ECMA06 Midterm Version A Winter 2009 Page 1 of 8

University of Toronto Scarborough

ECMA06 Introduction to Macroeconomics:
A Mathematical Approach
Midterm, Winter 2009
Version A

Instructor: Iris Au
Date & Time: Saturday, February 28, 2009, 5:00pm 6:30pm
Total Marks: 100 (each question is worth 4 marks)
Total # of pages (including the cover page): 8

Instructions please read carefully

1) On the scantron answer sheet, you must:
PRINT your family name and first name.
Enter your student number as the identification number.
FILL IN THE BUBBLES under you name and student number.
FILL IN THE BUBBLES ASSOCIATED WITH YOUR TEST VERSION (THIS
IS VERSION A).

2) If you fail to carry our all tasks indicated in part 1, 4 marks will be deducted from
your final score.

3) There are 25 multiple-choice questions (and a 26
th
question which will confirm your
exam version). For each question, choose the correct answer. If two multiple choice
answers both seem to be approximately correct, choose the best of the two answers.
Put your answers on the scantron sheet provided by filling in the appropriate
bubble. If answers are not written on the scantron sheet, there will be no marks
given for answers. Each correct answer is worth 4 marks (except for Question 26,
where the correct answer simply confirms your exam version); incorrect answers
receive 0 mark (there is no deduction for wrong answers).

4) When entering your answers on the scantron sheet:
Use a medium (HB) pencil.
Fill in the bubble neatly and completely.
Erase any changes as completely as possible.
Be very careful to place each answer in the correct place.

ECMA06 Midterm Version A Winter 2009 Page 2 of 8
This midterm consists of 25 questions (plus a 26
th
identifier question). Answer each
question by choosing the best alternative and indicating your choice in the appropriate
place on the scantron sheet provided with this exam (it is the only thing you will turn in at
the end of the exam). You may take the rest of the exam away with you, so you can use
the front and back of these pages for your rough work. If you wish to keep a record of
your answers, make a note of them on the exam. The scantron sheet will not be returned
to you, but correct answers will be posted, and your grade will be posted on the Intranet.

Question 1
In the past decade, the labour force participation rate in Canada is approximately equal to:

A) 91% B) 82% C) 77% D) 68% E) 56%
F) 45% G) 34% H) 25% I) 16% J) 7%


Question 2 Question 3: For the economy in question, the size of the adult population is held constant
at 31455. The pool of people who are not in the labour force (i.e., who do not have job and are not
looking for work) is 10455. In addition, 16650 people have full-time jobs and 2850 people have part-
time jobs. The remaining 1500 people are unemployed.

Question 2
Based on the information given, in the initial period, this economy would have (rounded to 1 decimal
place):

A) An unemployment rate of 4.8% and an employment rate of 95.2%.
B) An unemployment rate of 4.8% and an employment rate of 66.8%.
C) An unemployment rate of 4.8% and an employment rate of 62.0%.
D) An unemployment rate of 7.1% and an employment rate of 92.9%.
E) An unemployment rate of 7.1% and an employment rate of 66.8%.
F) An unemployment rate of 7.1% and an employment rate of 62.0%.
G) An unemployment rate of 7.7% and an employment rate of 92.3%.
H) An unemployment rate of 7.7% and an employment rate of 66.8%.
I) An unemployment rate of 7.7% and an employment rate of 62.0%.
J) None of the above.

Question 3
In a later period, government policy helps industry generate 975 new full-time jobs. Of these 975 new
job created, 478 are filled by people who were not in the labour force, while 315 are filled by people
who were formerly unemployed and the remaining 182 jobs are filled by people who were formerly
employed part time (this also means 182 part-time jobs disappear when these people move into the new
jobs). In the later period, the unemployment rate is (rounded to 2 decimal places):

A) 2.50% B) 4.71% C) 5.22% D) 5.84% E) 5.52%
F) 3.77% G) 4.62% H) 5.78% I) 5.60% J) 4.78%
ECMA06 Midterm Version A Winter 2009 Page 3 of 8
Question 4
If Iris loses her job, and she decides to sit around home for a few weeks. Holding all else constant,

