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MGEB06H3 Study Guide - Midterm Guide: University Of Toronto Scarborough, Real Interest Rate, Loanable Funds


Department
Economics for Management Studies
Course Code
MGEB06H3
Professor
Jack Parkinson
Study Guide
Midterm

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NAME
STUDENT #
UNIVERSITY OF TORONTO AT SCARBOROUGH
ECM B06
MACROECONOMICS
Jack Parkinson
FALL 2009
MIDTERM EXAM - SOLUTIONS
INSTRUCTIONS: 1. Total time for this test is 2 hours.
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
1

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Q1. Solution (20 marks)
PART A: (10 marks)
LR Output
Y = 20(6,400)0.50(900)0.50 = 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 = SPVT = Y – T – C = 4,960.00 (1 mark)
Government saving = SGOVT = T – G = 0 (1 mark)
National saving = SNAT = SPVT + SGOVT = Y – C – G = 4,960.00
(1 mark)
2

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Q1. Solution (continued)
PART B: (10 marks)
LR Output
Y = 20(6,400)0.50(900)0.50 = 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 = SPVT = Y – T – C = 3,760.00 (1 mark)
Government saving = SGOVT = T – G = 0 (1 mark)
National saving = SNAT = SPVT + SGOVT = 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
3
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