Econ 1102: Principles of Macroeconomics s1

Name: ______Class Time: ______Midterm Exam # 1 “Principles of Macroeconomics” North Shore Community College - Fall 2006 Professor: Moonsu Han

Total 25 points. Question 1 Write down definition for following terms. (Total 4 pts., 1 pt. each)

a. Real GDP:

b. GDP Deflator:

c. CPI:

d. Organization Capital vs. Human Capital:

Question 2 Below are some data from the land of chair and table. (Total 7 pts.)

1 Year Price of Chair Q of Chair Price of Table Q of Table 2001 $10 1000 $50 500 2002 $20 2000 $60 500 2003 $30 3000 $70 500 a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2001 as the base year. (3 pts.)

b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2002 and 2003 from the preceding year. (3 pts.)

c. Did economic well-being rise more in 2002 or 2003? Explain why? (1 pt.)

2 Question 3 Suppose that people consume only three goods, as shown in following table. (Total 5 pts.)

Golf Balls Golf Clubs Gatorade 2003 Price $2 $200 $1 2003 Quantity 100 10 200 2004 Price $3 $250 $2 2004 Quantity 150 20 250 Note: Use fixed basket of goods: 100 balls, 10 clubs, 200 Gatorades. Base year is 2003.

a. What is the percentage change in the price of each of the three goods? (1 Pt.) What is the percentage change in the overall price level? (3 Pts.)

b. Do golf clubs become more or less expensive relative to Gatorade? Does the well-being of some people change relative to the well-being of others? Explain. (1 Pt.)

Question 4 (3 Pts.)

3 Suppose that there is a country called North Shore Republic. The Bureau of Labor Statistics of North Shore Republic announced that in January 2006, of all adult populations, 1,000 were unemployed, 8,500 were employed, and 500 were not in the labor force. How big was the labor force? What was the labor-force participation rate? What was the unemployment rate?

Question 5 (6 Pts., 1.5 pts. each)

Using supply-and-demand diagrams, show the effect of the following events on the market for loanable fund market and show changes of interest rate (i*) and equilibrium * quantity of loanable fund (Qf ).

a. A change in the tax law to encourage Americans to save. (Note: Gov’t lowers tax on capital gains like interest income.)

b. Gov’t lowers tax on new investment.

c. Government had budget deficit but it has budget surplus now.

4 d. Gov’t spent more than it receives in tax revenue so there is a gov’t budget deficit.

Bonus Question (1 Pt.)

Andover Bank and Lowell Bank each sell one-year certificates of deposit (CDs). The interest rates on these CDs are given in the following table for a three-year period:

Bank 2005 2006 2007 Andover Bank 2% 9% 10% Lowell Bank 7% 7% 7%

Suppose you deposit $1,000 in a CD in each bank at the beginning of 2005. At the end of 2005, you take your $1,000 and any interest earned and invest it in a CD for the following year. You do this again at the end of 2006. At the end of 2007, will you have earned more on your Andover Bank CDs or on your Lowell Bank CDs? Briefly explain.