# M2S2 - Principals of Macroeconomics Midterm#2 Sample#1...

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Principals of Macroeconomics Midterm #2, Sample #1: Answers Duration - 1 hour Aids Allowed Non-programmable calculators only Time Allowed : 50 minutes The 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 6 pages to the exam. - 1/6 -

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Midterm Test #2, Sample #1: Answers Part I: Place your answers (and work where necessary) in the space provided. Clearly label all axes, curves, and points. 1. Equilibrium GDP (Consumption and Investment) (12 marks) An economy has no government or foreign sector . The equations for expenditure are: C (Consumption) = 8,700 + 0.64Y I (Investment) = 2,400 + 0.16Y a)What is the equation for Aggregate Expenditure? (2 marks) 1 mark: the 11,100 part of the equation Y = 11,100 + 0.8Y 1 mark: the 0.8Y part of the equation Y = 11,100 + 0.8Y b) What is equilibrium income? (2 marks) 1 mark: setup Y = 11,100 + 0.8Y or Y = 11,100/0.8Y 1 mark: answer = 55,500 c) Draw a graph showing your Aggregate Expenditure function and equilibrium income. Be sure to completely label your diagram. (3 marks) 1 mark: positively sloped AE with 11,100 intercept 1 mark: 45 degree (or AE = Y) line 1 mark: equilibrium at 55,500 where 45 degree line intersects AE e) What is the change in inventories if income is 50,000? (2 marks) 1 mark: AE = 11,100 + 0.8*50,000 = 51,100 1 mark: Change in Inventories = 50,000 – 51,100 = -1,100 (must be negative) (Give marks if students find 50,000/5 = 10,000 and determine INV as 10,000 – 11,100) f) What is the change in equilibrium income if autonomous investment decreases by - 80? (1 mark) 1 mark: = -80/(1- 0.8) = -400 (must not be positive) h) Return to the original equilibrium income. Suppose that potential Income is 60,000. How much must Investment change
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## This note was uploaded on 09/30/2011 for the course ECON 1010 taught by Professor Noordeh during the Spring '08 term at York University.

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M2S2 - Principals of Macroeconomics Midterm#2 Sample#1...

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