Econ 1102 Practice Final Name 2 RP 2 RP for writing name as it appears on the class roster Section 2 RP 2 RP for section enrolled in TA Name 2RP 2 RP for correct TA name Non programmable calculators only No cell phones no notes Time limit 120 minutes Each page may have has its own directions Follow the directions carefully Clearly indicate which question you are answering Correctly answering extra questions on a page will generate Replacement Points for that page only For full credit graphs must be completely LABELED and math work shown Be sure to justify your answers clearly and precisely for full credit Rambling incoherent or illegible responses shall be penalized even if correct Points are rewarded for answers consistent with those your instructor would give to the same question This exam is 9 pages including this front page numbered 1 9 GOOD LUCK RP 1 2 3 4 5 6 7 8 Total QUESTIONS 1 25 pts 8RP 1 2 3 4 5 6 8 pts Draw and label a flow diagram with three agents consumers profit earning firms rest of world and three places of exchange factor market output market financial market On your diagram clearly mark each component we use to calculate GDP 12 pts Give one example of an economic policy that Econland could implement to encourage growth Using supply demand graph analysis what are the potential negative effects of the economic policy you recommended Clearly discuss surplus quantity and price effects Be sure to mention If there is an additional effect on the general economy i e government budget problems unemployment 5 pts Draw the Econland PPF in 1982 placing bread on the x axis Indicate a point where this economy might be if it is producing efficiently Inefficiently Show how the PPF moves if the economy experiences war 2 RP Define an Economic System 4 RP List 4 characteristics of the market system 2 RP Define Economic Growth Page 2 of 10 QUESTIONS 2 25 pts 25 RP 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 pts What is the official size of Econland s population 2 pts What is the size of the Econland s labor force 2 pts How many people are unemployed in Econland 2 pts What is the participation rate in Econland 5 pts What is the Econland s Nominal GDP in 2000 3 pts What is the Econland s Real GDP in 2000 2 pts Suppose RGDP is 20 000 in 2005 and population is the same as it was 2000 Has Econland experienced growth or a recession 2 pts What is the GDP Deflator in 2000 5 pts What is CPI inflation from 1982 to 2000 2 RP Define Gross Domestic Product GDP 5 RP State 1 reason why economists use real GDP per capita to study growth instead of Nominal GDP per capita Why don t economists use Real GDP to study growth 5 RP Suppose that USA unemployment rate falls from 9 7 to 9 3 State and explain one reason why this number alone NOT a clear sign that more people are finding jobs Name at least one other economic indicator we should know before we can reach the conclusion that more people are finding jobs and briefly explain why this additional information helps 3 RP What is the Natural Rate Hypothesis In April 2010 the European Union declared that travelling for tourism is a basic human right and plan to have taxpayers pay up to 30 of travelling costs for youth and the elderly tourists in the EU a 5 RP Why may you expect GDP for individual countries in the EU to decrease under this plan b 5 RP Why may GDP for at least one country in the EU increase you don t need to name a country just explain why GDP may increase Page 3 of 10 QUESTIONS 3 25 pts 25RP 25 8 pts Gina has 100 to spend or save Suppose that inflation 0 She could i Buy 100 of stocks in a company BigBubble for a year There is a 90 chance that BigBubble collapses and she loses all her money a 9 chance that it gives her a 100 interest and a 1 chance that it gives her a 2000 interest ii Put it in a jar on her bookshelf iii Spend 100 on a 1 year Tbill that pays 7 real interest Which option would give her the highest expected yield a year from now 26 4 pts How much would you need to invest this year if you would want 5000 a year from now and real interest rates are 5 27 2 pt Suppose someone in Econland saves 500 in 1970 by putting burying money in their back yard How much is that money worth in nominal terms in 2000 28 3 pts Suppose instead that they invested their money in the bank at a nominal interest rate of 18 from 1970 to 2000 when inflation is 5 What is the real interest rate they earn 29 3 pts What is the equivalent value of 2500 in 2000 in 1970 if Cost of living in 1970 is 35 and Cost of living in 2000 is 42 I e how much money would you need in 1982 to buy the same amount of stuff as you can with 2500 in 2000 30 2 pt What is the value of money in the economy if average price level is 10 31 3 pts What is the velocity of money in the economy if price level is 10 RGDP is 5000 money supply is 8000 32 2 RP What is the Central Bank of the USA called 33 3 RP Define Fractional Reserve Banking 34 6 RP A friend of yours needs to take out a 5 year loan to pay tuition They can choose between two loans One has a 3 interest for the duration of the loan The other loan has an adjustable interest rate it will change with the interest rate in the loanable funds market currently 2 75 Based on what you ve learnt in this class which loan would you advise your friend to take and why 35 4 RP What is crowding out and how is it caused by expansionary fiscal policy 36 2 RP If there is a recession will the Central Bank use expansionary or contractionary monetary policy 37 2 RP If there is a recession will the government use expansionary or contractionary fiscal policy 38 6 RP Define the 3 tools of monetary policy Page 4 of 10 QUESTIONS 4 25 pts 18RP For the following questions use the data for Econland in 2005 39 4 pts What is the Money Supply in this economy 40 3 pts What is demand for Loanable funds 41 3 pts How much does Initial Spending in the Output Market need to change to return the Econland to the AD AS Equilibrium 42 5 pts If the Government decides to change taxes to achieve this objective what will the new level of taxes be 43 5 pts If the Central …
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