Midterm I 75 minutes Econ 1102 30 Principles of Macroeconomics Justin Barnette October 10 2007 Name On the following pages please show all of your work If you need more space use the back of the page Clearly state the location of your work answers Clearly highlight circle solutions Fully label all graphs Read each question carefully and be sure to answer all parts of every question When in doubt write the formula for the solution The formula alone is worth half the points for each part of the question There should be 10 pages including this cover sheet 1 Question 1 20 points Match the following terms with the correct definition number from the last page of the exam You can go ahead and tear off the last page of the exam Aggregation Cyclical Unemployment Marginal Propensity to Consume MPC Multiplier Equilibrium Nominal GDP Final Goods and Services Productivity Frictional Unemployment Purchasing Power Gross Domestic Product GDP Human Capital Real GDP per capita Inflation Recession Inflationary Gap Recessionary Gap Intermediate Good Stagflation Real Rate of Interest 2 Question 2 14 points Suppose that you are asked to calculate the CPI and inflation for the Greek Economy and you have the following data Years 1967 1968 1969 Cost of the basket of goods a typical consumer consumes in the Greek economy 6 500 6 200 6 400 Taking 1967 as the base year calculate the CPI for all the years 1967 1968 and 1969 Calculate the inflation rates in 1968 and 1969 Tom has a job that paid 15 000 in 1967 15 000 in 1968 and 20 000 in 1969 Salaries in this problem are given nominally What is Tom s real salary in 1968 and 1969 in terms of 1967 dollars 3 Question 3 16 points a Draw an income expenditure graph and clearly label the equilibrium GDP and the axes b Suppose the price level increases Show how the income expenditure line shifts on your graph Why does it shift in the way depicted c What happens to GDP d How is this relevant to the aggregate demand function 4 Question 4 17 points According to the CIA World Factbook the Chinese population is 1 322 million and grows 0 61 per year The United States population is 301 million and grows 0 894 per year The United States still has the biggest economy in the world with a GDP of 13 06 trillion and grew at 2 9 last year The Chinese economy is getting closer as its GDP in US dollars is valued at 10 21 trillion after being valued at 9 20 trillion last year Will the Chinese economy be bigger than the US economy after 5 years if we assume that it is growing at the same rate Will its GDP per capita be larger after 20 years assuming that the economy and the population continue to grow at the same rate You must show all your work for this question In fact I need the following 1 2 3 4 5 6 7 8 9 Chinese growth rate Size of US economy after 5 years Size of China economy after 5 years Size of US economy after 20 years Size of China economy after 20 years Size of US population after 20 years Size of Chinese population after 20 years US GDP per capita after 20 years Chinese GDP per capita after 20 years 5 Question 5 23 points Consider the following data for a small country for the years 2001 and 2002 2001 US 2002 US Consumption 14 000 14 500 Taxes 3 000 3 100 Transfer Payments 2 000 2 050 Investment 1400 1600 Government Spending 11 800 12 100 Imports 1600 1600 Exports 600 800 2001 2002 CPI 150 175 Population 900 1 100 Solve for the following values showing all your work a Gross Domestic Product in 2001 and 2002 b What is National Income in 2001 and 2002 c What is Disposable Income in 2001 and 2002 If you cannot find the answer from the information write the formula 6 d Plot the consumption function below from the data above e Determine the marginal propensity to consume 7 Question 6 10 points Below are hypothetical data for NOWHERE Year Population in millions Labor Force in millions 2001 200 120 Value of Employment Labor in millions Productivity Total Output value of output per worker 110 15 000 2002 225 140 120 17 000 a Fill in the entries for total output in each of the 2 years Show your calculations below b Unemployment rate in 2001 and 2002 8 Bonus Question 10 points Given the following Income Expenditure 3 600 3 620 3 700 3 710 3 800 3 800 3 900 3 890 4 000 3 980 Calculate the multiplier when expenditures increase by 20 Fill in the following Price Level Original Aggregate Demand Aggregate Demand after 20 increase in expenditure Aggregate Supply 90 3 860 3 660 95 3 830 3 730 100 3 800 3 800 105 3 770 3 870 110 3 740 3 940 Calculate the multiplier when expenditure increases by 20 Discuss the significance of this result in one or two sentences 9