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

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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 -
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

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

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online