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Unformatted text preview: Mid Term 1. An economy produces three goods: apples, bananas, and corn. Quantity and prices per unit for years 2009 and 2010 are as follows: 2009 2010 Quantity Price Quantity Price Apples 3 $2.00 4 $2.00 Bananas 6 $3.00 5 $3.25 Corn 26 $4.00 30 $4.25 Using the chain method (the average price of each good over the two years), calculate by what percentage real GDP changed between 2009 and 2010 and the rate of inflation from 2009 to 2010. 2. Suppose that the consumption function is represented by the following equation: C = 500 +.75*Yd. Where C is consumption and Yd is disposable income. In addition, suppose taxes depends on income as represented by the following: T = 100 + .10Y. Assume government purchases (G) and Investment (I) are both exogenous. What is the spending multiplier for this economy? 3. Suppose the supply of central bank money (H s ) is $2.0 trillion. In addition, assume the public prefers to hold 25 percent of its money holding in the form of currency (c = .25) and the ratio of reserves to deposits is .20 (q=.20). Calculate percent of its money holding in the form of currency (c = ....
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- Fall '08