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# Macro_Final_Sample_1_Answers - PRINCIPLES OF MACROECONOMICS...

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PRINCIPLES OF MACROECONOMICS FINAL EXAM: Sample #1 Duration - 3 hours Aids Allowed: Non-programmable calculators only INSTRUCTIONS: This examination consists of TWO PARTS Part I 10 diagrammatic/calculation questions of which you are expected to answer any eight (10 marks each for a total of 80%) Part II 12 multiple choice questions of which you are expected to answer any ten. (2 marks each for a total of 20%). You must cross out the two multiple choice questions that you do not answer. Wrong answers will not be deducted from right in grading Part II. All questions are to be answered in the spaces provided in this question paper booklet Do not remove any pages or add any pages. No additional paper will be supplied. The blank backs of pages may be used for rough work. Show your work where applicable. Print your name and student number clearly on the front of the exam and on any loose pages. Student Name: ______________________________________________________ (Family Name) (Given Name) Student Number : ______________________________ There are 14 pages to the exam. - 1/14 -

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Principles of Macroeconomics: Final Exam; Sample #1 PART I: Diagrammatic/Calculation Answer only 8 of the 10 questions in Part I Place your answers (and work where necessary) in the space provided. 1. The following table gives the resource input needed per unit of output. Assume that these are the only countries and commodities in the world and that there are no economies of scale and no transportation costs. Output Croatia Greece Olives (litres) 0.05R 0.15R Wine (litres) 0.4R 0.6R a) In the space below, determine the country with the comparative advantage in Olives production and the country with the comparative advantage in Wine production. Show your calculations. (3 marks) 1 mark: Croatia 1 Wine costs 0.4/0.05 = 8 Olives (or 1 Olive costs 0.05/0.4 = 1/8 Wine) 1 mark: Greece 1 Wine costs 0.6/0.15 = 4 Olives (or 1 Olive costs 0.15/0.5 = 1/4 Wine) 1 mark: Mexico has comparative advantage in Milk and Mexico in Fruit b) Suppose that Croatia has 375 units of the resource and that Greece has 900 units of the resource. In the space below, draw each country's production possibility curve in separate diagrams with Wine on the vertical axis. (2 marks) Wine Wine Greece Croatia Olives Olives 937.5 1500 7500 6000 PPC PPC 7500 1500 CPC CPC b) 1 mark Croatia intercepts 937.5 Wine and 1500 Olives 1 mark: Greek intercepts are 1500 Wine and 6000 Olives Deduct 1 mark if PPCs aren’t linear c) 1 mark: Croatia intercepts are 1500W and 7500 Olives (no change) 1 mark: Greece intercepts are 1500W (no change) and 7500 Olives c) Suppose that these countries agree to an exchange rate of 5 Olives per Wine. Draw each country's consumption possibility curve given this exchange rate. (2 marks) d) Suppose that the countries agree on an exchange rate of 5 Olives for 1 Wine as in c). If Croatia consumes 3000 Olives, what is the maximum amount of Olives and Wine that Greece can consume? Show work. (2 marks) 1 mark: Greece consumes 4500 Olives from something like 7500 – 3000 1 mark: Greece consumes 900 Wine from something like 1500 – 4500/5 e) What is the significance of the slope of the Production Possibilities Curve? (1 mark) 1 mark: The slope is the opportunity cost.
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