A) The labour force participation rate is unaffected, and unemployment rate increases.
B) The labour force participation rate decreases, and unemployment rate increases.
C) The labour force participation rate increases, and unemployment rate increases.
D) The labour force participation rate is unaffected, and unemployment rate decreases.
E) The labour force participation rate decreases, and unemployment rate decreases.
F) The labour force participation rate increases, and unemployment rate decreases.
G) The labour force participation rate is unaffected, and unemployment rate is unaffected.
H) The labour force participation rate decreases, and unemployment rate is unaffected.
I) The labour force participation rate increases, and unemployment rate is unaffected.
J) None of the above.


Questions 5 Question 6: The economy produces and consumes three goods only. There is no
government and foreign sector; therefore, domestic production of all goods is split between households
and firms. The following table summarizes the prices and use of these goods in Year 1 and Year 2.

Year 1 Year 2
Quantity purchased by Quantity purchased by
Price Households Firms Price Households Firms
Good 1 $5 7 7 $5.5 9 9
Good 2 $10 20 0 $11 23 0
Good 3 $3 20 5 $4 32 8

Question 5
If the GDP deflator is 125 in Year 1, then the GDP deflator in Year 2 (rounded to 1 decimal place) is:

A) 115.1 B) 116.0 C) 116.4 D) 117.0 E) 118.1
F) 143.8 G) 145.0 H) 145.5 I) 146.3 J) 150.0

Question 6
If the consumer price index (CPI) is 125 in Year 1, then the CPI in Year 2 (rounded to 1 decimal place)
is:

A) 108.9 B) 114.7 C) 115.1 D) 116.0 E) 137.5
F) 143.8 G) 143.4 H) 145.0 I) 145.9 J) 150.0

Question 7
The consumer price index (CPI) in February 1963 and February 2008 were 12 and 111.8 respectively
(setting the index to 100 in June 2002). The average annual inflation rate in the 45 years between
February 1963 and February 2008 was (rounded to 2 decimal places):

A) 20.70% B) 26.22% C) 1.97% D) 1.88% E) 5.59%
F) 5.11% G) 4.82% H) 5.08% I) 2.48% J) 18.48%
ECMA06 Midterm Version A Winter 2009 Page 4 of 8
Question 8
The consumer price index (CPI) in 1948 was 10 while the CPI in 2008 was 120. Joe Farmer earned
$6000 from his farm operation in 1948, and his grandson, Karl, earned $60000 from the same farm in
2008. What is Karls income equivalent to in 1948 dollar?

A) $500 B) $600 C) $5000 D) $6000 E) $7200
F) $1200 G) $50000 H) $60000 I) $72000 J) $12000

Question 9
Suppose that in 2008, Jocelyn earned $50000 from her work, and also received $2000 from her mother
as a gift. Her taxes totaled $8000 for the year. How would Jocelyns income and taxes affect the
various measures of national income?
Note: GDP = Gross domestic product and NNP = net national product.

A) GDP by $50000 NNP by $48000 personal disposable income by $42000.
B) GDP by $50000 NNP by $50000 personal disposable income by $42000.
C) GDP by $50000 NNP by $56000 personal disposable income by $42000.
D) GDP by $52000 NNP by $52000 personal disposable income by $42000.
E) GDP by $52000 NNP by $56000 personal disposable income by $42000.
F) GDP by $50000 NNP by $50000 personal disposable income by $44000.
G) GDP by $52000 NNP by $48000 personal disposable income by $44000.
H) GDP by $52000 NNP by $50000 personal disposable income by $44000.
I) GDP by $52000 NNP by $52000 personal disposable income by $44000.
J) GDP by $52000 NNP by $56000 personal disposable income by $44000.

