Download February 12, 2001 - Questions and Solutions

ECONOMICS A02Y
Third In-Class Test: Feb 12, 2001
Professor Gordon Cleveland
Time: 45 minutes
NAME:_______________________________________________________
(Last name) print clearly
(First name)
STUDENT NUMBER______________________________________________
TUTORIAL SECTION_____________________________________________
(day)
(time)
If two multiple choice answers both seem to be approximately correct, choose the best of the
two answers. Write answers to multiple choice questions on this front sheet.
USING CAPITAL LETTERS, PRINT YOUR ANSWERS TO ALL MULTIPLE CHOICE
QUESTIONS BELOW
1. ____L______
6. ____A______
11. ____H______
2. ____E______
7. _____D_____
12. ____T______
3. ____H______
8. _____F_____
13. ____K______
4. ____E______
9. _____K_____
14. ____I______
5. ____C______
10. ____H______
15. ____J______
If two multiple choice answers both seem to be approximately correct, choose the best of the
two answers. Write answers to multiple choice questions on this front sheet. If answers
are not written on this sheet, there will be no marks given for answers.
NOTE THAT YOU CAN USE THE BACK OF ANY PAGE FOR YOUR ROUGH WORK.
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1-2
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. Questions 1 and 2 concern this situation.
1.
According to the GDP-deflator, between 1980 and 1990, prices in country X rose
by:
(A) 0%
(B) 10%
(C) 15%
(D) 16.67% (E) 20%
(G) 28%
(H) 30%
(I) 33%
(J) 40%
(K) 44%
(M) 55%
(N) 60%
(O)66.67% (P) 70%
(Q) 72%
(S) 80%
(T) 100%
(U) 120%
(V) 150%
(W) 180%
(Y) 225%
(Z) none of the above
The price level in 1980 was 120; in 1990 it was 180. The percentage
price level is (180-120)/120 x 100 = 50%. The correct answer is (L).
2.
(F) 25%
(L) 50%
(R) 75%
(X) 200%
change in the
Between 1980 and 1990, constant dollar GDP (real GDP) in country X rose by (to
the nearest integer):
(A) 0%
(G) 28%
(M) 55%
(S) 80%
(Y) 225%
(B) 10%
(C) 15%
(H) 30%
(I) 33%
(N) 60%
(O)66.67%
(T) 100%
(U) 120%
(Z) none of the above
(D) 16.67%
(J) 40%
(P) 70%
(V) 150%
(E) 20%
(K) 44%
(Q) 72%
(W) 180%
(F) 25%
(L) 50%
(R) 75%
(X) 200%
In 1980, real GDP (measured in 1976 dollars) was 20/120 x 100 = 16.67. In 1980,
real GDP measured in 1976 dollars) was 36/180 x 100 = 20. The percentage change
between 1980 and 1990 is (20 – 16.67)/16.67 x 100 = 20%. The correct answer is (E).
3-5
An economy with only 2 consumption goods, no inventory, no investment, no
government, and no imports and exports, has the following prices and quantities
consumed and produced in 1998 and 1999:
1998
Food
Clothing
1999
Price
Quantity
Price
Quantity
$1.00
$0.50
100
400
$1.00
$2.00
300
200
Questions 3-5 concern this economy.
3.
If 1998 is the base year (so that the price index is 100 in 1998), the consumer
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price index for 1999 is:
(A) 125
(B) 133.3
(C) 150
(D) 175
(E) 225
(F) 233.3 (G) 250
(H) 300
(I) 80
(J) 75
(K) 60
(L) 50 (M) 40
(N) 100
(O) 200
(P) (none of the above)
The value of the market basket of goods in the base year is $1.00 x 100 + $0.50 x
400 = $300. The value of the same basket of goods and services in the next year is
$1.00 x 100 + $2.00 x 400 = $900. The value of the consumer price index in 1999 is
$900/$300 x 100 = 300. The correct answer is (H).
4.
According to the GDP-deflator, prices in this economy between 1998 and 1999
rose by:
(A) 0%
(B) 25%
(C) 33.3%
(D) 50%
(E) 75%
(F) 100% (G) 125%
(H) 133.33%
(I) 150%
(J) 175%
(K) 200% (L) 233.33%
(M) 250%
(N) 300%
(O) 333%
(P) (none of the above)
In the base year the value of the current year’s basket of goods and services was
$1.00 x 300 + $0.50 x 200 = $400. The value of the same basket of goods and
services in the current year is $1.00 x 300 + $2.00 x 200 = $700. The value of the
GDP deflator in the current year (1999) is 700/400 x 100 = 175. The rate of increase
of prices from 1998 – 1999 is (175 – 100)/100 x 100 = 75%. The correct answer is
(E).
