Principles of Macroeconomics 2013 Midterm 1 Name Recitation 2 pts Exam Version T1O Time Limit 60 minutes Guidelines READ THEM Exams written in pencil will not be regraded You must write in ink if you might want a regrade in the future You are allowed to detach and keep the last page We will not grade the last page so do not put any workings answers on it Each page may have its own directions Follow directions carefully Where required clearly indicate which question you are answering For full credit answers must be clearly justified Graphs must be completely LABELED and math work shown Do not write too much One sentence per point is a good estimate but is NOT a rule i e do not complain if you write one sentence for a one point question and do not get full marks For questions with choice if you answer more than the required number clearly indicate which questions you want graded Otherwise the answers will be graded in order up to the required number You will not get the grades from the best answers Partial marks for multiple choice are possible During the exam you may NOT Use a programmable calculator e g TI 83 Have your cell phone out Have any notes out Collaborate with other students This exam is 9 pages not including this front page numbered 1 9 Good luck Exam Record Part1 23 points Part2 25 points Part3 25 points Part4 25 points Correct Section 2 points Total 100 points Principles of Macroeconomics Fall 2013 2013 Midterm 1 Name All Instructors Part I 23 points Answer all questions in this part 6pts 1 Define all of the following terms a 2 pts The Wealth Effect b 2 pts Frictional Unemployment c 2 pts Normative Claims 2pts 2 The study of which of the following would not be considered part of macroeconomics Circle only one answer a b c d e 10pts inflation individual consumers unemployment economic growth none of the above 3 Answer both parts of this question a 5 pts Give three benefits of a market economy and explain them b 5 pts Explain how a command economy deals with the three benefits you mentioned above and why it isn t necessarily worse Macro 2013 Midterm1 2pts Name 4 Which factor has the largest effect on the economic growth of a developed country a b c d e 3pts Page 2 of 9 technology capital labour natural resources it depends on the developed country 5 Assume Saudi Arabia decides to invest 200 billion for infrastructure improvements in each of the following countries Ethiopia United States China Rank these countries in terms of the impact of this investment on GDP growth from lowest to highest a b c d e f Ethiopia United States China Ethiopia China United States China United States Ethiopia China Ethiopia United States United States China Ethiopia United States Ethiopia China 5 pts Macro 2013 Midterm1 Page 3 of 9 Name Part II 25 points Answer all questions in this part 8pts 1 The production possibilities frontier a 4 pts Using the data provided on the last b 2 pts Draw the impact in a new graph of page draw the Econland PPF in 2010 placing a drought that reduces the amount of wheat gasoline on the x axis available to bread factories c 2 pts In your answer for part a draw and label the points that represent the following situations 1 Inefficient 2 Infeasible not doable production 5pts 2 AD AS equilibrium a 3 pts Draw an AD AS diagram that shows an b 2 pts Show the short run impact of a sudden decrease in the interest rate economy in AD AS equilibrium 3pts 3 When a government wants to balance its budget with the least harm to GDP the multiplier effect tells us that which policy will be most effective Select only one a b c d e an increase in government spending a decrease in government spending an increase in taxes a decrease in taxes none of the above Macro 2013 Midterm1 3pts Page 4 of 9 Name 4 Which of the following is an explanation for why AD is downward sloping Circle all that apply a b c d Interest Rate Effect Sticky Wages Substitution Effect Wealth Effect 3pts 5 Give a brief explanation of one of your answer s from question 4 3pts 6 Which of the following workers are structurally unemployed Circle all that apply a b c d An amusement park employee in January A cassette tape manufacturer A screenwriter unable to move to Hollywood A biomedical engineer looking for the right medical device company 9 pts Macro 2013 Midterm1 Page 5 of 9 Name Part III 25 points Answer all questions in this part 2pts 1 Define Economic Growth 6pts 2 Draw and Label a flow diagram with three agents Government Households and Firms and two markets factor and output Circle the components that make up GDP It is important that you dont add unnecessary items to diagram You may assume that all households own shares in firms 2pts 3 Suppose we have an economy in which GDP equals 10 000 Government spending equals 2 000 and Imports equal 3 000 Then which of the following may be true Circle all that apply a b c d e 2pts 4 Consider two countries A and B with the same GDP and fiscal policy Assume A s Marginal Propensity to Consume MPC henceforth is 0 75 and B s MPC is 0 5 Assume the government decides to increase spending by 800 with everything else remaining the same i e taxes savings etc in both countries Which country will have the higher GDP after this action and by how much Dont pick multiple answers a b c d e 6pts Exports 3 000 Consumption 0 Investment 0 Exports 4 000 Consumption 6 000 Investment 1 000 Exports 1 000 Consumption 11 000 Investment 1 000 Exports 0 Consumption 9 000 Investment 2 000 none of the above country A 3 200 country B 3 200 country A 1 600 country B 1 600 not enough information 5 Suppose that USA unemployment rate falls from 9 7 to 9 3 State and explain one reason why this number alone can not tell us that more people are finding jobs with certainty Macro 2013 Midterm1 4pts Page 6 of 9 Name 6 Suppose you are calculating the GDP of the USA in 2013 How much does each of the actions given below add to US GDP a 1 pt Toyota builds a 50 000 car in a factory in US and sells the car to Argentina in 2013 b 1 pt You purchase a used car for 5 000 in 2013 c 1 pt Starbucks buys milk for 100 and makes 500 selling lattes using that milk to customers in Minneapolis in 2013 d 1 pt Joe spends 200 on a haircut in Los Angeles in 2011 3pts 7 Consider an economy with the nominal GDP of 100 000 and population of 10 000 persons The NGDP Nominal GDP then grew by 3 from …
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