# Winter 2011 Midterm 2 Answers - Midterm Exam 2 Econ 102...

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Page 1 of 11 Midterm Exam 2, Econ 102 March 14, 2011 This exam has two parts: a multiple choice section consisting of 20 questions, and a short answer/graphing section, worth 20 points. Submit your scantron and completed short answers and sign yourself out at the end of the exam. Multiple Choice. Choose the best answer 1. If a country has a working-age population of 500 million. 300 million have full-time jobs, 50 million have part-time jobs, 30 million have given up looking for a job, 100 million don’t have jobs but are seeking employment, and 20 million are institutionalized (such as in prison). The country’s labor force is: a. 350 million b. 380 million c. 450 million d. 470 million 2. Suppose that in a particular month roughly 8 million people in the United States were seeking jobs but had not found them. At the end of the month, 2 million of these people give up their search and stop looking for work. What will happen to the unemployment rate, all else equal? 3. Consider an economy where Total investment spending (I) = 3000 Private savings (S p ) = 3500 Exports (EX) = 500 Lump-sum taxes (T) = 1000 There are no transfers (TR) or income taxes (t). Which combination of imports (IM) and government spending (G) is possible, given the other values of the other variables? 4. The market for private loanable funds is currently in equilibrium with nominal interest rate (r nom )= 2.5% and quantity of loanable funds (Q LF ) = 10 billion. If the government reduces its deficit and simultaneously firms’ expectations about profitability decrease what are possible nominal interest rates and quantities of private loanable funds in this market after these changes?

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5. Let rGDP* be the “very” short run equilibrium level of output. If rGDP < rGDP*, then: a. I u > 0; firms produced too much; consumption was lower than expected. b. I u < 0; firms produced too much; consumption was higher than expected. c. I u > 0; firms didn’t produce enough; consumption was lower than expected. d. I u < 0; firms didn’t produce enough; consumption was higher than expected. 6. The table to the right shows the consumption levels of three consumers at different levels of individual income. Assuming there is no income tax, what is the aggregate marginal propensity to consume? 7. Consider an economy whose aggregate expenditure line has a slope of 0.8. The income tax rate t = 11.1%. What is the spending multiplier in this economy?
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