the two businesses. Indicate the gross output of each firm and the value added by each firm. (4 points) GrossProduction Statement (Steel) IIIIllflfllllllflllllflflflfllllll Sax/\es Kb MW Gross Value (3 Gross Value of Inputs g a?» of Output Steel Producer’s Value Added IIIIIIEMEIIIIIIllllflflflfilllll V’JM Value Added ‘ to Cu ut Value Added from In uts ‘3300 Gross Production Statement (Automobiles) Gross Value of Inputs Automobile Manufacturer’s Value Added Costs Value Added ”A from Inputs 7 L’ 0/0 to Output Value Added » 8 b.) Determine GDP in this economy using the product approach. (3 points) m: dwhwwfimfl Home AMme0b1e5 % <t :- 77200? + 1,1900 CD? SRO/(490 Consumers in this economy receive the entire wage and profit income from the production of steel and automobiles. Domestic consumers receive no foreign income and pay no taxes. c.) Determine GDP in this economy using the income approach. (3 points) Ova/fl WWlX'QMS wte cam/erg MVS W’PCAT 6V? WW code; + QAQK c fieaa (Skull Wfiés a {$me [ca adv cad/is 3 keep L§+M (was) A. $2 97,3 [@313 (mcpng GD? ‘» \D} (o o D Consumers in this economy spend $109000 on new cars and buy $400 worth of imported food. d.) Determine GDP in this economy using the expenditure approach. (3 points) UM)“: C’VijC, + DX C" Q‘s/2332) (“a“‘hb Jr Miami‘ow} sJSPfiaa Aide/D e mi: ex ft’xi: o is , CD? '; \‘b/bim «V0 {(523 % £100 Jim éo/o 9 Now suppose that the automobile manufacturer buys a $1,200 robotic automobile assembly device from a foreign company. e.) What changes, if any, are required in the automobile manufacturer’s production statements? Explain briefly. (2 points) f.) What changes, if any, will there be in the values of consumption, investment and net exports as a result of the purchase of the robotic equipment. Explain briefly. (2 points) @530: m Sr Cumx i? x (a ; ; $7000 [610mb pk : LKAAH j”: $LQDDC5‘47‘093 g & +$|Zo7> (”\wWQWk-‘g Wflw \iwL 7 bob Aka? [Fifi/:52 ' pg; «mm 65 6 .5 4 QQE‘? 13/1400 er \I’L‘DD Av D m‘ (093 1’3 (JOQE (D/MVD 10 2. Suppose that, as suggested by the production model, each country’s per capita output is given by: y‘ = ZEUS Suppose that U.S. total factor productivity is given by ZUS = 1 and that the amount of capital per person in the U.S. is given by k‘US' = 8 . Also suppose that the country of Gondor has an amount of capital per person given by kGando, = 17271. a.) Assume that the U.S. and Gondor share the same technology, so that ZGondor 2 2w? = l . Calculate the predicted ratio of Gondor per capita output to U.S. per capita output. (4 points) at Qrflllérhfl [figm’b‘ : 94mg kéowflm : (WK 3; at J / f3 ”‘5 this year: (Q (EV/3 b.) Now suppose that you find that per capita output in Gondor is 60% of the level of U.S. per capita output. If the production model is correct, what inference would you have to make about the level of total factor productivity in Gondor? Show your calculations. (4 points) ‘t $0M) 6»?pr kéwém‘l‘“ - ,éo ’1 3'" V 3 us (é: , V2 —/ Maghc ; flémJLm (1’28 21> c: Agata“ § , ”HM W ,/ g the (gym Rafi (a figme Q g _. l? d 11 3. Assume that production is given by: )7! = XXII/3L?