Grant MacEwan Community College

FINAL EXAM
ECON 102 (161)

This exam is divided into 3 sections:

1. Multiple Choices (45 pts)

2. True/False (45 pts)

3. Problems (90 pts)

Make sure to write down ALL your

answers in the examination booklets.

You have three hours to do the exam.

Section 2: TRUE/FALSE/UNCERTAIN. Say if the following statement is true or false and correct
any wrong or uncertain statement. Choose 9 within the 12 statements; 5pts each.

1. If Japan has an absolute advantage in the production of an item, it must also have a comparative
advantage in the production of that item.

2. When a Canadian citizen works temporarily in the United States, her production is part of the U.S.
GDP.

3. It is impossible for the real interest rate to be negative.

4. The United States should grow faster than Canada because the United States has a larger
economy.

5. If you save money this week and lend it to your roommate to buy food for consumption, your act
of personal saving has increased national saving.

6. The unemployment rate is about the same for the Atlantic region and the Western region of
Canada.

7. Credit cards are part of the M2 money supply.

8. If the money supply is $500, real output is 2500 units and the average price is $2, then the velocity
of money is 10.

9. A country that exports more than it imports is said to have a trade deficit.

10. If the Bank of Canada increases the money supply, the aggregate demand curve shifts to the left.

11. Suppose the government increases its expenditure in a closed economy by $2 billion. If the
crowding-out effect exceeds the multiplier effect, then the aggregate demand curve shifts to the
right by more than $2 billion.

12. When actual inflation exceeds expected inflation, unemployment exceeds the natural rate.

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 Section 3: PROBLEMS. Do ALL the problems.

1. Suppose that Germany can produce 15 million computers per year or 5 million tons of barley.
/28pts Also suppose that Poland can produce 4 million computers or 4 tons of barley.
a. Fill the possibilities of production table. (4pts)
b. Graph the corresponding Production possibilities frontier for each country. (4pts)
c. Which country has the absolute advantage in the production of computers? (2pts)
d. Which country has the absolute advantage in the production of barley? (2pts)
e. Which country has the comparative advantage in the production of computers? (4pts)
f. Which country has the comparative advantage in the production of barley? (4pts)
g. Suppose that under autarky, Germany consumes 9 million computers and 2 tons of barley
while Poland consumes 3 million computers and 1 tons of barley. Propose a price for
barley under which both countries will find beneficial to trade 2.5 tons of barley. Show
the gains of trade. (8pts)

2. According to the Solow one-third rule, divide the economic growth observed in 2001: (6pts)
/6pts Growth in capital per hour worked: 0.66%
Growth in real GDP per hour worked: 1.49%

3. Given the following data about the Albertan labour market in March 2007, answer questions a) to
/12pts d).
Unemployed 71,500
Employed 1,938,600
Labour force 2,010,100
Population 15+ 2,715,900
a. What was the unemployment rate in March 2007? (3pts)
b. What was the employment rate? (3pts)
c. What was the participation rate? (3pts)
d. Can you tell, based on those numbers, how many people in Alberta were considered
inactive in March 2007? If yes, how many were they? (3pts)

4. Given the following information about an economy, answer the following questions:
/20pts C = 0.7AI + 100; I = 300; G = 500; X = 400; M = 0.15YR; T = 100 + 0.2YR
a. What is the equilibrium GDP? (8pts)
b. Compute the commercial balance. (4pts)
c. If the government increases its spending by 100, what is the new GDP? (4pts)
d. Compare the government budget balance before and after the increase in spending. (4pts)

5. Since the middle of the 70s, Canada fights an unemployment rate that is constantly increasing.
/12pts Also, this rate seems to stay higher than in the United States. What factors could explain this
situation? Explain carefully.

6. According what you saw on the growth chapter, propose three measures that governments could
/12pts put in place to increase the growth rate in the Atlantic Provinces?

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