W2008 - Solution to Test 1 - ECO209 - October 24, 2008

# W2008 - Solution to Test 1 - ECO209 - October 24, 2008 -...

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Page 1 of 11 Department of Economics Prof. Gustavo Indart University of Toronto October 24, 2008 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the course : L5101 L0301 L0401 M – 6-8 W – 2-4 R – 2-4 INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. Aids allowed: a simple , non-programmable calculator. 3. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I /21 Part II /19 Part III 1. /10 2. /10 3. /10 4. /10 TOTAL /80 A SOLUTIONS

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Page 2 of 11 PART I (21 marks) Instructions : Enter your answer to each question in the table below. Only the answer recorded in the table will be marked. Table cells left blank will receive a zero mark for that question. Each question is worth 3 marks. No deductions will be made for incorrect answers. A 1 2 3 4 5 6 7 C E B A B D E B 1 2 3 4 5 6 7 A E D C A B D C 1 2 3 4 5 6 7 B E C B C A C 1. Suppose that an economy produces only apples, bananas, and oranges, and that price (in dollars) and quantity (in pounds) data are given in the table below. Year 2006 Year 2007 Good Quantity Price Quantity Price Apples 3,000 \$2 4,000 \$3 Bananas 6,000 \$3 7,000 \$2 Oranges 8,000 \$4 6,000 \$5 If 2006 is the base year, the value of the GDP Deflator in 2007 was approximately A) 94.6. B) 100.0. C) 105.7. D) 108.9. E) None of the above 2. For GDP purposes, which of the following statements regarding investment is correct? A) Gross investment includes investment in stocks and bonds. B) Rental payments are included as investment expenditures. C) The accumulation of inventories does not count as current investment. D) Depreciation refers to funds used to increase the existing stock of capital. E) None of the above.
Page 3 of 11 3. Suppose that in 2007, ABC Corporation produced \$6 million worth of school desks but was able to sell only \$5 million worth during that year. Is this \$1 million of unsold school desks part of GDP for 2007? A) Yes, since this change in inventories is part of desired investment expenditures. B) Yes, since they are part of the economy’s output in 2007. C) No, since changes in inventories are part of actual investment. D) No, since according to the expenditure approach they are part of the economy’s output only when they are sold. E) None of the above. 4. If investment exceeds private saving by \$22 billion and government spending exceeds tax revenues by \$34 billion, then A) the trade deficit is \$56 billion. B) the trade surplus is \$56 billion. C) the trade deficit is \$12 billion. D) the trade surplus is \$12 billion. E) we cannot say anything about the international trade balances. 5. In a model with income taxes, an increase in exogenous imports will A) increase overall aggregate expenditure. B) increase the budget deficit. C) not affect the level of private saving. D) increase the level of consumption. E) decrease the trade deficit.

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## This note was uploaded on 04/26/2011 for the course ECON 209 taught by Professor Indart during the Fall '06 term at University of Toronto- Toronto.

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W2008 - Solution to Test 1 - ECO209 - October 24, 2008 -...

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