Economics Exam Essay

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Practice Problems Problem 1 Income (Y) Consumption (C) Saving (S) Investment (I) TE 9,000 1,300 2,500 11,000 1,700 2,500 13,000 2,500 15,000 2,500 17,000 2,500 19,000 2,500 a) What is the consumption function? Assume that it takes the standard form (C = a + b YD). b) Fill in the table above. c) What is the equilibrium output level? d) If the current output level is 14,000, what would likely happen to the output level next year? Why? e) By how much will the equilibrium output level increase (decrease) if the planned investment falls by 500? Problem 2 Using the following hypothetical data: Population 550,000 Total employed full-time 300,000 Total employed part-time 75,000 Discouraged workers 40,000 Total unemployed 45,000 a) Compute the size of the labor force b) Compute the unemployment rate c) Compute labor force participation rate d) If unemployment rate increased by 2%, what can you say about the actual GDP? Problem 3 Symbols: ↑ = Up ↓ = Down — = No effect ? = Uncertain Use the above symbols to fill in the table below: Observations Effect on Ms Md r I Y C Fed increases reserve ratio The government cuts taxes Net effects Problem 4 Year Nominal GDP CPI 1980 2789.5 82.4 1990 5803.1 130.7 2000 9268.4 166.6 Use the data in the table above to answer the following questions. Compute the rate of inflation between 1990 and 2000 Compute 1980 real GDP in 1990 prices Compute 2000 real GDP in 1990

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