ECMB06-Midterm-2009-FALL-SOLUTIONS.doc

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Department
Economics for Management Studies
Course
MGEB06H3
Professor
Jack Parkinson
Semester
Summer

Description
1 NAME STUDENT # UNIVERSITY OF TORONTO AT SCARBOROUGH ECM B06 MACROECONOMICS Jack Parkinson FALL 2009 MIDTERM EXAM - SOLUTIONS INSTRUCTIONS: 1. Total time for this2 hourss. 2. Total marks = 100. 3. ALL exam documents MUST be handed in or you will receive a grade of ZERO (or lower) on the exam! 4. Aids allowed: Calculator 5. Answer all questions. 6. Please put your name and student number on both exam documents. MARKS QUESTION 1 20 /20 QUESTION 2 20 /20 QUESTION 3 25 /25 QUESTION 4 10 /10 QUESTION 5 15 /15 QUESTION 6 10 /10 TOTAL 100 /100 2 Q1. Solution (20 marks) PART A: (10 marks) LR Output 0.50 0.50 Y = 20(6,400) (900) = 20(80)(30) = 48,000.00 (2 marks) Real interest rate Y = C + I + G 48,000 = 6,000 + 0.75(48,000 9,600) 400r + 7,000 600r +9,600 1,000r =3,400 r = (3400/1000) = 3.400 (percent) (2 marks) Government spending on goods and services (net) = G = .2xY = 9,600 Taxes = T = 9,600 = G Consumption C = 6,000 + 0.75(Y-T) 400r* = 33,440.00 (2 marks) Investment I = 7,000 600r = 4,960.00 (1 mark) Private Saving = S PVT= Y T C = 4,960.00 (1 mark) Government saving = S GOVT= T G = 0 (1 mark) National saving = S NAT= S PVT+ SGOVT= Y C G = 4,960.00 (1 mark) 3 Q1. Solution (continued) PART B: (10 marks) LR Output 0.50 0.50 Y = 20(6,400) (900) = 20(80)(30) = 48,000.00 (1 mark) Real interest rate Y = C + I + G 48,000 =8,000 + 0.75(48,000 9,600) 400r + 7,000 600r +9,600 1,000r = 5,400 r = (5400/1000) = 5.400 (percent) (2 marks) Government spending on goods and services (net) = G = 20%xY = 9,600 Taxes = T = 9,600 = G Consumption C = 8,000 + 0.75(Y-T) 400r* = 34,640.00 (1 mark) Investment I = 7,000 600r = 3,760.00 (1 mark) Private Saving = S PVT= Y T C = 3,760.00 (1 mark) Government saving = S GOVT = T G = 0 (1 mark) National saving = S NAT= S PVT+ S GOVT= Y C G = 3,760.00 (1 mark) r S1 S0 Graph: 2 marks 5.400% B subtract 1 pt if supply of loanable funds curve is vertical subtract 1 pt if S is shifted incorrectly 3.400% A 4 I (r) 3760 4960 S, I
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