Download Principles of Microeconomics

Principles of Macroeconomics
Solutions to
Sample Final Examination
(Based on material in Chapters 5-17)
Part A:
Multiple-Choice Questions (50 marks)
1. B
2. C
3. C
4. B
5. B
6. D
7. D
8. C
9. A
10. D
11. E
12. A
13. E
14. D
15. A
16. E
17. D
18. D
19. A
20. D
21. D
22. B
23. C
24. E
25. D
26. E
27. A
28. C
29. D
30. B
31. E
32. B
33. B
34. E
35. D
36. A
37. D
38. E
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39. C
40. B
41. C
42. B
43. D
44. E
45. C
46. A
47. D
48. D
49. E
50. C
Part B:
Short-Answer Questions (50 Marks)
1.
A. AD = $ 570 billion + 0.80Y. Using the given information, substitute into the equation
the numerical values for each component of aggregate demand. Y= $300 billion +
0.80 (Y – $ 150 billion) + $ 150 billion + $ 200 billion + $ 40 billion. Or after
simplifying that equation yields the equation AD = $ 570 billion + 0.80Y.
B. Y = $ 2850 billion. The definition of short-run equilibrium output implies that Y =
AD. Replacing AD with the AD equation yields Y = $ 570 billion + 0.80Y. Now
solve for Y in Y – 0.80 Y = $ 570 billion, or Y = $ 2850 billion.
C. $ 2350 billion. If government purchases decrease by $100 billion the new short-run
equilibrium output will equal $ 2350 billion. Equilibrium Y decreases by 5x $100
billion = $ 500 billion decrease.
D. $ 2450 billion. If the government decreased transfer payments by $100 billion, the
new short-run equilibrium output would equal $ 2450 billion. The change in Y is =
5x[0.8x($100 billion)] = 5 x $ 80 billion = $ 400 billion.
E. Greater.
2. A. See table below.
Country
Canada
Japan
Korea
U.S.A.
Real GDP per Ave.
Real GDP per
Capita
Annual Employed Person
(US$)
Growth
(US$)
(%)
1998
1988 1988-98
1998
1988
25,496 22,429
1.29
53,702
46,605
24,170 19,347
2.25
47,232
42,171
14,574 8,040
6.13
33,844
20,033
32,413 26,649
1.98
65,885
55,727
2
Ave.
Annual
Growth
(%)
1988-98
1.43
1.14
5.38
1.69
Share of the
Population
Employed
(%)
1998
1988
47.5
48.1
51.0
45.8
43.1
40.1
49.2
47.8
B. Korea; real GDP per capita.
C. U.S.A.; real GDP per employed person.
D. The growth in real GDP per employed person of 1.43% a year reflects growth in
average labour productivity. As the share of population employed can approximately
be treated as constant over the years, the productivity growth can be attributed to
technological progress and capital accumulation.
E. No, because Canada’s growth rate of 1.29% a year is lower than the 1.98% of the
USA. Based on compounding, Canada’s real GDP per capita is approximately
US$29,735 in 2010, i.e., US$25,496 x (1+ 0.0129)12 ,whereas that of the USA is
about US$41,809, i.e., US$32,413 x (1+ 0.0198)12.
F. Yes, because Korea’s growth rate of 6.13% a year is higher than the 1.29% of
Canada. Based on compounding, Korea’s real GDP per capita is approximately
US$29,755 in 2010, i.e., US$14,574 x (1+ 0.0613)12 , slightly higher than or about
the same as Canada’s US$29,735.
3.
A. Substituting r =0.05 into the components and adding up to get AD = $750 billion +
.75(Y – $400 billion) – $300 billion (.05) + $400 billion – $600 billion (.05) + $550
billion + –$55 billion. Or AD =1,300 billion + 0.75Y.
B. The short run equilibrium output is $5,200 billion (i.e., Y = $1,300 billion + .75 Y, or
.25Y = $1,300 billion, thus Y = $1,300 billion/.25).
C. Expansionary or inflationary gap; $150 billion (output gap = Y - Y* = $ (5,200 –
5,050) billion).
D. Contractionary
E. Increase; 9.167%. ($5,050 billion = $1,345 billion + .75($5,050 billion) – 900r, or
$5,050 billion = $1,345 billion + $3,787.5 billion – 900r. Combining the constant
values gives us –$82.5 billion = – 900r, or r = 0.09167).
4.
A.
3
Inflation rate
(%)
LRAS
6
5
4
SRAS
3
2
1
AD
0
3500
3550
3600
3650
3700
3750
3800
Aggregate Demand ($ billion)
B. 3,550
C. recessionary; 100
D. Decrease
E. SRAS; downward
F. long-run; 3,650
5.
A. The nominal exchange rate is defined as either the number of Canadian dollars
needed to purchase one unit of the foreign currency or the amount of foreign currency
needed to purchase one Canadian dollar.
B.
Nominal Exchange Rates for the Canadian Dollar (April 2, 2002)
Country
Foreign currency / Canadian
Canadian Dollars / foreign
dollar
currency
Britain (Pound)
0.4339
2.3046
US (Dollar)
0.6252
1.5994
Europe (Euro)
0.7099
1.4087
Switzerland (Franc)
1.038
0.9632
Japan (Yen)
83.33
0.012
Mexico (N Peso)
5.63
0.1775
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C. The real exchange rate (for the automobile) equaled 1.1156 (round your answer to the
nearest hundredth). [48000 x 0.6252 / 26,900 = 1.1156].
D. More; Canadian.
6.
A. Consumption = 290 (i.e., by substituting P = 50 into the demand function); domestic
production = 170 (i.e., by substituting P = 50 into the supply function), and Sunland
would import 120 cellular phones, i.e., (290-170).
B. Decrease consumption by 8; Increase domestic production by 8; and decrease imports
by 16. After the imposition of the tariff, consumption = 282 (i.e., by substituting P =
70 into the demand function); domestic production = 178 (i.e., by substituting P = 70
into the supply function), and Sunland would import 104 cellular phones, i.e., (282178).
C. The Sunland government would receive $2080 from the tariff. [104 units x $20].
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