Principals of Macroeconomics
Midterm #1, Sample #2: Answers
Duration  1 hour
Aids Allowed
Nonprogrammable calculators only
Time Allowed
: 50 Minutes
This total marks in this test are 50.
The test is divided into two parts:
Part I  problem format  is worth 40 marks (40 of the total mark of 50)
Part II  multiple choice is worth 10 marks (10 of the total mark of 50)
(5 multiple choice questions worth 2 marks each)
Show your work where applicable
.
Please use pen instead of pencil
.
Print your name and student number clearly on the front of the exam and on any loose
pages.
Name:
.
(Family Name)
(Given Name)
Student #
:
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#1, Sample #2: Answers
Name: _______________________
Part I: Place your answers (and work where necessary) in the space provided.
Clearly label all axes, curves, and points.
1.
Comparative Advantage (13 marks)
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
Finland
Sweden
Lumber units
16R
18R
Fur units
2R
3R
a) In the space below, determine the country with the comparative advantage in Lumber
production and the country with the comparative advantage in Fur production. Show
your calculations. (3 marks)
1 mark:
Opportunity Cost of Finland is 1 Lumber
cost 16/2 = 8 Fur (or 1 F=
cost 1/8 L)
1 mark: Opportunity Cost of Sweden
is 1 Lumber cost 18/3 = 6 Fur (or 1F cost 1/6 L)
1 mark: Sweden has comparative advantage for Lumber
and Finland has it for Fur
b) Suppose that Finland has 5,600
units of the resource and that Sweden has 7,200 units
of the resource.
In the space below, draw each country's production possibility curve
in separate diagrams with Lumber on the vertical axis. (4 marks)
Finland
Sweden
350
400
2800
2400
Lumber
Lumber
Furs
400
2800
CPC
PPC
CPC
PPC
b) 1 mark: Either 350 Lumber or 2,800 Furs for Finland’s intercepts
1 mark: Both Findland’s intercepts – 350L and 2800 F 
correct and linear PPC
1 mark: Either
400 Lumber or 2400
Furs
correct for Sweden’s intercepts
1 mark: Both
Sweden’s intercepts 400 Lumber or 2400
Furs
 correct and linear PPC
c) 1 mark: Finland’s linear CPC with intercepts of 2800 Furs (unchanged) and 400 Lumber
1 mark: Sweden’s linear CPC with intercepts of 2800 Furs
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 Spring '08
 Noordeh
 Macroeconomics, Sweden, gross domestic product, Lumber

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