Economics 316, Macroeconomic Analysis
Exam #1, Spring 2015
Dr. Stonebraker
Name ______________________________________
1. (18%) True-False. Explain each answer. The explanation is more important than the true-false choice.
T
F
If a woman marries her butler, GDP will decrease.
T
F
An increase in taxes will cause an increase in national saving.
T
F
In a closed economy, an increase in government spending will cause a decrease in investment.
2. (6%) Many economists claim the CPI contains a Quality Bias. Explain.
3. (11%) Using the Solow growth model with technological change, draw an appropriate graph to
illustrate the impact of a decrease in the rate of population growth. Label everything clearly. How
does it affect the steady-state level of income? How does it affect the steady-state rate of growth of
income?
4. (2%) About ___% of U.S. GDP goes to the owners of labor.
5. (3%) List two things that GDP measures. How can it measure two things at the same time?
6. (3%) What is the Law of Diminishing Marginal Returns?
7. (10%) Suppose the U.S. imposes tariffs on all imported goods. Explain how this will affect the U.S.
trade deficit and the exchange rate.
8. (2%) Suppose you are told that the GDP Deflator or GDP Price Index is 147. What does that mean?
9. (13%) Suppose there is an increase in government spending in a small open economy. What will
happen to saving, investment, the rate of interest, the exchange rate and net exports? Explain why.
10. (8%) Use the Solow growth model with technological change to explain why the share of GDP going
to labor relative to capital over time should remain constant.
11. (8%) If: Y = C + I + G, Y = 7000, G = 1300, T = 1000, C = 150 + 0.8(Y-T), and I = 1200 - 50r
a. Calculate private saving, public saving and national saving.
b. Calculate the equilibrium interest rate (r).
12. (16%) An economy is comprised of the three firms below. The cotton and sewing machines are sold to
the clothing company. Calculate GDP using both the expenditures approach and the value-added
approach. Show your work.
Sewing Machine Company
Cotton Company
Clothing Company
sewing machine sales: $700
cotton sales: $450
clothing sales: $2,400
wages:
290
depreciation: 100
interest expense: 70
imported parts: 140
profit: 100
wages: 250
rent: 50
profit: 150
cotton purchases: 450
sewing machine purchases: 700
wages: 1400
depreciation: 150
profit: 300