ECON 2102Winter 2014Assignment 1Due date: Friday January 31, 4:00 pmTotal Marks: 100ar stued dvi y r

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ECON 2102Winter 2014Assignment 1Due date: Friday January 31, 4:00 pmTotal Marks: 100ar stued dvi y reaC soou urcrs eeH wer aso.comA. Multiple Choice (30 marks)1. Exogenous variables are(a) determined outside the model .(b) determined within the model.(c) the outputs of the model.(d) explained by the model.2. Variables that a model takes as given are called:(a) endogenous.(b) exogenous.(c) market clearing.(d) macroeconomic.3. In an economic model,This(a) exogenous variables and endogenous variables are both determined outside themodel.(b) endogenous variables and exogenous variables are both determined within themodel.sh(c) endogenous variables affect exogenous variables.(d) exogenous variables affect endogenous variables.4. In a simple model of the supply and demand for pizza, the endogenous variablesare:(a) the price of pizza and the price of cheese.(b) aggregate income and the quantity of pizza sold.(c) aggregate income and the price of cheese.(d) the price of pizza and the quantity of pizza sold.1ECON 2102Winter 2014Christopher Gunn5. Macroeconomists are like scientists because they both:(a) design data and conduct controlled experiments to test their theories.(b) rely on data analyzed from experiments they set up in a laboratory.(c) are unlimited in their use of controlled experiments.(d) collect data, develop hypotheses, and analyze the results.6. In a closed economy, GDP is all of the following except the total:(a) expenditure of everyone in the economy.ar stued dvi y reaC soou urcrs eeH wer aso.com(b) income of everyone in the economy.(c) expenditure on the economy’s output of goods and services.(d) output of the economy.7. Which of the following is a flow variable?(a) wealth(b) the number of unemployed(c) government debt(d) income8. Two equivalent ways to view a closed economy’s GDP are as the:(a) total payments made to all workers in the economy or the total profits of allfirms and businesses in the economy.(b) total expenditures on all goods produced in the economy or the total incomeearned from producing all services in the economy.is(c) total profits of all firms and businesses in the economy or the total consumptionof goods and services by all households in the economy.Th(d) total income of everyone in the economy or the total expenditure on the economy’s output of goods and services.sh9. To compute the value of nominal GDP,(a) goods and services are valued at market prices.(b) the sale of used goods is included.(c) production for inventory is not included.(d) goods and services are valued by weight.10. Assume that a bakery hires more workers and pays them wages and that the workersproduce more bread. GDP increases in all of the following cases except when thebread:(a) is sold to households.2ECON 2102Winter 2014Christopher Gunn(b) is stored away for later sale.(c) grows stale and is thrown away.(d) is sold to other firms.11. If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $1.5trillion, what is the value of real GDP in 2009?(a) $1.2 trillion(b) $1.25 trillionar stued dvi y reaC soou urcrs eeH wer aso.com(c) $1.5 trillion(d) $1.875 trillion12. Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas3 oranges were produced in 2002 and 4 in 2009, then real GDP (in 2002 prices) in2009 was:(a) $5(b) $6.5(c) $9.5(d) $1113. All of the following actions are investments in the sense of the term used by macroeconomists except:(a) IBM’s building a new factory.(b) corner candy store’s buying a new computer.is(c) John Simpson’s buying a newly constructed home.Th(d) Sandra Wu’s buying 100 shares of IBM stock.14. The CPI is determined by computing:sh(a) an average of prices of all goods and services.(b) the price of a basket of goods and services that changes every year, relative tothe same basket in a base year.(c) the price of a fixed basket of goods and services, relative to the price of thesame basket in a base year.(d) nominal GDP relative to real GDP.15. If the unemployment rate is 6 percent and the number of employed is 24 million,then the labour force equals million.(a) 22.6 million3ECON 2102Winter 2014Christopher Gunn(b) 24 million(c) 25.5 million(d) The answer cannot be determined with the information given.B. Problems (70 marks)ar stued dvi y reaC soou urcrs eeH wer aso.com1. (35 marks) Suppose that in the City of Ottawa, the demand for new houses is givenbyQd = D(P, i) = 1000 ? 5P ? 10i(1)and the supply byQs = S(P, u) = 500 + 4P + 5u,(2)where P is the price of houses, i the nominal interest rate set by the Bank ofCanada, and u the unemployment rate in the City of Ottawa.(a) (5 marks) Plot the supply and demand curves on a plot with “Quantity ofhouses” on the horizontal axis, and “Price of houses” on the vertical axis.(b) (5 marks) Solve for the equilibrium price P ? and equilibrium quantity Q? interms of i and u, and also show the location of this equilibrium on your plot.(c) (5 marks) What is the value of the vertical intercept of the Qd line? What isthe value of the vertical intercept of the Qs line?(d) (5 marks) For each of the variables P, u, explain whether they cause movementalong the Qs curve, or a shift in the Qs curve.(e) (5 marks) In terms of your plot, what does the partial derivativescribe? What about ?D(P,i)??i?D(P,i)?Pde-This(f) (5 marks) Now draw a new plot with “Quantity of houses” on the horizontalaxis, and “nominal interest rate” on the vertical axis, and plot the demandequation Qd = D(P, i) = 1000 ? 5P ? 10i only.sh(g) (5 marks) For each of the variables P, i, explain whether they cause movementalong the Qd curve, or a shift in the Qd curve.4ECON 2102Winter 2014Christopher Gunn2. (35 marks) Consider the economy of the country of “Apple Island”. There are twofirms in this economy, “Apple Co.” and “Squashed Apple Co.”Apple Co. grows apples on its apple farm, employing workers. It sells $50 of applesto Squashed Apple Co. and $40 of apples to consumers for the consumers to eat.It also keeps $10 of apples in inventory. Apple Co. pays $70 wages to its workersand keeps the remainder as profits.ar stued dvi y reaC soou urcrs eeH wer aso.comSquashed Apple Co. owns a special flat rock that allows it to squash the applesthat it buys from Apple Co. into a flattened apple pancake that the consumersseem to like. It buys $50 of apples from Apple Co., squashes them, and then sells$100 of squashed apples to consumers. Squashed Apple Co. pays $10 in wages toits workers, keeping the remainder in profits.(a) (30 marks) Calculate GDP in this economy using 3 methods: expendituremethod, income method and value-added method.shThis(b) (5 marks) Does “Squashed Apple Co.” use only labour to produce its squashedapples, or labour and capital? Explain.Powered by TCPDF (www.tcpdf.org)

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