Answer Key

Exam 1 Version A Multiple Choice Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

D D C A B B D C C B A C C A D D C A D D C C B C 25. A

Short Answers 1. Suppose that the following transactions occurred over the course of one year: Households purchases of domestically produced Christmas trees Households purchases of imported avocados Firms purchases of domestically produced computers Total wages and salaries Government payroll Social Security benefits Total interest Tax collections Total rent Total profit Change in inventories Sales of domestically produced bicycle frames to foreign countries (2 pts.). What is total wages and salaries?

$20 billion $15 billion $30 billion ??? $5 billion $15 billion $20 billion $10 billion $25 billion $10 billion -$5 billion $25 billion

Show all of your calculations.

GDP = 20+15+30+5+(-5)+25-15 = $75 billion. billion

$75 = wages and salaries +20+25+10, so wages and salaries = $20

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2. (2 pts.) Suppose that you could receive 7% interest on a financial account. Which of the following would have more value?: (a) receive $10,000 today or (b) receive $11,900 two years from now. Show your calculations and explain your reasoning. PV of choice b = $11,900/1.072 = $10,393, which is greater than $10,000, so take choice b.

3. (1 pt.) Suppose that the average nominal wage in the economy is $24 and the Consumer Price Index is 250. Calculate the real wage. Show your calculation.

Real wage = $25*100/250 = $9.60

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