ECON2313_midterm_2021b

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ECON 2313 Principles of Macroeconomics Midterm Exam, 2021 Please read the following instructions. If you agree to abide by, and do abide by, the instructions, sign (input your full name and date) below and turn in with your exam. If you do not agree to abide by, or do not abide by, the instructions, do not turn in this exam. Exams without a signature will not be graded. Any violations of this agreement will be dealt with according to the University’s Academic Integrity Policy. Instructions for Take Home Exams. 1. After beginning to read the Take Home Exam (on paper and/or online), I have sought help for this exam, or for material directly related to this exam, from no source, animate or inanimate, other than  my textbook for ECON2313.  lecture notes, slides (materials on Blackboard). and  my homework and exams (tests) from ECON2313. 2. All work submitted is mine and mine alone. 3. Because other students may take this exam at a later date, DO NOT discuss it with anyone until the final exam window has ended. I have read and followed the instructions above. ________Mariah Hesselgesser__________ Signature (Print Full Name) _____October 7, 2021______________ Date THIS IS AN EXAM. THIS IS AN EXAM. THIS IS AN EXAM. 1

ECON 2313 Principles of Macroeconomics Last Name (please PRINT) _Hesselgesser_ First Name (PRINT) ______Mariah__. Student ID Number (PRINT) ____50606239_____. CRN # of this course ______61172______. Input the last 3 digits of your Student ID: __2__ (3 rd last); __3__ (2 nd last); __9__ (last digit). Please read carefully the guidelines below before start your exam.  The exam has 100 points in total.  There are 10 multiple choice questions (2 points each). Only one answer is correct. Put your answers of the multiple choice questions in the space provided below.  There are four short-answer questions you need to finish, 20 points each. To get full credit, you need follow instructions of the question, and present correct and detailed (step-by-step) answer to the question.  You can put your answers on this document. You can also attach a separate page for your short-answer questions. Make sure your answers are clear for grading.  You can use calculator, spreadsheets and other computing instruments to assist you in this exam. However, you need to make sure this exam is your independent work.  And upload your finished exam before the due date. Please send me pdf or MS doc files only. DO NOT send me “.pages” file. Put your answers of multiple choice questions in the box below. Question Answer Question Answer 1 B 6 B 2 A 7 A C 3 D 8 D E 4 C 9 C 5 A E 10 A Part I. Multiple Choice Questions 2

Choose only ONE correct answer. Total points = 20. 1. Suppose you found a movement on the demand curve of gasoline to the left. This change may be caused by a ____, ceteris paribus? A. a lower price of inputs. B. a decrease of supply. C. an advanced technology. D. a higher income. 2. The price of milk, which is the ingredient in making milkshakes, goes up. In the market of milkshakes, ceteris paribus, you would expect that ____? A. the supply of milkshakes would decrease and the price of milkshakes would increase. B. the demand for milkshakes would increase and the price of milkshakes would increase. C. the demand for milkshakes would decrease and the price of milkshakes would fall. D. the supply of milkshakes would increase and the price of milkshakes would decrease. 3. Suppose a new technology has lowered the cost of producing solar vehicles, you predict that in the market for solar vehicles, there will be a(n)____? A. decrease in the supply of solar vehicles, a higher price, and a decrease in the demand. B. increase in the supply of solar vehicles, a higher price, and an increase in the demand. C. increase in the quantity supplied, a lower price, and an increase in the quantity demanded. D. increase in the supply of solar vehicles, a lower price, an increase in the quantity demanded. 4. Basil and celery leaves are substitutes in making noodle soups. A rare drought destroyed a good portion of local celery supply, ceteris paribus, we have ____, A. the price of both celery and basil will fall. B. the price of celery will increase, and the price of basil will fall. C. the price of both celery and basil will increase. D. the price of celery will fall, and the price of basil will increase. 5. When the nominal price of unleaded gasoline increases, the real cost of buying gasoline ____. A. the real cost of buying gasoline must increase. B. must decrease because income increases over time. C. the real cost of buying gasoline remains unchanged. D. might higher, lower or unchanged depending on changes in income. E. might be higher, lower or unchanged depending on changes in CPI. 6. The table below shows consumption data collected from a country. Suppose there are only two items are included in this basket, e.g. coffee and digitals. If we know the base year is 2021, the consumer price index (CPI) in 2022 is____? Quantity Price Price Item (2021) (2021) ( 2022 ) Coffee 10 $5.00 $ 5.50 Digitals 2 $25.00 $ 30.00 A. 118.3 B. 115.0 C. 110.0 D. 105.0 E. 100.0 3

