# M1S2 - Principals of Macroeconomics Midterm#1 Sample#2...

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Principals of Macroeconomics Midterm #1, Sample #2: Answers Duration - 1 hour Aids Allowed Non-programmable 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 # : . There are 5 pages to the exam. - 1/5 -

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Exam #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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M1S2 - Principals of Macroeconomics Midterm#1 Sample#2...

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