Midterm 1

Midterm 1 - v V N H H H H NH H H H H NH H H H H HH x H H m m mH H H N N HH H H H N N NH Aw H H H H NH ihwnuv H H H H HH 59:11111 H H m H OH H H m m

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Unformatted text preview: v V N H H H H NH H H H H NH H H H H HH x H H m m mH H H N N HH H H H N N NH Aw H H H H NH ihwnuv H H H H HH 59::11111, H H m H OH H H m m m H H H H m H H m m n H H H H H o H H m m H H N N H H H H H m H H N N N H H N N H mHzHom Hmemz Hummmou mmzmz< onHmmpo mHzHoN Hmonz Hummmou magmzm onHmmno mamvvJum v mHZHOm oo.ma mo HBO 00.2” Dmmoom ZINqu memw “HZMQDHw o “ZOHHUMw nNHHm I conQmu m HmstmNm Department of Economics UNC—Chapel Hill (White-paper) Econ420 — Instructor: E. Cabezon Midterm I Summer 81 2011 N LastNarfie: l (Of? Vex Name: \m C: l Part I: 60%: Mark the correct answer to each of the questions on your scan page Measuring the Economy (questions 1 to 5) a. The current production of all goods and services produced. '1:be The current production of final goods and services country’s borders. ‘6. Exchanges of assets. ‘ A d. The current production of final goods and services by a country’s citizens. El H 1. Gross domestic product includes 1 2. In the base year, the relationship between nominal and real GDP is a. Uncertain. C? One of equality. (3. Real GDP is higher. 3 d. Nominal GDP is higher. 3. If the value of a GDP deflator index was 120 for 2005 and 80 for 1982, and Nominal GDP was 1500 in 2005 compared to 500 in 1982, the value of real 2005 GDP in terms of 1982 prices is {gt/32;; / mg q E f, (0,} @ 1000. 2%.)- lzb ifi‘QQ w W b. 1250. a. (,1, O (Fm L i c. 1500. ’ r’é‘r % v was ‘1‘ 2250- :2; x qog 2’53qu 4. For 2 years the importsrose, and all other components of aggregate demand remained the same: a A ,5... T“ m . ,9 a. GDP rose. xi 6;. C 'r’ + (E GDP fell. \/ . ‘ c. GDP remained the same. (I. Cannot determine whether GDP rose or fell. \ If you know GDP and you want to know GNP you must subtract: ‘ /a./.Depreciation MI axes. a and b. - Net earning from US factors overseas. .j Net exports. Classical Model (questions 6-13) 6. Technological change that increase the average and marginal productivity of labor in the classical model would cause: , g N . . . 2/ \ ~. “\ ‘ . 7 a. Output to rise and the price level to rise. '2, \ ~-\\ 'g b. The price level to rise with no effect on output ,/"‘ c. Output to rise but employment to fall 7. @ Output rise and employment to rise. 7. A proportionate increase in the price level and the nominal wage in the classical model: a. Increase labor supply. b. Decrease labor supply. @ Leave labor supply unchanged. (1. Affect labor supply but the direction of the effect is uncertain. 8. If a natural disaster destroys some of the capital stock, then the classical model predicts: \éyl‘ M PM EH“ 3) Labor demand, real wages, and output will fall. 1! J ” b. Labor demand and real wages will rise, output will fall. c. The labor market remains unchanged but output falls. L (1. None of the above 9. For a given nominal wage a decrease in the price level will cause the: .‘y- a. Supply of labor to fall. \ i ‘ b. Quantity of labor demanded to rise. y L (3 Quantity of labor demanded to fall. d. Price of leisure to fall. ,3” r“ a? : ‘ “f g 10. If there is an increase in the marginal income tax rate from 0% to 15%. Then the L classical model predicts: S , af\ . ‘31} ’ Al 5 V /a./ Neither output not income will increase. It T b. Lower output and price level. 3 " l O l I c. Lower output and raise the price level. .1. 6 g l /d./ Lower price level but output unchanged. 0 23 if: rJ/r’w l' “ l 1. During World War II both Germany and England had plans for a paper weapon: They &§>_ \ each printed the other’s currency, with the intention of dropping large quantities of money by airplane. This would have been because the larger , quantity of money in the enemy’s economy would have_ (a? effective / increased prices. X effective / affected output. 0. ineffective / increased prices. ineffective / not affected prices. fr 2 i 12. In the short run an increase in the expected profit, generates an increase in investment f demand which would: \‘y * ‘ a a Have no effect on output or prices. /" an,“ - . ‘ k v f t g I / . Cause a rise the price level and output. 