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7. Sarah’s wage is $18 per hour and the CPI is 162 in this year. Suppose, she gets paid at $19 per hour and the CPI rises to 180 next year. What has happened to her nominal and real wages? A. Sarah’s nominal wage has increased but her real wage has not changed. B. Sarah’s real and nominal wages have each increased by the same percentage. C. Sarah’s nominal wage has increased but her real wage has declined. D. Sarah’s real wage has increased by a larger percentage than her nominal wage. 8. Tom did a study to economic growth in a Nordic country between 2010 and 2020. Using 2010 as the base year, he calculated a 16% increase for real GDP and a 12% increase for nominal GDP. His results indicate that ____. A. Tom needs more information to calculate nominal GDP. B. the quantity of outputs produced decreased over the period. C. the quantity of outputs produced did not change and prices decreased over the period. D. the quantity of outputs produced and prices both decreased over the period. E. the quantity of outputs increased and prices decreased over the period. 9. Jessica told her cousin that her first job pays her $40,000 per year. It was a lot more than her cousin’s starting salary at $32,000 per year at the same job years ago. If the CPI was 160 when her cousin got the job and CPI increased to 180 when Jessica got the job, so Jessica is ____? A. Correct. Adjusting for quantity changes, her salary is more than her cousin's salary. B. Wrong. Adjusting for quantity changes, her salary is less than her cousin's salary. C. Correct. Adjusting for price changes, her salary is higher than her cousin’s. D. Wrong. Adjusting for price changes, her salary is lower than her cousin’s. E. Maybe wrong or maybe right. We need more price information. 10. By definition, Gross Domestic Product (GDP) measures market value of all final goods and services produced within the country over a certain period. Similarly, we have other alternative indicators, for example Gross National Product (GNP). Now suppose, we are comparing GDP and GNP of the United States in 2019. Here we have the following information. Dell, as one US company, it produced $5.7 billion computers in China in 2019. And Kia, as a Korean company produced $15.2 billion SUVs from its Georgia factory in the US during 2019. With the above information, which statement is NOT correct ____? A. The $15.2 billion output of Kia will be counted as Korean GDP. B. The $15.2 billion output of Kia will be counted as the US GDP. C. The $5.7 billion output of Dell will be counted as the US GNP. D. The $5.7 billion output of Dell will be counted as the Chinese GDP. Part II. Short-answer Questions 4

Instructions : You have four questions need to finish. Total points = 80, 20 points each. Please make sure your answer is clear for grading. To get full credit, you need follow instructions of the question, and present correct and detailed (step-by-step) answer to the question. Be careful :  Question 1 and 2 are the same for everyone.  If the last digit of your student ID is an even number (0, 2, 4, 6, 8), you need to finish part (1), (2), (3) and (4) in Question 3 and Question 4.  If the last digit of your student ID is an odd number (1, 3, 5, 7, 9), you need to finish part (1), (2), (3) and (5) in Question 3 and Question 4.  NO Grade will be assigned if you answered the parts with incorrect number as above. 1. A company produces milkshake. It had $0.6 million milkshake unsold on December 30 st , 2021. What would happen to GDP, if this company have to throw away all the milkshakes? Then, if this company kept the milkshake frozen and got them sold in January 2022. Then, what would happen to GDP in the second case? Also, you need to explain what approach you have chosen to describe changes of GDP in the above two cases. If the milkshakes would have to be thrown away then they would not contribute to the GDP because they were not able to be sold in the market. But if they are sold to be frozen for the next year then it would be an inventory investment and would be a part of GDP. So if they were sold in the 2021 then they would be in the 2021 GDP. 2. Suppose Bureau of Labor Statistics (BLS) collect a basket as the table below. Please finish the following questions. To get full credit, you need to show step-by-step solutions. Items in the CPI basket unit Price per unit of the goods 2018 2019 2020 2021 Soda 5 $3.60 $4.00 $4.50 $5.00 USB Cable 1 $17.00 $18.00 $18.00 $19.00 Pizza 6 $6.00 $6.00 $8.00 $10.00 T-shirt 3 $18.00 $18.00 $20.00 $24.00 (1) How much is the nominal cost of the basket in 2018, 2019, 2020, 2021? 2018 3.6 + 17 + 6 + 18 = $44.6 2019 4 + 18 + 6 + 18 = $46 2020 4.5 + 18 + 8 + 20 = $50.5 2021 5 + 19 + 10 + 24 = $58 5

