1. -True and false Questions (justify your answer)

1-The 45-degree line represents all points where consumption and income are exactly equal.

2-Macroeconomics is the study of how the economy behaves in broad outline.

3-A peak is the top of a cycle. At peak, existing capacity is used to a low degree.

4-Recession is also referred to as expansion.

5-Frictional unemployment is the unemployment due to the constant turnover of individuals in given jobs and in a constant change in job opportunities.

6-Structural unemployment occurs because of a mismatch between the characteristics of the supply of labor and the demand for labor.

7-Consumer Price Index measures the average cost of goods and services that are bought by the typical American household.

8-Gross domestic product measured from the income side is equal to the sum of the four components: consumption, investment, government purchases, and net exports.

9-Double counting is the error that would arise in estimating the nation's output by adding all sales of all firms.

10-Final goods are products that are used as inputs by other firms.

II-Multiple Choice Type Questions, Circle the Right Answer

1- Year 2014

     Population              145 million

     Labor Force            75 million

     # employed            60 million

1.a What is the number of unemployed in year 2014?
A) 10 million
B) 85 million
C) 15 million
D) 70 million
1.b What is the unemployment rate in year 2014?
A) 41.4 percent
B) 51.7 percent
C) 20 percent
D) 80 percent

2- If disposable income increases by $50 and consumption expenditure by $45, the marginal propensity to save is
A) 0.01
B) 0.1
C) 0.9
D) 1.0
E) 1.1

3- In the above table, the inflation rate between 2012 and 2013 is approximately
A) 0.9 percent
B) 1 percent
C) 10 percent
D) 100 percent

4- Let Y be a household's disposable income, C its consumption expenditures, S its savings, MPC its marginal propensity to consume, and MPS its marginal propensity to save. Consider the following two equations:
I- C+S=Y
II- MPC + MPS = 1
Only one of the following statements is true. Which one?

a. Neither I nor II is ever correct.
b. I is always correct, II is never correct.
c. I is never correct, II is always correct.
d. Both I and II are always correct.
e. Both I and II are sometimes correct, sometimes incorrect.

5- Which one of the following transactions would be included in the calculations of this year's GNP?
a. Ms. Allen's purchase of a used picture frame at a neighborhood garage sale.
b. Mr. Ritch's purchase of a $500 of the common stock of Quick-Gro.Inc.
c. Ms. Brown's $500 gift to her favorite charity.
d. None of the above.

6- If an economy is operating below the break-even point level of income, we know that
a. The APS is greater than 1.0.
b. The APC is greater than 1.0.
c. The MPC is greater than 1.0.
d. Induced consumption must be zero.

7- When the consumption function crosses the 45-degree line, we know that the
a. MPC equals one
b. APC equals zero
c. APS equals zero
d. MPS equals zero

8-Consider an economy with a marginal propensity to spend out of national income equals to 0.7. If the autonomous expenditure increased by $1 billion per year, what would be the final value of the national income due to the multiplier.
a. $1 billion
b. $2 billion
c. $3.33 billion
d. $5 billion
e. None of the above

9-The difference between desired investment and desired saving is exactly equal to
a. The difference between desired investment and desired income.
b. The difference between desired aggregate expenditure and desired investment.
c. The difference between aggregate expenditure and actual national income.
d. The difference between aggregate expenditure and saving

10-National income is in equilibrium when aggregate desired equals
a. Actual national income
b. Desired investment
c. Disposable income
d. Desired consumption

III- Problem Solving:

1-

                                 Quantity Produced                                                Prices

                        Wheat              Steel                Iron                 Wheat              Steel       Iron

                        (Bushels)         Tons                Tons        (Dollars/bushel)       (Dollars/Ton)

Year 2012       150                  40                    55                      25                    65           63

Year 2013       130                  25                    30                      24                    60           70

a. Calculate Nominal GDP for year 2012 and 2013.
b. Calculate Real GDP for year 2012 and 2013 taking year 2012 prices as base year price.
c. Calculate Implicit GDP Deflator for year 2012 and 2013.
d. What happened to cost of production?

2- Stage of production                                    Wheat → Flour → Dough → Bread

     Sales Receipt                                           500          900         1200         1500

     Value Added

Fill the above table showing your calculations.

3- Suppose that you are given the following information for an economy without government spending, exports, or imports. C is consumption, I is gross investment, and Y is income. C and I are given by:

C = 1200 + 0.6Y
I = 300

Where all figures are in billions of dollars.

a. Determine autonomous consumption expenditure, autonomous investment expenditure, and the marginal propensity to consume.

b. Determine the equilibrium value of income, consumption, saving, investment, and the marginal propensity to save.