Solution to Exam 2 for Macro Principles (summer 2009)

★★★ Detailed Solution to Examination 2 (Int'l Business, WUCL) ★★★
Summer 2009 Instructor: 衛忠欣 (Jong-Shin Wei)
總體經濟學原理 (Principles of Macroeconomics) (07)342-6031 ext.6222
93001@mail.wtuc.edu.tw jsw12011958@gmail.com
1:10 pm ~ 2:20 pm, July 8, 2009
Open books/notes exam. 100 points in 70 minutes; absolutely no talking nor borrowing items during exams. 可使用自己的資料、字典或翻譯機。行動電話若響起，該生扣十分、以強調基本禮貌。務必工整依序作答。
Part One: 10 Multiple choice questions. [By multiple choice in an English-speaking academic environment, we mean that you must choose the most appropriate one from 4 alternatives. 依慣例，答錯不倒扣！] 60 points
1. A car is sold at the price of USD20,000 while, at the same time, strawberries are sold at the price of USD3 (for one box). When we talk about how those production activities contribute to our economy, we
(A) should not compare cars with strawberries;
(B) must consider cars’ depreciation;
(C) only compare the difference in quantities;
(D) use prices to measure their contributions.
Ans: D. [See p.510, text]

2. Last year Andy paid NTD20,000 per month for renting an apartment while Becky lived in the apartment that she owned. Suppose that both apartments are very much alike (in quality and in market value). When we compute last year's GDP, as far as these two people are concerned, it should include
(A) NTD240,000;
(B) NTD480,000;
(C) NTD120,000;
(D) None of the above is correct.
Ans: B. [See p.510, text]

3. GDP includes
(A) market values of illegal drugs sold on street;
(B) market values of tomatoes grown in your backyard;
(C) the NTD1,000 you lost in one bet with your friend;
(D) the imputed rent.
Ans: D. [See p.510, text]

4. Nancy paid Henry to wash her car last year. This year, they got married but Henry still washes her car (for fun or for love). The effect of this marriage on GDP is
(A) making GDP fall;
(B) making GDP rise;
(C) making GDP unchanged;
(D) None of the above is correct.
Ans: A. [See p.510, text]

5. Last year Ursuline Greeting Card Company spent USD600,000 on purchasing paper. Half of them were used in producing greeting cards; half of them were left at the factory and added to her inventory. Suppose that sales revenue of those greeting cards is USD 800,000. When we compute last year’s GDP,
(A) both 800,000 and 600,000 should be included;
(B) both 800,000 and 300,000 should be included;
(C) only 800,000 should be included;
(D) only 200,000 should be included.
Ans: B. [See p.511, text]

*6. If you bought a used car (say, Honda made in 2007 and in Taiwan) last year and that expenditure was not included in last year’s GDP, then
(A) you must buy it from a dealer;
(B) you must buy it from a friend;
(C) it does not matter whom you bought it from;
(D) None of the above is correct.
Ans: C.

7. Quarterly data for GDP
(A) can not take out the seasonal cycle;
(B) is GDP divided by four;
(C) is GDP multiplied by four;
(D) must be modified by seasonal adjustment.
Ans: D. [See p.511, text]

8. Last year, your parents paid NTD120,000 for your tuition and fees. While computing last year’s GDP,
(A) it should be included in C;
(B) it should be included in I;
(C) it should be included in G;
(D) None of the above is correct.
Ans: A. [See p.513, text]

9. Last year, Cindy paid NTD10,000,000 for a new house at Taipei. While computing last year’s GDP,
(A) it should be included in C;
(B) it should be included in I;
(C) it should be included in G;
(D) None of the above is correct.
Ans: B. [See p.513, text]

10. In general and take USA as an example. How would we rank components of GDP in their magnitude (or size)?
(A) G > I > C > NX;
(B) G > C > I > NX;
(C) C > I > G > NX;
(D) C > G > I > NX.
Ans: D. [See p.515, text]

Part Two: Analytical questions. [注意字體工整、邏輯順暢與不要出現錯別字或注音(與火星文)！如果字跡難以辨認，視同未答。畫蛇添足、答非所問、不知所云、自曝其短，將不利得分。教師也有權公告具有特色之作答。] 40 points

11. Two goods are produced and sold in an economy. In 2001, P1 = 10, Q1 = 100,
P2 = 50, and Q2 = 80. In 2002, P1 = 20, Q1 = 120, P2 = 60, and Q2 = 50.
(i) Let 2001 be the base year. Calculate the real GDP for 2002.
(ii) From 2001 to 2002, what do we know about the change in the general price level (by making use of those data)? Hint: GDP deflator.
Ans:
(i) The real GDP for 2002 is: (10)(120) + (50)(50) = 1200 + 2500 = 3700.
(ii) The GDP for 2002 is: (20)(120) + (60)(50) = 2400 + 3000 = 5400.
Hence, the GDP deflator for 2002 is (5400/3700)(100), is about 146.
We shall say that from 2001 to 2002, the general price went up by 46%.
[source: Lecture 3, Spring 2009]

12. 眾所周知：節儉是美德、資源要珍惜。尤其在當下，很多人認為，大家應多買二手傢俱、汽車、房屋。可是，罕見政府積極鼓勵此類交易，何故？
Ans: (given on July 9, 2009 and skipped here)

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