(2) Using 2018 as the base year, what are consumer price index (CPI) in 2019, 2020 and 2021? 2018 44.6 / 44.6 = 1 2019 46 / 44.6 = 1.03 2020 50.5 / 44.6 = 1.13 2021 58 / 44.6 = 1.30 (3) How much is the inflation rate between 2018 and 2019? And how much is the inflation rate between 2020 and 2021? We assume 2018 is the base year in both cases. 2018 to 2019 ((46 – 44.6) / 44.6) * 100 = 3.14% 2018 to 2020 ((50.5 – 44.6) / 44.6) * 100 = 13.23% 2018 to 2021 ((58 – 44.6) / 44.6) * 100 = 30.04% 2020 to 2021 30.04 – 13.23 = 16.81% (4) Use your own language to explain the major differences between CPI and GDP deflator as the measurement of change of price levels. The major difference between CPI and GDP deflator is that the GDP deflator measures the price of all goods and services that are produced and the CPI measures the price of only the goods and services that are bought by consumers. 3. Suppose one country produces four outputs (three goods and one service). The following table shows the quantity and prices of the four items in 2020 and 2021. Using the information given and finish the questions below. To get full credit, you need to show step-by-step solutions. Goods (services) produced Year 2020 Year 2021 Quantity Price Quantity Price Washers 3 $1,500 5 $1,700 Smartphones 8 $900 10 $950 Pick-up trucks 4 $35,000 4 $45,000 6

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Higher education 2 $15,000 2 $20,000 (1) Given the information above, what approach you can use to calculate GDP in this country? Please shortly explain how this approach works? (No more than 200 words) The approach you can use to calculate the GDP in this country is the expenditure approach. Using the expenditure approach, you are able to calculate the GDP of a nation which also taking the sum of all the final goods and services purchased in an economy in the given year. It includes government expenditure, consumer expenditure, investment expenditure and the net exports. You do this by multiplying the total amount of final goods produced with their respective prices and then taking their summation. The formula for Expenditure GDP is GDP = C + I + G + (X – M) (2) What is the nominal GDP in 2020 and in 2021? Remember to show your work in detail here. Nominal GDP in 2020 (3 * 1500) + (8 * 900) + (4 * 35000) + (2 * 20000) 4500 + 7200 + 140000 + 30000 = 181700 Nominal GDP in 2021 (5 * 1700) + (10 * 950) + (4 * 45000) + (2 * 20000) 8500 + 9500 + 180000 + 40000 = 238000 (3) Use 2020 as the base year, how much is real GDP in 2020 and 2021. Real GDP in 2020 (3 * 1500) + (8 * 900) + (4 * 35000) + (2 * 15000) 4500 + 7200 + 140000 + 30000 = 181700 Real GDP in 2021 (5 * 1500) + (10 * 900) + (4 * 35000) + (2 * 15000) 7500 + 9000 + 140000 + 30000 = 186500 (4) What values of GDP deflator are in 2020 and 2021? (This question is only for those who have student ID with the last digit: 0, 2, 4, 6, 8) (5) What are nominal and real GDP growth rate from 2020 to 2021 in this country? (This question is only for those who have student ID with the last digit: 1, 3, 5, 7, 9) 7