Question 10 Question 11: Suppose that an economy consists of only 4 firms: Intel, Samsung, IBM,
and Sleemans. Suppose that this year Intel manufactures and sells $200 million worth of computer
chips to IBM so that IBM could use these chips in the manufacturing of its computer systems.
Similarly, Samsung produces and sells $300 million worth of computer monitors to IBM, and IBM
again uses them in its computer systems. IBM uses these components and its own to manufacture and
sell $1200 million worth of computer systems (for final use). Sleemans, on the other hand, produces
and sells $1800 million worth of beer for consumption. Assume, furthermore, that Sleemans does not
buy any new computer systems during the year.

Question 10
GDP increases by (in terms of millions):

A) $1200 B) $3500 C) $1700 D) $3200 E) $3000
F) $1000 G) $2000 H) $2100 I) $2300 J) $1800

Question 11
IBMs value added is (in terms of millions):

A) $900 B) $200 C) $300 D) $700 E) $1200
F) $500 G) $1700 H) $600 I) $1000 J) none of the above.
ECMA06 Midterm Version A Winter 2009 Page 5 of 8
Question 12 Question 14: Consider a closed economy (i.e., no foreign sector) that does not have a
government (i.e., no taxes, transfers, and government spending). In addition, both interest rate and
prices are held fixed.

Consumption: C = 228 + 0.75DI; where DI = disposable income
Investment: I = 166 5(r 0.1); r = 0.1 (10%)

Question 12
What is the equilibrium level of output in this economy (rounded to the nearest unit)?

A) 525 B) 1560 C) 1410 D) 1970 E) 912
F) 664 G) 1152 H) 304 I) 1476 J) 1576

Question 13
The multiplier on a change in autonomous consumption in this model is: (rounded to 2 decimal places).

A) 1.33 B) 1.25 C) 4.25 D) 2.25 E) 0.25
F) 5 G) 0.75 H) 0.2 I) 4 J) 0.8

Question 14
Now, suppose households become pessimistic about the future. As a result, autonomous consumption
falls by 5 (i.e., consumption falls by 5 for any given level of disposable income). What is the change in
equilibrium level of output (Y) (rounded to 2 decimal places)?

A) 6.25 B) 5 C) 6.67 D) 20 E) 25
F) + 6.25 G) + 5 H) + 6.67 I) + 20 J) + 25


Question 15 Question 20: An economy can be described by the following equations; and prices are
held fixed in this model.

Consumption: C = 118 + 0.5DI; where DI = disposable income
Investment: I = 190 3(r 0.075); r = 0.075 (7.5%)
Government spending: G = 200
Taxes: T = 0.1Y 60
Transfers: TR = 200 0.15Y
Exports: X = 160 4.5(E 0.9); E = 0.9 (US$ 0.9 per Canadian $)
Imports: IM = 15 + 0.125Y + 2.5(E 0.9); E = 0.9

NOTE:
1) Unless otherwise stated, r is held constant at 0.075 (7.5%) and E is held fixed at 0.9.
2) Keep your answers to 3 decimal points if necessary.
3) You may need to express the consumption function as a function of Y before answering the
questions.
4) Autonomous imports (IM0) does not equal to zero.
ECMA06 Midterm Version A Winter 2009 Page 6 of 8
Question 15
What is the equilibrium level of output (Y)?

A) 1004 B) 964 C) 1252.8 D) 1606 E) 1064
F) 1566 G) 1084 H) 1024 I) 1305 J) 1044

Question 16
What are the private saving and public saving (the budget balance) in this economy?

Private Saving Public Saving
A) 411.0 194
B) 411.0 194
C) 403.5 199
D) 403.5 199
E) 316.7 199
F) 316.7 199
G) 403.5 112.2
H) 403.5 112.2
I) 360.1 112.2
J) 360.1 112.2

Question 17
Suppose the economy is in its equilibrium as showed in Question 15. Now, suppose autonomous
investment falls by 15 such that the new investment function becomes:
I = 175 3(r 0.075); r = 0.075 (7.5%)
After this reduction in autonomous investment, the new equilibrium output (Y) is

A) 1044 B) 984 C) 1014 D) 1285 E) 1004
F) 1024 G) 944 H) 1536 I) 1184 J) 1576

Question 18
Continue with the reduction in autonomous investment. After the economy reaches its new equilibrium,
the government budget position changes by:

