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U N I V E R S I T Y O F

T O R O N T O

Faculty

ofArtsand Science

T E S T

August 6, 2014

E C O

l O O Y l

Y L5101

Duration:1Hour

ExaminationAids allowed: Non-programmable calculators only

T H I S

E X A M

C O N S I S T S

O F25 M U L T I P L E

C H O I C E Q U E S T I O N S

I N S T R U C T I O N S :

A n s w e r

the

M u l t i p le C h o i c e q u e s t i o n s

on the

s e p a r a t e b u b b l e f o r m s u p p l i e d E a c h

q u e s t i o n

is

w o r t h

m a r k

No

d e d u c t i o n s w i l l

be

m a d e

f o r

i n c o r r e c t

a n s w e r s .

U s i n g an HB or

s o f t p e n c i l o n l y ,

m a k e d a r k s o l i d m a r k s t h a t f i l lt he b u b b l e

c o m p l e t e l y E r a s e c o m p l e t e l y

any

m a r k s

you

w a n t

to

c h a n g e C r o s s i ng

out a

m a r k e d

b o x

is not

a c c e p t a b l e

and is

i n c o r r e c t

If

m o r e t h a n

one

a n s w e r

is

s e l e c t e d t h e n t h a t

q u e s t i o n e a r n s 0 p o i n t s

ON TH EB A C K OF TH E

F O R M : P r i n t y o u r

L A S T

N A M E

and

I N IT I A L

in the

b o x e s

A N D

d a r k e n e a c h l e t t e rin the c o r r e s p o n d i n g b r a c k e t b e l o w e a c hbox.

ON TH EF R O N T OF TH E

F O R M :

P r i n t y o u r 9 or 10)d i g i t

S T U D E N T

N U M B E R in

t h e b o x e s

AND

d a r k e n e a c h n u m b e r

in the

c o r r e s p o n d i n g b r a c k e t b e l o w e a c h

box.

Y o u r F O R M C O D E isA W r i t e in theo t h e r r e q u e s t e d i n f o r m a t i o n in the u p p e r r i g h t

r e g i o n

of the

f o r m

N A M E :

La s tName Print C learly FirstName

S T U D E N T

N U M B E R :

N O T E :

U S E T H EB A C K O F A N Y

P A G E

F O RR O U G H W O R K

Thereare 5pagesto this exam

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ECO IOOY

L5101:Midterm 2, August 6, 2014

Part I Place your answers (and work where necessary) in the space provided.

1. Which

of the

fo l l ow i n g

is true for the U.S. labour force

data

for July,

2014?

A )

The unemployment rate

fe l l

slightlyto 6% and employment

rose

bylessthan 200,000

B )

The unemployment rate

fe l l

slightly to 6% and employment

rose

by more than 200,000

C)

The unemployment

rateroseslightly

to 6.2% and employment

rose

by

less

than 200,000

^iThe

unemployment

rate

rose

slightly

to 6.2% and employment

rose

by more than 200,000

A )

None of the above

2. An economy's Ad u l tPopulation is 28m i l l i o n , Employment is 15m i l l i o n . Part-time

Employment is 3m i l l i o n .Unemployment is 2m i l l io n , and Discouraged Workers are 1

m i l l i o n .What is the Labour Force ParticipationRate(LFPR) and the UnemploymentRate

(A ) LFPR = 60 . 1 and UR = 11.8% B) LFPR = 64.3% and UR = 11.1 %

C)

LFPR = 71.4% and UR = D) LFPR = 75% and UR = 14.3%

E)

None

o f

theabove

Questions 3 to 5 refer to the fo l l ow i n g dataper month for the

average

fami ly's c onsumption

o f

Rice and Chicken in

June,

2004, and

June,

2014. 2004 is thebase

year.

June,

2004

June,

2014

Price/unit Quantity Price/unit Quantity

Beef (100 grams)

2.50 15

4

8

Yoghurt (100 grams)

3

5 2

10

What was the Consimier Price Index (CPI) in

June,

2014 (to the

nearest

decimal)?

A ) 96 B)104 C) 123.5 ( ^ 1 3 3 . 3 E) None of the above

What was Real Expenditure in

June,

2014, according to the CPI (to the

nearestcent)?

@ 3 9 B) 50 C) 52 D) 52.5 E) None of the above

What was the GDRDeflator in

June,

2014 (to the

nearest

decimal)?

A )

96 / B ) l t ) 4 C) 123.5 D) 133.3 None of the

above

Suppose

that the

base

year of a country's price indices is 2000. Which of the fo l l ow i n g wi l l

ncreasethe GDP Deflator but notchangethe CPI in

2010?

