Econ 102 Section 4 – Principles of Macroeconomics
Instructor: C. Burkart
Let’s see if everyone can get this right this time around: you will receive 5 points for putting your exam version in the correct folder when you are done. Your exam version is at the top right hand side of this page. If you put your exam in the wrong folder, grading of it may also be delayed. Multiple-choice questions are worth 3 points each.
1. Use the figure below to answer the following question: If economic growth is the only concern for the economy pictured in the figure above, at what labeled point should the economy choose to produce?
a. A.
b. B.
c. C.
d. D.
e. E.
2. Use the figure above to answer the following question: If this economy is initially operating at point B, what is the opportunity cost of increasing the production of capital to point C?
a. Capital increases from K2 to K3.
b. Capital production is at K2.
c. Consumption goods production is at C2.
d. Consumption falls from C2 to C3.
3. Which of the following statements about economic growth is true?
a. Achieving a higher rate of growth in the short run typically requires some sacrifice in the long run.
b. Achieving a higher rate of growth in the long run typically requires some sacrifice in the short run.
c. Government policies have no effect on the rate of economic growth.
d. Increases in productivity do not cause economic growth.
4. Which of the following is required for the average standard of living to rise?
a. Output and population must grow at the same rate.
b. Output must grow faster than population.
c. Population must grow faster than output.
d. Output must grow by at least 5% per year.
5. In a boom the economy's:
a. output equals its potential output.
b. unemployment rate is zero.
c. GDP is greater than the full-employment level.
d. unemployment rate is unusually high.
6. In the classical model, unemployment caused by a fall in spending is:
a. the only possible type of unemployment.
b. rare.
c. frequent.
d. impossible.
7. During a recession
a. output rises.
b. unemployment rises.
c. unemployment falls.
d. output exceeds its potential.
8. In the classical model, which of the following would cause an increase in the demand for labor?
a. Workers have become more productive.
b. An increase in total spending.
c. The capital stock decreases.
d. A decrease in total spending.
9. Why is it implausible that a shift in labor demand could cause economic fluctuations in the classical model?
a. Shifts in labor demand are very large from year to year and the changes in output that we observe are relatively small.
b. Shifts in labor demand are only caused by changes in spending, and such changes happen infrequently.
c. Shifts in labor demand are not very large from year to year.
d. The labor demand curve will never shift in the classical model.
Question 10 [17 pts.] Below are GDP and growth data for the United States and four other countries:
|
|
1950 per |
1990 per |
Average |
per capita GDP |
as percentage of U.S. |
|
|
capita GDP |
capita GDP |
annual growth |
1950 |
1990 |
|
United States |
$9,573 |
$21,558 |
2.0% |
|
|
|
France |
$5,221 |
$17,959 |
3.0% |
54.5% |
83.3% |
|
Japan |
$1,873 |
$19,425 |
5.7% |
19.6% |
90.1% |
|
Kenya |
$609 |
$1,055 |
1.3% |
6.4% |
4.9% |
|
India |
$597 |
$1,348 |
2.0% |
6.2% |
6.2% |
a. For both years, calculate each country’s per capita GDP as a percentage of U.S. per capita GDP. Which countries appeared to be catching up to the U.S., and which were lagging behind? Catching up: France, Japan. Lagging behind: India, Kenya.
b. If all these countries had continued to grow (from 1990 onward) at the average growth rates given, in what year would France have caught up to the U.S.? (Show some work for France vs. US growth to get full credit) When would India and Kenya have caught up?
France would catch up in 2009:
In 2000, France = $17,959(1.03)10 = $24,135 < US = $21,558(1.02)10 = $26,279
In 2010, France = $24,135(1.03)10 = $32,436 > US = $26,279(1.02)10 = $32,034
So it must occur between 2000 and 2010:
In 2009, France = $24,135(1.03)9 = $31,491 > US = $26,279(1.02)9 = $31,406
In 2008, France = $24,135(1.03)8 = $30,574 < US = $26,279(1.02)8 = $30,790
Thus France would catch up in 2009 (or sometime between 2008 and 2009).
Neither Kenya nor India would have caught up.
Question 11 [21 pts.] Complete the following table, then find the approximate growth rate of output from Year 1 to Year 2, from Year 2 to Year 3, and from Year 3 to Year 4, in terms of the percentage change in each of its components. Hint: use the approximation %ΔA x %ΔB = %ΔA + %ΔB
|
|
192,000,000 |
200,000,000 |
285,000,000 |
368,000,000 |
|
|
$ 50.00 |
$ 52.50 |
$ 58.00 |
$ 60.00 |
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
Total hours worked |
192 million |
200 million |
285 million |
368 million |
|
Labor force |
1,200,000 |
1,400,000 |
1,900,000 |
2,100,000 |
|
Population |
2,000,000 |
2,500,000 |
2,900,000 |
3,200,000 |
|
Productivity |
$50 per hour |
$52.50 per hour |
$58 per hour |
$60 per hour |
|
Average hours per worker |
160 |
142.8571429 |
150 |
175.2380952 |
|
LFPR |
0.6 |
0.56 |
0.655 |
0.656 |
|
Total output |
$9,600,000,000 |
$10,500,000,000 |
$16,530,000,000 |
$22,080,000,000 |
Growth rates (show work—at a minimum the components that make up the rate—for full credit)
Productivity avg.hours LFPR population
Year 1 to Year 2: .050 + -.107 + -.067 + 0.25 = 0.126
Year 2 to Year 3: .105 + .050 + .170 + .160 = 0.485
Year 3 to Year 4: .034 + .168 + .002 + .103 = .308
Question 12 [10 pts.] In the figure below, add the new PPF that
the country would face in year 2 for each of the following scenarios:
(i) the economy produces at point J in year 1, (ii) the economy
produces at point H in year 1. Be sure to clearly label your PPFs.
