110w10finalkey

110w10finalkey - Brigham Young University Department of...

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1 Brigham Young University Department of Economics Economics 110 – Principles of Economics Professor Kerk Phillips – Winter Semester 2010 Final Exam key This test is short answer and short essay. Write your answers in the space provided on this exam. The exam is closed book and closed notes. There is a three-hour time limit and you may use calculators. . Read all questions carefully before answering. Section I Short Answer (5 points each) 1. If the nominal interest rate on government bonds is 6.7% and the expected rate of inflation is 2.2%, then what is the expected real interest rate? Use the Fisher equation, i = r+ π . 6.7% = r + 2.2%, so r = 4.5% 2. In the context of unemployment statistics, what is a “discouraged worker”? A worker who has left the labor force because they are unwilling to keep looking for a job. 3. Suppose the future value of a 1-year bond is $100,000 and the interest rate it offers is 5.0%. What is the present value of this bond? Recall FV=(1+i) T PV. In this case, $100,000=(1.050) 1 PV, so that PV=$100,000/1.05=$95,238 4. What is the consumer price index? Define it; don’t worry about explaining how it is calculated. A measurement of the general level of prices, derived by measuring the price of a fixed basket of goods each period and comparing this to the price of the basket in some base year. 5. Use a diagram to illustrate any deadweight losses associated with a subsidy. Assume there are no externalities. 6.
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110w10finalkey - Brigham Young University Department of...

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