A )

An

increase

in the price

o fCalifornia grapes

A n increasein the price of Ontarioapples

( ^ A n

increase

in the price

o f

Ipads,

which

were introduced in

2006

D )

An

increase

in the price of Blackberries^

which

were introdnCediirt998

(E)

None of the above

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ECO IOOYL5101:Midterm 2, August

6,2014

Questions 7 and 8 concern the f o l l o w i n g information,al l on a domestic basis, defining

Canada'saccounts in 2000

( S M i l l i o n s ) .

N e t

Income ofUnincorporated

Businesses

(Farm and non-Farm) and Rent - - - -62,000

Wages and Salaries and Supplementary Labour Income -~ 520,000

Depreciation

(Capital Consumption Allowances) - 105,000

Exports

- 465,000

Corporate Profits (before Taxes)

~ ~ - . ^ ^ ^

Consumption

- ^ -,.,>.-^,,, .^ ., ^^, -v . 569,000

Interest and Miscellaneous Investment Income - , 64,000

Investment . ,

. - ~ ~ - V . ^ . - M . - - , , ^ ^

196,000

Government Spending . -

. ^ . - . - - ^ ^ ^ - - - .

, , 220,000

Government Transfer Payments

. . , . 6 2 , 0 0 0

Savings- . . . . . . ^ . ^ K ^ . 95,000

Imports

,..,,.^.>.,.^>.....^>,.^ 430,000

Corporate Taxes

,

,~..,~^r-~.t~-- - ~- . ^-.~^^

r n i i i i i j M H

i i

r - -

1^,000

Personal Taxes.

- ^ - ^ - - ^

.145,000

IndirectTaxes Less Subsidies,

7. What was Net Domestic Income in 2000?

0 787,000 B) .802,000 C) 849,000

8. What was Gross Domestic Product in 2000?

/ ' ' ' > - ^ 875, 000 B) 892,000 C) 915,000 ( 1,020,000 E) None of the above

9. Supposethat

Canada

GoosFbuyr$2

m i l l i o n

in down produced this year i n Manitoba and $3

m i l l i o n in

cloth

produced last year in Montreal to make $8 m i l l i o nworthofwinterjackets in

Toronto

this year. They sell $9

m i l l i o n

worth o fjackets this year. What istotal contribution

to

Canadian GDP this year by al l this activity? ^

A ) $5 m i l l i o n B) $6m i l l io n $8 m i l l i o n D) $9 m i l l i o n E) None of the abo ve

Whichone of the f o l l o w i n g isFalsefor the Keynesian Consumption function?

^Average Consumption is constant w i t h

increases

in Disposable Income

Savings is the residual of Disposable Income and Consumptio

- C) Autonomous Consumption and theMarginalPropensity to Consume (MPC) are constant

D ) TheMarginalPropensity toSave(MPC) is 1 minus the MPC (MPS = 1-MPC)

E ) Consumption is afunction o f Disposable I n c o

1 1 .

The f o l l o w i n gequations describe Aggregate Expenditure for an economy,

C = 250 +0.9Yd T = 0.2Y I = 50 + 0.2Y

=800 / X = 1000 I M= 100 + 0.17Y

Whatisequilibrium Y?

8,000 B) 8,500 C) 8,800 D) 9,600 E) None of the above

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O IOOY

L5101:Midterm 2, August

6,201

Questions 12 to 15 refer to the f o l l ow i n g equations for the Aggregate

Consumption(C) , Government Spending (G) and Net Taxes (T) functions o f an economy.

A E = 5,300 + 0.6Y C = 1,500 + 0^75^' G = 2,200 T = 20 + 0.2Y

12 .

What is the Government Budget Surplus (+)/Deficit (-) at equilibrium?

A )430 B) 450 (0470 D) 520 E) None of the above

What

is the

change

in the Government Budget Surplus(+)/Deficit(-)given an increase in

^Government Spending o f 10 A G= +10)?

A)-10 / ^ 5 C)0 @)+5 E)+10

14. What is thechangein Govenmient Spending

necessary

to increase equilibriumIncome by

20?

A )20 B) 15 C)12.8 E) 5

./What is the

change

in Transfer Payments necessarytoincreasegquilibriumIncome by 15?

A )

3 B)3. 75 ( C)6 D) 7.5 (E 8

16 .

Suppose

that a bank loans allexcess

reserves

and the target (required) reserve ratio is 12.5

(0.125).Whichof the f o l l ow i n g is true inequiHbrium i fthe bank i n i t i a l l yhas $400 m i l l i o n

i nreserves

and $3,600 m i l l i o n in deposits?

