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Final

ECON 1010 Study Guide - Final Guide: Potential Output, Comparative Advantage, Retained EarningsExam


Department
Economics
Course Code
ECON 1010
Professor
All
Study Guide
Final

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PRINCIPLES OF MACROECONOMICS
FINAL EXAM: Sample #1
Duration - 3 hours
Aids Allowed: Non-programmable calculators only
INSTRUCTIONS:
This examination consists of TWO PARTS
Part I 10 diagrammatic/calculation questions of which you are expected to answer
any eight (10 marks each for a total of 80%)
Part II 12 multiple choice questions of which you are expected to answer any ten.
(2 marks each for a total of 20%).
You must cross out the two multiple choice questions that you do not answer.
Wrong answers will not be deducted from right in grading Part II.
All questions are to be answered in the spaces provided in this question paper booklet
Do not remove any pages or add any pages. No additional paper will be supplied.
The blank backs of pages may be used for rough work. Show your work where applicable.
Print your name and student number clearly on the front of the exam and on any loose
pages.
Student Name: ______________________________________________________
(Family Name) (Given Name)
Student Number: ______________________________
There are 14 pages to the exam.

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Principles of Macroeconomics: Final Exam; Sample #1
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PART I: Diagrammatic/Calculation
Answer only 8 of the 10 questions in Part I
Place your answers (and work where necessary) in the space provided.
1. The following table gives the resource input needed per unit of output. Assume that these
are the only countries and commodities in the world and that there are no economies of scale
and no transportation costs.
Output
Croatia
Greece
Olives (litres)
0.05R
0.15R
Wine (litres)
0.4R
0.6R
a) In the space below, determine the country with the comparative advantage in Olives
production and the country with the comparative advantage in Wine production. Show your
calculations. (3 marks)
1 mark: Croatia 1 Wine costs 0.4/0.05 = 8 Olives (or 1 Olive costs 0.05/0.4 = 1/8 Wine)
1 mark: Greece 1 Wine costs 0.6/0.15 = 4 Olives (or 1 Olive costs 0.15/0.5 = 1/4 Wine)
1 mark: Mexico has comparative advantage in Milk and Mexico in Fruit
b) Suppose that Croatia has 375 units of the resource and that Greece has 900 units of the
resource. In the space below, draw each country's production possibility curve in separate
diagrams with Wine on the vertical axis. (2 marks)
Wine
Wine Greece
Croatia
Olives Olives
937.5
1500
7500 6000
PPC
PPC
7500
1500
CPC CPC
b) 1 mark Croatia intercepts 937.5 Wine and 1500 Olives
1 mark: Greek intercepts are 1500 Wine and 6000 Olives
Deduct 1 mark if PPCs aren’t linear
c) 1 mark: Croatia intercepts are 1500W and 7500 Olives (no change)
1 mark: Greece intercepts are 1500W (no change) and 7500 Olives
c) Suppose that these countries agree to an exchange rate of 5 Olives per Wine. Draw each
country's consumption possibility curve given this exchange rate. (2 marks)
d) Suppose that the countries agree on an exchange rate of 5 Olives for 1 Wine as in c). If
Croatia consumes 3000 Olives, what is the maximum amount of Olives and Wine that
Greece can consume? Show work. (2 marks)
1 mark: Greece consumes 4500 Olives from something like 7500 – 3000
1 mark: Greece consumes 900 Wine from something like 1500 – 4500/5
e) What is the significance of the slope of the Production Possibilities Curve? (1 mark)
1 mark: The slope is the opportunity cost.

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Principles of Macroeconomics: Final Exam; Sample #1
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2. National Accounts (10 marks)
The following information defines Canada's ‘domestic’ accounts in 1995 ($ Billions).
Net Income of Unincorporated Businesses (Farm and non-Farm) and Rent
49
Wages and Salaries and Supplementary Labour Income
420
Depreciation (Capital Consumption Allowances)
106
Exports
302
Corporate Profits (before Taxes)
75
Consumption
463
Interest and Miscellaneous Investment Income
50
Investment (Fixed)
117
Change in Inventories
8
Net Investment Income of Non-Residents
24
Retained Earnings (Undistributed Corporate Profits)
25
Government Spending
193
Government Transfer Payments
78
Imports
276
Corporate Taxes
36
Personal Taxes
94
Indirect Taxes Less Subsidies
107
Calculate (Show your work)
a) Gross Domestic Product as Aggregate Expenditure (2 mark)
1 mark: setup with one incorrect number
1 mark: AE = 463 + 117 + 8 + 193 + 302 - 276 = 807
b) Net Domestic Income calculated from Aggregate Expenditure (1 mark)
1 mark: NDY = 807 – 107 – 106 = 594
c) Net Domestic Income calculated from Factor Incomes (2 marks)
1 mark: everything correct except for one number
1 mark: correct answer = 420 + 75 + 49 + 50 = 594
d) Personal Income calculated from Net Domestic Income (2 marks)
1 mark: everything correct except for one number
1 mark: correct answer = 594 – 36 – 25 + 78 = 611
e) Savings (1 mark)
1 mark: = 611 – 94 - 462 = 55
f) Net Domestic Product (1 mark)
1 mark= 701 from 807 - 106 or 594 + 107
f) Gross National Product (1 mark)
1 mark: = 807 - 24 = 783
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