Department of Economics University of Toronto Prof. Gustavo Indart February 18‚ 2011 SOLUTIONS ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. 2. 3. The total time for this test is 1 hour and 50 minutes. Aids allowed: a simple calculator. Write with pen instead of pencil. DO NOT WRITE IN THIS SPACE Part I 1. /10 2. /10 3. /15 4. /15 Part II /30 TOTAL /80 Page 1 of 12 PART I (50 marks) Instructions: Answer all four
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CHAPTER 3 – INTERDEPENDENCE BETWEEN MAJOR SECTORS‚ MARKETS AND FLOWS IN THE MIXED ECONOMY STUDY UNIT 1 Production‚ Income and Spending *Identify the three major flows in the economy Production – occurs and generates income Income - earned Spending – Buy available goods and services *Distinguish between a flow and a stock (Box 3-1 Stocks and Flows) STOCKS FLOWS Measured at a particular point in time NO time dimension Has a Time dimension – only measured over a period Water level
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set. Points beyond the budget line are unaffordable. Those that lie along the budget line exhaust the consumer’s income. Rearranging the budget line equation‚ x1 = (m/p1) - (p2/p1)x2 This formula tells us how many units of good 1 a consumer can consume given the price of good 1‚ price of good 2‚ consumption of good 2 and income. It also tells us how many units of good 1 a consumer can
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Economics 314 Coursebook‚ 2010 Jeffrey Parker 16 THEORIES OF CONSUMPTION AND SAVING Chapter 16 Contents A. Topics and Tools............................................................................. 1 B. The Kuznets Paradox ....................................................................... 3 C. Relative-Income Hypothesis .............................................................. 5 D. Life-Cycle Model and Permanent-Income Hypothesis .............................. 7
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disposable income by $10 billion‚ which also stimulates planned aggregate expenditure by raising consumption spending. However‚ the tax cut raises autonomous (exogenous) planned aggregate expenditure by only $10 billion times the marginal propensity to consume (MPC); since the MPC is less than one‚ the tax cut will increase autonomous (exogenous) planned aggregate expenditure by less than $10 billion. Thus the increase in government expenditure is predicted to have the greater impact on
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A recession occurs when real GDP declines. ( T ) 2) For an economy as a whole‚ income equals expenditure because the income of the seller must be equal to the expenditure of the buyer. ( T ) 3) If the marginal propensity to consume is 0.8‚ the marginal propensity to save will be 0.2. ( T ) 4) When Government totals expenditure greater than total revenue‚ the government budget is in surplus. ( F ) * If Government total expenditure greater than total
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spend‚ borrow and save during a specific period. A high level of consumer confidence will encourage a higher MPC (Marginal Propensity to Consumer). This means that consumers will spend most of their income to consume goods and services rather than save in the bank (MPC greater than MPS). For example‚ if a consumer has a APC of 0.75‚ he or she will spend 75% of their income to consume and the remaining 25% of income to save. In a simple word‚ when a country has high consumer confident‚ it means that
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Explain the concept of potential output and why actual output can differ from potential output? (2 marks) Potential output is the amount of output that an economy can produce when using its resources such as capital and labour‚ at normal rates. Potential output is not a fixed number but grows over time‚ reflecting increases in both the amounts of available capital and labour and their productivity. As capital and labour can be utilised at greater than normal rates‚ at least for a time‚
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Take Good Care of This Textbook This textbook is the property of your school. Take good care not to damage or lose it. Here are 10 ideas to help take care of the book: 1. Cover the book with protective material‚ such as plastic‚ old newspapers or magazines. 2. Always keep the book in a clean dry place. 3. Be sure your hands are clean when you use the book. 4. Do not write on the cover or inside pages. 5. Use a piece of paper or cardboard as a bookmark. 6. Never tear or cut out any pictures or
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In 2009 the United States Government spent $950 billion in a fiscal stimulus package. Discuss the extent to which this stimulus will affect output‚ unemployment and inflation. (18 marks) Before we look into how the United States Government investment in a fiscal stimulus package effects output‚ employment and inflation‚ we must ensure we understand what is meant by a fiscal stimulus or policy. It is defined by economists as a package of economic measures put together by the government to stimulate
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