Download Practice Test, February 14, 2003 - Questions

ECMA02Y
Practice Term Test
Professor Gordon Cleveland
Time: 45 minutes
NOTE - The rest of this exam is NOT formatted the same way as your term test will
be. The questions are set up to be answered numerically, whereas on the actual
term test, you will fill in a sheet like this one and turn it in. You should do the exam,
derive numeric answers, and the correct answers will be given to you on the Monday
following reading week.
NAME:
_______________________ _______________________
(Last name)
(First name)
STUDENT NUMBER:
______________________________
TUTORIAL TIME:
______________________________
(Write down the time and day of the tutorial you regularly attend)
DETACH THIS SHEET - YOU WILL ONLY TURN IN THIS SHEET
USING CAPITAL LETTERS, PRINT YOUR ANSWERS TO ALL MULTIPLE
CHOICE QUESTIONS IN THE SPACES BELOW
1. _________
7. _________
13. _________
2. _________
8. _________
14. _________
3. _________
9. _________
15. _________
4. _________
10. _________
16. _________
5. _________
11. _________
17. _________
6. _________
12. _________
If two multiple choice answers both seem to be approximately correct, choose the best of
the two answers. Write answers to the multiple choice questions on this front sheet.
If answers are not written on this sheet, there will be no marks given for answers.
Page 2 of 4
ECMA02Y PRACTICE TERM TEST
February 14, 2003
This term test consists of 17 questions. Each of the first 15 correct answers is worth 6 marks;
the 16th and 17th correct answers are worth 5 marks each (there is no deduction for wrong
answers).
1-2. A firm in 2001 produced goods worth $2,000. It had sales totaling $1900, of which $1000
was to consumers, $300 was to government, $400 was to other firms for immediate use in
production, and $200 was to other firms for use as investment in plant and equipment. The firm
had $100 in goods it did not sell, representing a net addition to its inventories. The firm paid out
$1200 in wages, $150 in interest, $100 in rent, $200 to other firms for materials used in
production, $200 in taxes, and the residual was profits. Questions 1 and 2 concern this firm.
1. If G.D.P is measured using the expenditure approach (or final products approach), then the
final products produced by this firm in 2001 totaled:
________
(note - on the actual exam, you will be provided with lots of alternative answers, and will be
asked to choose the best answer from among those alternatives; the same comment applies to the
other questions on this practice exam)
2. If G.D.P is measured using the income approach (or value added approach), then this firm’s
value added in 2001 totaled:
________
3. In 1980, country X computes its GDP as being $20 billion; in 1990, the country computes its
GDP as being $36 billion (both measured in current dollars). In 1980, the GDP-deflator for that
country is 120 (the deflator is 100 in 1976); in 1990, the GDP-deflator is 180. Between 1980 and
1990, the percentage rise in constant dollar GDP (real GDP) in country X was:
________
4-5. An economy with only two consumption goods, no inventory, no investment, no
government, and no imports and exports, has the following prices and quantities consumed (and
produced) in 1995 and 1996:
1995
Food
Clothing
Price
$1.00
$0.50
1996
Quantity
100
400
Price
$1.00
$2.00
Quantity
300
200
Questions 4 and 5 concern this economy.
4. If 1995 is the base year (so that the price index is 100 in 1995), the consumer price index for
1996 is:
________
Page 3 of 4
5. If we correct for price increases using the GDP deflator, we can state that constant dollar GDP
in this economy between 1995 and 1996 rose in percentage terms by:
________
6-7. You are given a relatively simple economy in which there is no government (and hence no
taxes or transfers) and no foreign sector. Prices are fixed. The economy has the following
consumption and investment relationships:
C = 50 + (5/6)Yd
I = 150
Questions 6 and 7 concern this economy.
6. If output is accidentally set at 750, the transmission mechanism that will restore us to
equilibrium is as follows:
A) savings will rise, forcing output down
B) savings will fall, forcing output up
C) inventories will rise, causing producers to reduce output
D) inventories will fall, causing producers to increase output
E) workers will quit, causing output to fall
F) workers will demand new jobs, causing output to rise
G) the Leafs will win a game, causing output to rise
H) none of the above
7. The multiplier on an increase in investment in this model is:
________
8. Suppose that the consumption function out of disposable income is again
C = 50 + (5/6)Yd
while the tax (TA) and transfer (TR) functions out of GDP are
TA = 0.22Y
TR = 60 - 0.06Y
The consumption function out of GDP can be written as:
A) C = 50 + (5/6)Y
D) C = 50 + 0.7Y
G) C = 50 + 0.6Y
J) C = 50 + 0.72Y
M) C = 50 + 0.233Y
P) C = 60 + 0.72Y
B) C = 100 + (5/6)Y
E) C = 100 + 0.7Y
H) C = 100 + 0.6Y
K) C = 100 + 0.72Y
N) C = 100 + 0.233Y
Q) none of the above
C) C = 110 + (5/6)Y
F) C = 110 + 0.7Y
I) C = 110 + 0.6Y
L) C = 110 + 0.72Y
O) C = 110 + 0.233Y
9-14. The following model of the economy uses the standard symbols we have used in this
course (Y is income or output, Yd is disposable income, C is consumption, I is investment, G is
government spending, X is exports, IM is imports, T is taxes, TR is transfers). Assume that
prices are constant in this model.
C = 10 + 0.96Yd
TA = (1/3)Y
TR = 100 - (1/12)Y
I = 20
G = 304
X = 290
IM = 0.31Y
You will find it useful to know that combining the C, T, and TR functions allows us to write the
consumption function as:
C = 106 + 0.56Y
Page 4 of 4
Questions 9 through 14 concern this problem.
9. Equilibrium Y is:
________
10. The government budget position is the surplus or the deficit (if it is a surplus, it is written as a
positive number; if it is a deficit, it is written as a negative number). Here, at equilibrium, the
government budget position is:
________
11. The government is considering increasing government expenditures by 18. This would
increase equilibrium Y by:
________
12. After the new equilibrium is achieved, the overall effect on the government's budgetary
position of the increase in government expenditures of 18 will be to reduce the surplus or
increase the deficit by:
________
13. Now, instead of increasing government expenditures, the government is considering cutting
taxes by 30. This would increase equilibrium Y by:
________
14. Forget about the government policies discussed above. Suppose that exports fall by 27.
After the new equilibrium is achieved, the overall effect on the government's budgetary position
of the decrease in exports of 27 will be to reduce the surplus or increase the deficit by:
________
15-17. An economy with no government and no foreign sector has the following structure:
C = 20 + (300 - P) + (3/4)Yd
I = 50
The economy has an aggregate supply curve given by the equation:
P = 100 + (1/2)Y
The economy begins in equilibrium with P = 280 and Y = 360. Questions 15
through 17 concern this economy.
15. The slope of the aggregate demand curve (dP/dY on the AD curve) is:
________
16. Suppose that ΔI = 30. This would increase equilibrium Y by:
________
17. Continue to look at the case where ΔI = 30. This would increase equilibrium P by:
________