/3 , where 2 represents total factor productivity. Assume that all of the population are employed, and so L, denotes both the labor force and also the size of the population. If gross investment is a constant fraction, 5 , of output, and if capital depreciates at a fixed rate, d , then net investment is given by: AK, = EZK,”3I7’3 — (7K, Steady-state in this Solow model occurs when AK, = 0. Suppose that the U.S. has a fixed, constant labor force equal to Em. = l, a constant level of total factor productivity, Aus. = 3. Also suppose that the U.S. investment rate is given by §u.s. = 0.15, and that capital depreciates at a rate of 5% per year. a.) Calculate the equilibrium level of capital in the U.S., K U S. . (4 points) ___.~ ~‘ «2/3 A . , p - ngaust L35 ‘ (Q \<\x§ ewe, Akéza we 3“: . (1'6") Us) (0 s: (03)) \QB 1/3 q k6 3?, - lie Magma Kat 2 0‘ :9 Km: gri W5 b.) Calculate the equilibrium level of per capita output in the U.S., yZ,_S' (2 points) ‘69; ‘ may @7713 1 (3341131/3 < \\ Vigil: t 12 Now suppose that the country of 02 has a fixed, constant labor force equal to Z02 = 1, a constant level of total factor productivity, A02 =1 . Also suppose that the Oz investment rate is given by E02. = 0.20 , and that capital depreciates at a rate of 5% per year in Oz, just as it does in the US 0.) Calculate the equilibrium level of capital in Oz, K (:2 . (4 points) \/ ,_ . £62} la02' K0,: L—Zg : 3~ K0,); vm S’S (7/ 301 C\§ ~(IOSA)QK0% 2/1 a 2 we &§/Z £7 KEG} ; % d.) Calculate the equilibrium level of per capita output in the 8%; y 32 (2 points) sf 1 at Q4233 may“ 01 v32: m a 85V? 07 13 Finally, suppose that you observe that current per capita output in the U.S. is 8.0 and that ‘ current per capita output in Oz is equal to 1.0. e.) According to the Solow model are both countries growing? Show all of your calculations. (3 points) _ ., . . . ,- , w ’ psi “3%”?9 us to balm 9%“,l,lgwww/V3%Sz <1 PW V50}: \ / 5% 0.: MW figwkwtm/ ‘62: 9\ @194“ man/wiles W/ firm/Diva. f.) If both countries are growing, according to the Solow model, which country is growing faster? Show all of your calculations. (3 points) ”M. as 14 J 5/0g 43 azbw‘mwlw 3 055‘“ 6% V2, %%M‘.\-\wl m K. ‘W Mm MWLfl; swag 3562. 153: gm m Wax/0W?) Lam minus 14 4. Consider the following Romer model. Y! = ArLyr AA! 5 Am __ AI : 2Arl’a/ Ly, = (1 — 2W La, = 21V Notation: Yi :Production of goods At :Stock of Knowledge Ly, : Labor used in goods production : Productivity parameter in the production of ideas : Labor used in the production of ideas at z L N : Size of the labor force and size of the total population Z : Fraction of the work force employed in producing ideas a.) Calculate the steady-state growth rate of the stock of knowledge. (3 points) f—j:%L5L{/:Q,Q_M<% Hit 99/)“ Clay “Va, b.) Derive an equation for the}:A output of goods as a function of time. (4 points) , L] - it A L 5 -— v3. , M a 3,3. 2 A (\ ~© t 4: ’— l3 M Viki At: YAYO C\’\”¢0D/ 95% {3:0 do iwtkaPvt/ a”, ’t: ,_ Lite; (\J(°c/QM> (wigfib 15 c.) Consider an increase in the fraction of the population engaged in producing ideas, ?. What is the effect of this change on the growth rate of ideas and the initial level of per capita output? Explain briefly. (4 points) (1.) Consider an increase in the productivity of idea production, 2 . What is the effect of this change on the growth rate of ideas and the initial level of per capita output? Explain briefly. (4 points) éwzfi WW8 fwd/m [bfimg “’0 e.) What is the major difference between these two cases? Which would you prefer to see happen. Explain briefly. (2 points) firm Mil/M W, WWMB firms CmLflJL BQCW% UZAJUAW QUIZ; Lowfl .WDQ ...
View Full Document

{[ snackBarMessage ]}