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

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Published on 28 May 2014
School
UTSG
Department
Economics
Course
ECO209Y1
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
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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
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.
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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
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## 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.