A) + 20 B) 20 C) + 5.769 D) 5.769 E) + 5
F) 5 G) + 15 H) 15 I) 3.5 J) 0

ECMA06 Midterm Version A Winter 2009 Page 7 of 8
Question 19 Question 20: Return to the initial equilibrium prior to the change in autonomous
investment (i.e., return the initial situation dealt with in Questions 15 & 16). Now, suppose a new law
has passed, and it requires the government to give a larger tax credit but, at the same time, to collect
more taxes when income rises (i.e., both the autonomous component of the taxes and the tax rate
change). As a result, the new tax function becomes:

T = 0.2Y 75

Question 19
The change in equilibrium income (Y) after this change in tax is:

A) 18.75 B) 60 C) 55.875 D) 75 E) 20
F) + 18.75 G) + 60 H) + 55.875 I) + 75 J) + 20

Question 20
After the economy reaches its new equilibrium, the overall effect on the governments budgetary
position (compared with the answer in Question 16) caused by this change in tax function will be to
increase the budget surplus or decrease the budget deficit by (rounded to 2 decimal places):

A) 33.75 B) 18.28 C) 28.55 D) 34.56 E) 41.25
F) 22 G) 15 H) 69.84 I) 36 J) 21.50


Question 21 Question 23: The economy can be described by the AD-AS model, and prices can adjust
to a change in aggregate demand or aggregate supply. Suppose you are given the following information:

Aggregate expenditure: AE = 450 + (150 P) + 0.85Y
Aggregate supply (AS): P = 200 + 0.25Y

Hint: You may need to derive the AD curve before answering the question.

Question 21
What are the equilibrium levels of output (Y) and price (P)?

A) Y = 4000, P = 1200 B) Y = 2000, P = 700 C) Y = 1200, P = 4000
D) Y = 1500, P = 575 E) Y = 700, P = 2000 F) Y = 250, P = 1000
G) Y = 450, P = 1000 H) Y = 1000, P = 450 I) Y = 1000, P = 250
J) Y = 575, P = 1500

ECMA06 Midterm Version A Winter 2009 Page 8 of 8
Question 22
Suppose autonomous expenditure (AE0) increases by 30. Which of the following statement is true?

A) AD curve shifts to the right by 200 and the equilibrium price .
B) AD curve shifts to the right by 200 and the equilibrium price .
C) AD curve shifts to the right by 200 and the equilibrium price does not change.
D) AD curve shifts to the right by 75 and the equilibrium price .
E) AD curve shifts to the right by 75 and the equilibrium price .
F) AD curve shifts to the right by 75 and the equilibrium price does not change.
G) AD curve shifts to the right by 30 and the equilibrium price .
H) AD curve shifts to the right by 30 and the equilibrium price .
I) AD curve shifts to the right by 30 and the equilibrium price does not change.
J) None of the above.

Question 23
According to the AS-AD model, when autonomous expenditure (AE0) rises by 30 the equilibrium level
of output increases by (rounded to the nearest unit):

A) 200 B) 75 C) 30 D) 35 E) 26
F) 50 G) 40 H) 125 I) 120 J) 10

Question 24
Which of the following statement(s) about fiscal policy is(are) generally true?

I) To eliminate an inflationary gap, government should run expansionary fiscal policy.
II) To eliminate an inflationary gap, government should run contractionary fiscal policy.
III) We should not worry about government budget deficit since it is normal, especially when the
economy is in a recession.

A) Only I B) Only II C) Only III D) I & II E) I & III
F) II & III G) I, II, & III H) None of the above.

Question 25
Which of the following statement(s) about an open economy is (are) true?

I) It is possible for national saving to fall short of (domestic) investment.
II) An increase in government budget deficit may lead to a deterioration of trade balance.
III) National saving must equal to investment.

A) Only I B) Only II C) Only III D) I & II E) I & III
F) II & III G) I, II, & III H) None of the above.


Question 26
What is the version of the exam which you have just written? Hint: Correct answer is A.
A) Version A B) Version B C) Version C D) Version D E) Version E