Nominal GDP growth (253000 – 181700) / 181700 = 0.39 or 39% Real GDP growth (186500 – 181700) / 181700 = 0.026 or 2.6% 4. The following figure shows you the weekly prices of regular gasoline in the United States from 2018 to 2021. (1) From the movements of weekly prices, you can identify Two noticeable drops of gasoline prices. They are labeled with red dash lines. The first one was from October to December 2018. The second one was from February to April 2020. Now try to use the analysis of changes of equilibrium to explain why gas price dropped in February 2020? Show your answer intuitively, by explaining changes in which curve, which direction and how the new equilibrium looks like compared with the original equilibrium. Since there are two different drops in the price of gasoline. So if there is a sudden increase in the supply of gasoline or if there happens to be a decline in demand for gasoline then a price decline may happen. Both of these circumstances separately may cause there to be a decline in the price of gasoline. In both of the scenarios Do and So are the initial supply and demand. As well as Po being initial equilibrium price and Qo being initial equilibrium quantity. In the first situation 8

there is an increase in the supply so the supply curve shifted to S1 and the price decreases to P1, In the second situation there was a decrease in the demand so then the demand curve has shifted to D1 and the price was then decreased to P1. In both of the following situations it ended in a decrease in the price. (2) Suppose in 2018, the demand curve for gas was Qd = 50 – 10 * P. And the supply curve was Qs = 17 + 2 * P. Here P is gasoline price ($/gallon). Due to some factors, the supply curve of gas line now changed to Q’s = 24.2 + 2 * P. Then how much was the original equilibrium gas price and how much was the new equilibrium gas price. Initial Equilibrium Demand = Supply 50 – 10P = 17 + 2P 33 = 12P 33 / 12 = P Or P = 2.5 Q = 17 + 2x 33 / 12 Q = 135 / 6 With new supply 50 – 10P = 24.2 + 2P 25.8 / 12 = P Q = 24.2 + 2 (25.8 / 12) Q = 171/6 (3) Graph the change of equilibrium of your answer in (2) using supply-demand diagram. Since the supply curve shifts the price will fall and the quantity rises. 9

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(4) In the early 2020, suppose supply curve of gasoline is Qs = 18 + 2 * P. Demand curve for gasoline moves from its original level Qd = 42 – 8 * P to a new level Q’d = (42-x) – 8 * P, where x = N + 2. Here N is the second last digit of your student ID number . How much was the original equilibrium gas price in 2020? And how much was the new equilibrium gas price in 2020? To begin your answer, provide your value of N, x. (This question is only for those who have student ID with the last digit: 0, 2, 4, 6, 8) Tip : For the value of N, you need to get the second last digit of your student ID. For example, if the second last digit of your ID is 1. Then N = 1 and x = N + 2 = 1 + 2 = 3, etc. Your N = ____? Your x = ____? (5) In 2021, supply curve of gasoline remains at Qs = 20 + 2 * P. After several fiscal stimulus packages, a surging demand for energy shifts gasoline’s demand from Qd = 42 – 8 * P to a higher level at Q’d = (42 + y) – 8 * P, where y = M + 2. Here M is the third last digit of your student ID number . How much was the original equilibrium gas price in 2021? And how much was the new equilibrium gas price in 2021? To begin your answer, provide your value of M, y. (This question is only for those who have student ID with the last digit: 1, 3, 5, 7, 9) Tip : For the value of M, you need to get the third last digit of your student ID. For example, if the third last digit of your ID is 2. Then M = 2 and y = M + 2 = 2 + 2 = 4, etc. Your M = __2_? Your y = __4_? Y = M + 2 Y = (2) + 2 Y = 4 Original equilibrium gas price 20 + 2P = 42 – 8 P 2P + 8P = 42 – 20 10P = 22 P = $2.2 per gallon New equilibrium gas price Q’d = (42 + 4) - 8P 10

Q’d = 46 – 8P 46 – 8P = 20 + 2P 46 + 20 = 2P + 8P 10P = 66 P = 66/10 P = $6.6 per gallom 11

ECON2313_midterm_2021b

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