ICU winter 2011, Principles of Macroeconomic December 20, 2011
Quiz #1
Rules:
(1) Turn off your cell phones and keep quiet in the classroom.
(2) You can see the textbook and lecture notes, but not others’ answers.
(3) Write as clearly as possible (an answer with poor handwriting which I cannot read will automatically get no point).
(4) In each problem, explanation is more important than the result. So always remember to explain the logic in your results, even if the problem does not explicitly ask you to do so.
(5) You cannot go out during the quiz time. (6) You can ask questions if you want.
Time: 50 minutes
Problem 1 (8pts×4) (References: topic 2 and chapter 2)
Boeing is an American firm that produces airplanes in the U.S.. Place the following transactions in one of the four components of expenditure of the U.S.:
(a) Boeing sells an airplane to the U.S. Air Force. (b) Boeing sells an airplane to Japan Airlines. (c) Boeing sells an airplane to American Airlines. (d) Boeing builds an airplane to be sold next year.
Problem 2 (8pts×5) (References: topic 2 and chapter 2)
Consider an economy that produces rice and personal computers (PCs). The following table shows the price and quantity produced in the two years 2009 and 2010 of each good.
2009 2010 price quantity price quantity
rice $5,000 /ton 10 tons $6,600 /ton 10 tons
PC $1,000 /PC 50 PCs $900 /PC 60 PCs
(a) Use the year 2009 as the base year to compute the nominal GDP of 2009 and real GDP of 2010.
(b) Compute the growth rate of real GDP in 2010.
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(c) Use GDP deflator to compute how much the price level had risen in 2010. (d) Why the price level had risen in 2010?
(e) Suppose that the level of well-being is measured by the goods produced, in which of the two years 2009 and 2010 the economy had higher level of well-being?
Problem 3 (8+10+10 pts) (References: topic 3 and chapter 3)
Use the classical model to answer the following problem. Suppose that the government follows a balanced budget rule, and it implements a policy in which it increases government purchases by ΔG.
(a) How much is the change in taxes?
(b) How do the interest rate and investment respond to the policy?
(c) Do the results in (b) depend on the marginal propensity to consume (MPC)? Hint: use graphs to answer (b) and (c).
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