5.
If we correct for price increases using the GDP deflator, we can state that
constant dollar GDP in this economy between 1998 and 1999 rose by:
(A) 0%
(B) 25%
(F) 100% (G) 125%
(K) 200% (L) 233.33%
(P) none of the above
(C) 33.3%
(H) 133.33%
(M) 250%
(D) 50%
(I) 150%
(N) 300%
(E) 75%
(J) 175%
(O) 333%
Nominal GDP in 1998 was $300. In 1999, it was $700. In the base year, real GDP (in
1988 dollars) was, of course, $300. In 1999, real GDP in 1998 dollars was $700/175
x 100 = $400. The rate of change of real GDP was (400 – 300)/300 x 100 = 33.3%.
The correct answer is (C ).
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6.
You are assembling the national income accounts and are computing Canada’s
GDP using the income approach. You are given the following items:
i)
ii)
iii)
iv)
wages, salaries and supplementary labour income
unemployment benefits paid to Canadians by government
total exports of goods and services from Canada
investment income paid to Canadians from investments in other
countries
Which of the items should you include in GDP using the income approach?
(A) I
(B) II
(C) III
(D) IV
(E)I and II
(F) I and III
(G) I and IV
(H) II and III
(I) II and IV
(J) III and IV
(K) I, II and III (L) I, II and IV
(M) I, III and IV
(N) II, III and IV
(O) all four
(P) none of the four
Wages, salaries and supplementary labour income is the main category of incomes
and should be included in measuring GDP. Unemployment Benefits are a transfer
payment from government and should not be included (they are not a payment for
producing goods and services). Export spending is not an income category and
should not be included. Investment income paid to Canadians from investments in
other countries represents (part of) the value of production in other countries, but
should not be included in the Canadian GDP. The correct answer is (A).
7.
You are assembling the unemployment statistics and are trying to figure out who
should be counted as unemployed. You are given the following categories of people.
I)
II)
III)
IV)
those who once worked, do not have jobs, and have given up looking
those who are on maternity leave
those who have part time jobs and would like to work full time
those without jobs who are actively looking for work
Which of the categories should you include in the unemployed?
(A) I
(F) I and III
(K) I, II and III
(O) all four
(B) II
(C) III
(G) I and IV (H) II and III
(L) I, II and IV (M) I, III and IV
(P) none of the four
(D) IV
(E) I and II
(I) II and IV (J) III and IV
(N) II, III and IV
Those who have given up looking for employment are not included in the
unemployed.
Those on maternity leave have a job to return to and so are not included as
unemployed. Those with part-time jobs are considered to be employed. However,
those who do not have jobs but are actively looking for employment are
considered to be unemployed. Therefore (D) is the correct answer.
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8-9.
You are given the following consumption function for the economy:
C = 1000 + 0.9Yd
Questions 8 and 9 concern this function
8.
When Yd = 20,000, the average propensity to consume is:
(A) 1.0
(B) 0.99
(C) 0.98
(D) 0.97
E) 0.96
(G) 0.94
(H) 0.93
(I) 0.92
(J) 0.91
(K) 0.90
(M) 0.88
(N) 0.87
(O) 0.86
(P) 0.85
(Q) 0.84
(S) 0.82
(T) 0.81
(U) 0.80
(V) none of the above
APC = C/Yd = 19,000/20,000 = 0.95. The correct answer is (F)
9.
F) 0.95
(L) 0.89
(R) 0.83
At Yd = 21,000, the marginal propensity to consume is:
(A) 1.0
(G) 0.94
(M) 0.88
(S) 0.82
(B) 0.99
(H) 0.93
(N) 0.87
(T) 0.81
(C) 0.98
(I) 0.92
(O) 0.86
(U) 0.80
(D) 0.97
E) 0.96
(J) 0.91
(K) 0.90
(P) 0.85
(Q) 0.84
(V) none of the above
F) 0.95
(L) 0.89
(R) 0.83
MPC = dC/dYd = 0.9. The correct answer is (K).
10-11
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 10 and 11 concern this economy.
10.
Equilibrium income (or output) is:
(A) 200
(B) 250
(C) 300
(D) 400
(E) 600
(F) 900
(G) 1000
(H) 1200
(I) 1500
(J) 1800
(K) none of the above
AE = C + I = 200 + 5/6Yd. The equilibrium condition is AE=Y, so we get Y = 200 +
5/6Y or Y – 5/6Y = 200. Therefore Y* = 1/(1 – 5/6) x 200 = 1200. The correct answer
is (H).
