University of Illinois Department of Economics

Econ 103 – Fall 2015 Quiz 2 TA: Zheng Zhang

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Attention: Please fill your answers into the table below; otherwise it would be graded as zero.

Question / 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10
Answer / B / B / C / C / D / D / A / A / D / D

1. Which of the following statements about price support and subsidy is NOT true.

A It costs more for the government to provide price support for farmers if the demand curve for the agricultural products is more elastic

B It costs more for the government to grant farmers if the demand curve for the agricultural products is more inelastic

C Subsidy is preferred over price support when the costs for both programs are the same because it benefits poor people

D Farmers sell their products at the market determined price when subsidy is used.

E Farmers sell their products at desired price commanded by the government when price support is used

2Which of the following transactions would be counted in GDP? Explain your answers.

A) The purchase of processors to produce computers.

B) You buy a new copy of a macroeconomic textbook.

C)The government pays out social security benefits.

D) You sell your Illini basketball ticket for $150 outside the arena.

E) The cost of pollution, estimated at 12 Million, created by a

General Motors plant

Use the following information to answer the next three questions

(3-5).

US Nominal GDP, Real GDP(calculated using 2005 as the base year), and GDP Deflator data are given below:

2011 / 2012
Nominal GDP(million dollars) / 15,076 / 15,685
Real GDP (million dollars) / ------/ 13,593
GDP Deflator / 113 / -----

3 The Real GDP in 2011 is $….. Million

10,400
15,076
13,299
12,759
13,689

4 The GDP Deflator for 2012 is…...

5Which of the following about Nominal GDP, Real GDP and GDP deflator is NOT true?

A Nominal GDP measures the total value of all final goods and services

B Real GDP adjusts for the changes in price levels and better reflects the changes in the total quantities of goods and services in different years.

C In this example, US nominal GDP grows faster than real GDP from 2011 to 2012

D GDP deflator is always greater than 100 because the price level has been rising in the last 10 years.

E Since 2005, annual Nominal GDP has to be greater than annual Real GDP in the same year if the GDP deflators are all greater than 100.

6 The fraction of a change in income that is consumed or spent is

called

A)averageconsumption

B)average expenditure

C) the marginal propensity of income

D) the marginal propensity to consume

E)the marginal propensity to save

7 In an economy without government (G), suppose MPC is 0.8 the autonomous consumption is 100, planned investment (I) is 200, what is the equilibrium total output in this economy?

A) 1500

B) 1800

C) 2100

D)1200

E)2400

Refer to the information provided in Figure 2.1 below to answer the questions 8-10.

Figure 2.1

8 Refer to Figure 2.1. The equation for the aggregate expenditure function AE0 is

A) AE0 = 50 + .75Y.

B) AE0 = 80 + .6Y.

C) AE0 = 50 + .6Y.

D) AE0 = 50 + .4Y.

E) AE0 = 80 + .4Y.

9 Refer to Figure 2.1. The value of the multiplier is

A) 2.

B) 2.5.

C) 3

D) 4.

E) 4.5

10 Refer to Figure 2.1. A $10 million increase in investment changes equilibrium output to

A) $175 million.

B) $90 million.

C) $225 million.

D) $240 million.

E) $275 million

University of Illinois Department of Economics