Download ECONOMICS 100:15

NAME____________________________________
ECONOMICS 100:15
SECOND WINTER MID-TERM
March 26, 2004
100 POINTS 50 MINUTES
SECTION A: Answer the question in this section:
1. 35 points: 18 minutes
Between 1928 and 1933 the Canadian economy went from a situation of good economic
conditions into the most severe recession in the nation’s history. Prices fell, real GDP
declined sharply and unemployment reached 20%. Difficult conditions persisted throughout
the 1930’s and full employment was restored only after rearmament began at the beginning
of World War II.
a.
Assuming that the economy was at full employment equilibrium in 1928, use an aggregate
supply aggregate demand diagram and explain what happened to the Canadian economy.
b. Give two examples of the type of events which might have caused a severe recession and
explain how they cause a recession.
c. Explain why an automatic adjustment process failed to return the economy to full
employment automatically during the 1930s and indicate why rearmament restored full
employment
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SECTION B: Answer THREE of the four questions in this section:
36 points: 18 minutes
2. List and define the three types of unemployment. Discuss which one became a serious
problem when the steel mill in Sydney was shut down. Do changes in the business cycle
have a strong impact on that type of unemployment? Why?
3. a. Complete the following table taking 2010 as the base year:
YEAR
2010
2011
2012
COST OF
BASKET
$2,000
$2,200
$2,420
PRICE INDEX
RATE OF
INFLATION
b. Explain why a price index is an important part of measuring economic growth.
4. Explain the relationship between exports and imports which creates a trade surplus. If
Canada has a trade surplus, will it be a net international lender or borrower? Explain your
answer.
Section continues….
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NAME____________________________________
5. a. Explain the difference between the government debt and the government deficit.
b. Define net taxes and explain the relationship between net taxes and government
expenditures on goods and services which creates a deficit and the relationship between
them which creates a surplus.
SECTION C: Answer TWO of the three questions in this section:
28 points: 14 minutes
6. a. Draw a diagram of the Consumption Function, being sure to include the 45 degree line.
Label the diagram, showing when savings are positive and when they are negative.
c.
If the marginal propensity to consume is .8 and income rises by $1000, consumption will
increase by _____ and savings will increase by _______.
Section continues….
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NAME____________________________________
7. Explain what is happening within firms when short-run equilibrium real GDP exceeds
potential real GDP. That, is equilibrium real GDP lies to the right of the long-run
aggregate supply curve (LAS). Discuss the impact of this short-run situation on the
short-run aggregate supply curve (SAS) in the long-run.
8. a. Give three reasons why the long-run aggregate supply curve (LAS) might shift to the
right.
b. Draw an aggregate demand, aggregate supply diagram to illustrates what happens to the
short-run aggregate supply curve (SAS) curve when the LAS curve shifts to the right and
explain the behaviour of the SAS curve.
c. Give one reason why the LAS might shift to the left.
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