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11.
Suppose that the consumption function in this model changes to C= 21 + (6/7)Yd.
In that case, the multiplier on an increase in investment in this model would be:
A) 5/6
F) 5
B) 6/5
G) 1/7
C) 1/6
H) 7
D) 6
I) 4
E) 1/5
J) none of the above
With this new consumption function, the multiplier would be 1/(1 – 6/7), so the
multiplier is 7. The correct answer is (H).
12- 14The 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, TA is taxes,
TR is transfers). Assume that prices are constant.
C = 10 + 0.96Yd
TA = (1/3)Y
TR = 100 - (1/12)Y
I = 20
G = 304
X = 290
IM = 0.31Y
Questions 12 through 14concern this problem.
12.
Rounded to the nearest answer, equilibrium Y is:
(A) 580
(B) 600
(F) 680
(G) 700
(K) 780
(L) 800
(P) 880
(Q) 900
(U) 980
(V) 1000
(Z) none of the above
(C) 620
(H) 720
(M) 820
(R) 920
(W) 1020
(D) 640
(E) 660
(I) 740 (J) 760
(N) 840
(O) 860
(S) 940
(T) 960
(X) 1040
(Y) 1060
Disposable income is Y – TA + TR, so the first step is to calculate the consumption
function as a function of national income (Y). C = 10 + .96(Y – 1/3Y + 100 – 1/12Y) =
10 + .96Y – .32Y + 96 - .08Y = 106 + 0.56Y. AE = C + I + G + X – IM = 106 + 0.56Y + 20
+ 304 + 290 – 0.31Y = 700 + 0.25Y. The equilibrium condition is AE=Y, so we have
Y – 0.25Y = 720 or Y* = 1/(1 – 0.25) x 720 = 960. The correct answer is (T).
13.
The government budget balance (GBB) 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
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number). Here at equilibrium, the government budget balance is:
(A) -24
(B) -22
(C) -20
(D) -18
(F) -14
(G) -12
(H) -10
(I) -8
(K) -4
(L) -2
(M) -1
(N) 0
(P) +2
(Q) +4 (R) +6 (S) +8 (T) +10
(U) +12
(V) +14
(W) +16
(X) +18
(Z) none of the above
(E) -16
(J) -6
(O) +1
(Y) +20
GBB = TA – TR – G = 1/3Y – 100 + 1/12Y – 304 = 320 – 100 + 80 – 304 = -4. The
correct answer is (K).
14.
Now, the government is considering cutting taxes by 30. This would increase
equilibrium Y by:
(A) 15
(B) 22.4
(C) 24
(D) 30
(E) 32
(F) 33
(G) 36
(H) 37.5
(I) 38.4
(J) 39.6
(K) 40
(L) 42.2
(M) 44 (N) 45.5
(O) 48
(P) 50.6
(Q) 52
(R) 56
(S) 58.8
(T) 60
(U) 75
(V) 80
(W) 81
(X) 96
(Y) 120
(Z) none of the above
The multiplier effect of a change in taxes is the change in taxes x dC/dYd x 1/(1 –
dAE/dY). In this case, this is 30 x 0.96 x 1.333 = 38.39. The correct answer is (I).
15.
There are 20,000 people in the working-age population in Lotusland and the
monthly Labour Force Survey discovers that: 11,000 of them are working in the
week of the survey, either full-time or part-time; 4,000 of them have no job at
present, but are actively looking for a job; 2,000 of them have no job at present,
and intend to start actively looking as soon as job prospects improve; 2,000 of
them are staying home to provide child care for their own preschool children,
while another 1,000 are collecting unemployment insurance while they are on
maternity leave from their jobs. What is the unemployment rate in Lotusland (to
the nearest integer)?
(A) 0%
(B) 13%
(C) 15%
(D) 16%
(E) 18%
(F) 19%
(G) 20%
(H) 21%
(I) 23%
(J) 25%
(K) 35%
(L) 50%
(M) 55%
(N) none of the above
In this economy, there are 11,000 people employed and currently working plus
another 1,000 who are on maternity leave (and therefore have a job, but are not
currently working). A further 4,000 have no job at present but are actively
looking and are therefore considered unemployed. All three groups together
make up the labour force which totals 16,000. The unemployment rate is
4,000/16,000 x 100 = 25%. The correct answer is (J).