# ECO209Y1 Study Guide - Midterm Guide: Output Gap, Shinny, Shortage

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Page 1 of 10

Department of Economics Prof. Gustavo Indart

University of Toronto October 26, 2012

ECO 209Y

MACROECONOMIC THEORY AND POLICY

Term Test #1

LAST NAME

FIRST NAME

STUDENT NUMBER

Circle your section of the course:

L0101 L0301 L0401

M – 2-4 W – 2-4 R – 2-4

INSTRUCTIONS:

1. The total time for this test is 1 hour and 45 minutes.

2. Aids allowed: a simple, non-programmable calculator.

3. Use pen instead of pencil.

DO NOT WRITE IN THIS SPACE

Part I / 36 Part II 1. / 10

Part II / 14 2. / 10

3. / 10

Total / 80

SOLUTIONS

Page 2 of 10

PART I (36 marks)

Instructions:

Enter your answer to each question in the table below. Table cells left blank will receive a

zero mark for that question.

Each question is worth 3 marks for a maximum of 36 possible marks. No deductions will be

made for incorrect answers.

1 2 3 4 5 6 7 8 9 10 11 12

D C D C D B A E D A D C

1. Consider an economy without depreciation of the capital stock, without government transfer

payments, and where personal income tax is the only source of government revenues. If

GDP is $780 billion, consumption is $520 billion, government purchases is $180 billion,

private savings is $120 billion, and investment is $130 billion, which of the following is true in

this economy?

A) Disposable income is $620.

B) Net exports are -$20.

C) The budget deficit is $10.

D) Personal income tax is 140.

E) None of the above is true.

2. Shinny Steel Co. produced 1,000 tons of steel. Steel sells for $45 per ton. Shinny Steel Co.

paid wages of $15,000 and taxes of $5,000, and bought $15,000 worth of iron ore, coal, and

other material inputs needed to produce the steel. The company made a profit of $10,000.

Shinny Steel’s contribution to GDP is

A) $15,000.

B) $25,000.

C) $30,000.

D) $45,000.

E) none of the above.

Use this space for rough work.

Page 3 of 10

Use the information in the following table to answer questions 3 and 4 below. Suppose that an

economy produces only apples, bananas, and oranges, and that price (in dollars) and quantity

(in pounds) data are given in the table below.

Year 2010 Year 2011

Good Quantity Price Quantity Price

Apples 3,000 $2 4,000 $3

Bananas 6,000 $3 7,000 $2

Oranges 8,000 $4 6,000 $5

3. Refer to the table above. Taking 2010 as the base year, what is the rate of growth of real

GDP in 2011?

A) -4.5 percent.

B) -4.8 percent.

C) -5.0 percent.

D) -5.4 percent.

E) None of the above is correct.

4. Refer to the table above. Using the chain method of estimating real GDP, what is the rate of

growth of real GDP in 2011?

A) -5.2 percent.

B) -5.4 percent.

C) -6.8 percent.

D) -7.2 percent.

E) None of the above is correct.

5. A policy of a balanced budget over the business cycle would

A) require increasing government expenditures when revenues are rising.

B) require increasing taxes when revenues are falling.

C) call for substantial government infrastructure investments in periods of economic

boom.

D) allow for the implementation of countercyclical policies without affecting the level of

the national debt.

E) allow for the implementation of countercyclical policies without affecting the debt-to-

GDP ratio

Use this space for rough work.

## Document Summary

R 2-4: the total time for this test is 1 hour and 45 minutes, aids allowed: a simple, non-programmable calculator, use pen instead of pencil. Enter your answer to each question in the table below. Table cells left blank will receive a zero mark for that question. Each question is worth 3 marks for a maximum of 36 possible marks. No deductions will be made for incorrect answers. D c d c d b a e d a d c: consider an economy without depreciation of the capital stock, without government transfer payments, and where personal income tax is the only source of government revenues. Shinny steel co. paid wages of ,000 and taxes of ,000, and bought ,000 worth of iron ore, coal, and other material inputs needed to produce the steel. Shinny steel"s contribution to gdp is: ,000, ,000, ,000, ,000, none of the above.