|
First Midterm
Examination September 24, 1997 |
First Part (15 point questions)
For each of the following
statements, state whether you agree or disagree with the statement, and
explain why. It is not sufficient to simply write "True" or
"False"; your reason is as important, if not more so.
1. If Consumption,
Investment, Government Spending and Net Exports go up, but hours of work do
not, we will see a rise in GDP but not in National Income.
False.
We will see a rise in GDP but that also means a rise in income. The fact that
hours of work has not changed is just a red herring.
2. In East Vhalla, per capita
GDP is 14,350 Tiblets (T ), while per capita GDP is 175,800
Umlauts (ö ) in West Vhalla. Since today’s Wall
Street Journal showed that 1 T = 10 ö it is clear
that West Vhalla has the higher standard of living.
Disagree.
Whose relative prices are you using to evaluate the consumption? It is not
clear what the citizens of the two countries consume.
3. If apples and bananas are
substitutes, a decrease in the demand for apples means that there will be a
movement up the demand curve for bananas.
Disagree.
A decrease in the demand for apples is likely to lead to a lower price for
apples, and that will mean an increase in the demand curve for bananas, but not
a movement up the demand curve. In fact the increase in the demand for bananas
is likely to lead to a higher price for bananas, and that will lead to a
movement down the demand curve.
4. While most supply curves
are upward sloping, the long run Aggregate Supply Curve is a vertical line.
True.
Why should the price level affect the productive capacity of the economy?
Second Part (20 point questions)
1. East and West Burp, two
small adjoining countries, both make bread and butter. East Burp has twenty
workers, who can each make a pound of butter per day or a loaf of bread per
day. West Burp has 30 workers, who can each produce a pound of butter per day
or a 1.5 loaves of bread per day.
a. Using the following graphs
draw the production possibility curves for East and West Burp Be sure to
label your axes and indicate the scale.
b. Now draw the combine
production possibility curve for East and West Burp. Be sure to label your
axes and indicate the scale.
c. In which product does East
Burp have a comparative advantage? West Burp? Explain your reasoning.
East
Burp has a comparative advantage in bread, while West Burp has a comparative
advantage in butter. Why? Because East Burp must give up only a pound of butter
to get a loaf of bread, while West Burp must give up a 1.5 pounds.
2. Given the information in
the table below for three consecutive years in the US Economy, calculate the
missing data:
|
Year |
Nominal GDP (in billions of US dollars) |
Real GDP (in billions of 1982 dollars) |
GDP |
Inflation (percent change in GDP |
Real GDP per Capita (in 1982 dollars) |
Population (in |
|
1980 |
2,684.4 |
|
85.72 |
9.5 |
|
227.8 |
|
1981 |
|
3,193.6 |
|
9.6 |
|
230.1 |
|
1982 |
|
|
100.00 |
|
13,397 |
232.5 |
Show your work:
|
Year |
Nominal GDP (in billions of US dollars) |
Real GDP (in billions of 1982 dollars) |
GDP |
Inflation (percent change in GDP |
Real GDP per Capita (in 1982 dollars) |
Population (in |
|
1980 |
2,684.4 |
3,131.59 |
85.72 |
9.5 |
13,747 |
227.8 |
|
1981 |
3,000.36 |
3,193.6 |
93.95 |
9.6 |
13,879 |
230.1 |
|
1982 |
3,114.80 |
3,114.80 |
100.00 |
6.4 |
13,397 |
232.5 |