ECON 010  Principles of Macroeconomics

I. Multiple choice [1 pt each: 16 pts total]
(1)d. (2)c. (3)b. (4)a. (5)b. (6)a. (7)d. (8)b. (9)b. (10)b. (11)c. (12)b. (13)b. (14)c. (15)b. (16)b.
II. Problems
(1) [Malthusian model: 18 pts]
(2) [Growth of capital stock: 2 pts] $38.0 trillion = capital stock at end of prior year + gross investment  depreciation.
(3) [Interest rate as opportunity cost: 4 pts]
(4) [Interest rate and GDP shares: 10 pts] First, find the expression for the nongovernmental share (NG/Y) = (C/Y) + (I/Y) + (X/Y). Set this expression equal to 100  23 percent and solve for the interest rate r.
(5) [Interest rate and GDP shares: 6 pts]
(6) [Measuring the labor force: 4 pts]
(7) [Measuring the labor force: 8 pts]
(8) [Technical change: 4 pts]
(9) [Functions of money: 4 pts]
(10) [Quantity equation: 2 pts] 4.0 percent (computed as as growth rate of money supply minus growth rate of real GDP).
(11) [GDP growth around the world: 6 pts]
III. Critical thinking [4 pts]
(1) Disagree. Longrun economic growth requires that investment spendingthat is, spending on new capitalincrease, not consumption. If consumption spending increased and stayed high, the C/Y curve would shift right in the spending allocation model, and the NG/Y curve would shift right by the same amount. This would increase the interest rate, which would decrease investment spending according to that model, and therefore reduce economic growth.
(2) Disagree. According to the quantity equation, inflation occurs when the money supply increases faster than real GDP, and deflation occurs when the money supply increases more slowly than real GDP. So we would avoid inflation or deflation only if the amount of gold increased at exactly the same rate as real GDPwhich seems unlikely. More likely, the amount of gold would increase more slowly than real GDP, which would cause deflation.
I. Multiple choice [1 pt each: 16 pts total]
(1)a. (2)d. (3)d. (4)b. (5)a. (6)b. (7)b. (8)a. (9)a. (10)b. (11)a. (12)d. (13)c. (14)a. (15)e. (16)c.
II. Problems
(1) [Malthusian model: 18 pts]
(2) [Growth of capital stock: 2 pts] $40.5 trillion = capital stock at end of prior year + gross investment  depreciation.
(3) [Interest rate as opportunity cost: 4 pts]
(4) [Interest rate and GDP shares: 10 pts] First, find the expression for the nongovernmental share (NG/Y) = (C/Y) + (I/Y) + (X/Y). Set this expression equal to 100  21 percent and solve for the interest rate r.
(5) [Interest rate and GDP shares: 6 pts]
(6) [Measuring the labor force: 4 pts]
(7) [Measuring the labor force: 8 pts]
(8) [Technical change: 4 pts]
(9) [Functions of money: 4 pts]
(10) [Quantity equation: 2 pts] 3.8 percent (computed as as growth rate of money supply minus growth rate of real GDP).
(11) [GDP growth around the world: 6 pts]
III. Critical thinking
Same as Version A.
[end of answer key]