^Deposits are $3,200 m i l l i o nand Loans are $2,800 m i l l i o n

B )Deposits are $3,600 m i l l i o nand Loans are $3,200 m i l l i o n

C )

Reservesare $400

m i l l i o n

and Loans are $3,200

m i l l i o n

C )Reservesare $450 m i l l i o nand Deposits are $3^00 m i l l i o n

E) None of the above

17.

Supposethat the Bank ofCanadaissueoflegaltender (currency) i

circulationis $23

b i l l i o n ,

and the target (reserve) reserve ratio is 8%) (0.08).Whichof the

f o l l ow i n g

is true at equilibrium?

A )Reservesare $3.2 b i l l i o nand Loans are $16.8 b i l l i o n

B )

Deposits are $212.5

b i l l i o n

and Loans are $189.5

b i l l i o n

C )Reservesare $17 b i l l i o nand Money Supply is $212.5 b i l l i o n

D )

Reserves

are $17 b i l l i o nand Loans are $189.5 b i l l i o n

< ^ Loans are $195.5 and Money Supply is $235.5 b i l l i o n

18 .

Suppose

that the target (required) reserve ratio is 12.5%. What is the

reservesand money supply

i f

the Bank of

Canada

sells $100

m i l l i o n

in

bonds?

@ Change inReserves= -$100 m i l l i o n and Change in Money Supply = -$800 m i l l i o n

B ) Change inReserves= -$100 m i l l i o n and Change in Money Supply = -$1,250 m i l l i o n

C ) Change in

Reserves

= +$100 m i l l i o n and Change in Money Supply = + $800 minion

D )Change in

Reserves

= +$100m i l l io nand Change in Money Supply = +$1,250 m i l l i o n

E )

None of the above

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OIOOYL5101:Midterm 2, August6,2014

19. The Federal Government finances thepurchaseo f$1

b i l l i o n

in new heli

borrowing$800

m i l l io n

from the general public and $120

m i l l i o n

from the chartered

(private)banks and withdraws $50

m i l l io n

in deposits

from

the Bank of

Montreal

and $30

m i l l i o nin deposits from the Bank o fCanada.What is the

equilibrium

changeinreserves?

A)-$80

m i l l i o n B)-$30 m i l l i o n

C ) j ; | i P

m i l l i o n D) $+80 m i l l i o n E) $180 m i l l i o n

Questions 20 to 21 concern thefollowingequations for Money Demand M ) , Investment

I ) ,

and Aggregate Expenditure. The interest rate is r and Y is Income. h -

l i tY ^

M

= 0.15Y-80 0r I = 30 - 60 0r AE = 148 + I + 0.8

20 What is the

equilibrium

interest rate

i

MoneySupply is 96 and Y is 800?

A ) r = 0.02 and I = 18 ^ r = 0.03 and I = 12 C) r = 0.35 and I =

D) r

= 0.04an dl = 6 E) None of the above

2 1 .

What is 'equilibrixmi Y Ognore 'crowding out' )

i

the money supplydecreases

A )

780 ig))792.5 C) 800 D) 812.5 E) 825

Questions 22 to 24 concern an economy's Aggregate Expenditure and Short-run Aggregate

Supply (SRAS) fionctions below. The economy is i n i t i a l l yi n long-runequilibrium.

A E = 2400 + 0 .7Y- 3P SRAS = 6,000 + 15

22. What is

equilibrium

Price (P) and Y (Income)?

A )

P = 155 and Y = 6,450 B) P = 120 and Y = 6,800

P = 80 and Y = 7,200 E) None of the above

What is short-runequilibriumPrice and Income given anincreasein Governmen

S,of6(AG

= 6)?

A)P

= 78andY = 7,100 B) P = 80.24

&

Y = 7,203.6'CiP = 80.8 and Y = 7,212

D ) P = 90.8 and Y = 7,112 (E)j None of the above

\ ,

W a t is thelong-run

equilibrium

Price

given an increase in Government Spending

o f6

A G

6)?

.)

P = 80.6 B) 82

C) 85

D)

90

None o f the above

S Suppose

that an economy is

i n i t i a l l y

at long-run

equilibrium.

What is the

equilibrium

effect

q fanincreasein Government Spending in the short-run?

A^

An

increase

in Income and Prices but no

change

in the real interest rate

An

increase

in Income and Prices and an

increase

in the real interest rate

C)A nincreasein Income and the real interest rate but nochangein Prices

D)

Nochangein Income, Prices, or the real interest rate

< ^

None of the above