Department of Economics
University of Toronto
Prof. Gustavo Indart
October 22, 2010
MACROECONOMIC THEORY AND POLICY
Term Test #1
Circle your section of the course:
M – 2-4
W – 2-4
R – 2-4
1. The total time for this test is 1 hour and 50 minutes.
2. Aids allowed: a simple, non-programmable calculator.
3. Use pen instead of pencil.
DO NOT WRITE IN THIS SPACE
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• Multiple choice questions are to be answered using a black pencil or a black or blue ballpoint pen on the separate SCANTRON sheet being supplied. • Be sure to fill in your name and student number on the SCANTRON sheet! • Write the version of your paper — either A or B — on the SCANTRON sheet where it says “DO NOT WRITE IN THIS SPACE.”
• Each question is worth 2.5 marks. No deductions will be made for incorrect answers. • Write your answers to the multiple choice questions ALSO in the table below. You may use this question booklet for rough work, and then transfer your answers to each multiple choice question to the table AND onto the separate SCANTRON sheet. Your answers must be on the SCANTRON sheet. In case of a disagreement, the answer to be marked is the one on the SCANTRON sheet.
1. Which one of the following expenses is not considered as part of investment expenditure when measuring GDP?
A) The construction of a patio in John’s backyard by a private constructor. B) The renovations undertaken by the Department of Economics of the University of Toronto.
C) A new limousine bought for the use of the chairman of BMO. D) An extension to Ontario’s private highway 407.
E) All of the above are part of investment when measuring GDP. 2. Suppose that an economy produces only apples, bananas, and oranges, and that prices (in dollars) and quantities (in pounds) are as shown in the following table: Good
Considering the year 2004 as the base year, the percentage increase in real GDP between 2004 and 2009 is (approximately)
A) 9.5 percent.
B) 10.0 percent.
C) 10.5 percent.
D) 15.0 percent.
E) None of the above is correct.
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3. The photocopy shop at the corner of College and Beverly had revenues of $300 thousand and a profit of $30 thousand in 2009. That year, the total expenditures of this shop were $80 thousand in wages and salaries, $25 thousand in rent, $100 thousand in paper and ink, and $50 thousand in taxes. In addition, the depreciation of the capital stock of the shop was $15 thousand. The contribution of this photocopy shop to the country’s GDP in 2009 was
A) $300 thousand.
B) $275 thousand.
C) $200 thousand.
D) $150 thousand.
E) $125 thousand.
4. Consider a closed 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 $980 billion, consumption is $650 billion, private saving is $120 billion, and government purchases are $180 billion, which of the following is true in this economy? A) Disposable income is $860.
B) Investment is $120.
C) The budget surplus is -$30.
D) Personal income tax is 210.
E) None of the above is correct.
5. Consider the AE model of the economy and assume that the marginal propensity to save (MPSYD) is 0.2, the marginal income tax rate (t) is 0.25, and the marginal propensity to import (m) is to 0.1. If autonomous saving decreased by $200, which of the following would be true when comparing the new equilibrium to the old...
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