3 w V”? i “f x)” 0 Cause a No effect on price level but output rise. (1. Cause a rise price level but not output. . . . . . . T? 1’“ 13. In the classwal model, an increase in savmg is assumed to increase ’01” t“ 1) $1 . The demand for loanable funds, which decreases interest rates. [19 The supply of loanable funds, which decreases interest rates. c. Both the demand for money and loanable funds, which reduces interest rates. d. Neither the demand for money nor bonds, leaving interest rates unchanged. Keynesian Model (questions 14-18) 14. According to Keynes, the consumption-income relationship is shown as C = 50 + 0.9(Y—T) Therefore, the saving-income relationship is C: $0 +" 'Ci 2 a. S: 50+0.1(Y-T). ‘ , k @s=—50+0.1(Y—r). C: CO: \,5D 5 rm m r c. S = — 50 + 0.9(Y-T). d. Can not be determined given the information 15. If the government Wishes to increase the defense expenditure (goods and services) by $ 25 billion without increasing the over all level of GDP it should: in a. Increase taxes by $ 25 billion. b. Decrease taxes by $ 25 billion. 59‘ w ‘ 1 {in 3\ ! J/ v. . “(9.14, to) Increase taxes by more than 25 billion. " C2j )J‘K i \ x 0': PM} d. Increase taxes by less than 25 billion. .\ R 46/, 9‘, y. 1;, ’Cat. ; ‘0; Ergo ‘ ‘9“ /::'/04rv;;_ 16. Afincrease in net exports f if i. J €59“. - //7’ , .i ; a / @ Shifts the aggregate demand schedule upward. g. I b t) b. Shifts the aggregate demand schedule downward. A F 0., Does not shift the aggregate demand schedule. L ! l, /l \ fl; Decreases saving. A i (ii 5 Jr» J *t’kX“ 2/ 17. If policy makers desire a $30 increase in output and the consumption function is C = 100 + .75(Y—T), then they must / . Increase government spending by $10. 9 /b( Increase taxes by $30. 0. Decrease taxes by $30. @ Increase government spending and taxes by $30. 18. When comparing the autonomous expenditure multiplier in a closed—economy model to the autonomous expenditure multiplier in an open—economy model it can be concluded that ? The multiplier in the open-economy will be smaller than in the closed-economy. . The multiplier in the open-economy will be larger than in the closed-economy. 0. Both multipliers are the same. d. None of the above. Part II (40% ) A. Classical Model (21 points) If there is a decrease in government expenditure, where this government expenditure was financed with bonds, and not changes in taxes. Explain graphically which are the effects on: 1) Loanable funds market 2) Goods market Specifically state the direction of the change in output, employment, prices, investment, and saving. B f0“; ‘ C ( /A_/ Jo [IX/- : Decrease \ A «304‘; g / Mame: / {fl Cflfi’flmwwhwfl 3 a 3?“ 4 C7 &ectemx€’ 4 (5 2 0X54”? exp. (Silver (iedméfi A B : VA ‘lgglflfwflrfig. w x 5‘33? +0 (fiQCmse‘m ,— \ t ’t l D “(57> {smug r B. In the Keynesian model (20 points) If you can ’tfind the solution state the formulas you would use and/or explain briefly Suppose that for a particular economy and period: Income : Y : Investment : I: 100 Government spending: G = 75 Taxes : T = 0.2Y Consumption : C = 25 + 0.75YD b.1) What is the level of equilibrium level of income (Y)? (10 points) :0 a: 267+ .7€(3»(Jcmz<;fl} +6 W3 7’75” figfigv’)‘ F" Zt‘a‘xx *iéb'kfi’S-a (j MED ' B {M3 -.\r o 1‘ “ 3 ‘\ k “I. I {an . ask 3,. 7 O M, ?D / {7b “.7S'(.Z /OC> l 7 f, ,x d L’ZQ/D'V" me C l MW \ \" , \F\{ K” .. ‘: f i . é I’r: j ’: i K ‘ “7' 1., 3 x, b.2.) What is the value of the government expenditure multiplier? What does it mean? (7 points) £6; 8:?» .75—(v% TIL¢ZKQ+'$S+(Y (Vt-L L 690\+ .(oé, \» we we : M W b.3) Suppose there is an increase in Investment. Represent graphically the effect on output. (7 points). 1 g L K‘- / ' e a“ _, t ._. a”, .1’4 rm“ / Ct \‘fi’Cy I,” «y. wry»! ./ W m“ avpr413"‘%€: I» n-v /\ ¢ 11111 a a M , ,./ E A” (7 J/ I r O v’i “firm/w ../¢” ’ (a/ ...
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Midterm 1 - v V N H H H H NH H H H H NH H H H H HH x H H m m mH H H N N HH H H H N N NH Aw H H H H NH ihwnuv H H H H HH 59:11111 H H m H OH H H m m

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