A. Complete the table and show your solutions: (10 points)

The following equations show the levels of desired consumption and investment:

C = 500 + 0.9 Y

I = 100

Y C I AE

0 ______ _____ _____

2000 ______ ______ ______

4000 ______ ______ ______

6000 ______ ______ ______

8000 ______ ______ ______

10000 ______ ______ ______

a. Complete the table above.

b. What is the equilibrium level of national income in this model? Why?

B. Compute and answer showing your solutions: (10 points)

Consider the following data for a hypothetical economy that produces two goods, milk and honey.

Quantity Produced Prices

Milk Honey Milk Honey

(liters) (kg) ($/liter) ($/kg)

Year 1 100 40 2 6 Year 2 120 25 3 6

a. Compute nominal GDP for each year in this economy

b. Using year 1 as the base year, compute real GDP for each year. What is the percentage change in real GDP from year 1 to year 2?

c. Using year 1 as the base year, compute the GDP deflator for each year. What is the percentage change in the GDP deflator from year 1 to year 2?

C. Answer the following questions. Please give concrete examples.(20 points)

1. What are economic resources? Why are resources also called factors of production? Why are they called inputs?

2. Indicate whether each of the following statements applies to macroeconomics or to microeconomics. Explain why.

a) The unemployment rate in Canada was 7.4% in November 2011

b) An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise.

c) The Consumer Price Index rose by 1.8 percent in 2010.

d) A Canadian software firm discharged 15 workers last month and transferred the work to India.

3. What is an opportunity cost? How does the idea relate to the definition of economics. Which of the following decisions would entail the greater opportunity cost: allocating a square block in the heart of Toronto for a surface parking lot, or allocating a square block at the edge of a typical suburb for such a lot? Explain.

4. What is macroeconomics? Differentiate macroeconomics from microeconomics. Give examples.

5. Contrast how a market economy and a command economy try to cope with economic scarcity? Explain the difference and show examples.

6. How is economic growth measured? Why is economic growth important?

7. Why are some countries today much poorer than other countries. Please give examples of poor countries and rich countries and explain the differences?

8. Diagram the circular flow model. Describe and give examples of each of the participants in the economic system.

9. What are the four types of unemployment? Briefly describe each and give examples.

10. Explain and diagram the law of supply and the law of demand. What are the determinants of demand? What are the determinants of supply? Give at least 2 examples of an industry you know and explain what are the demand and supply determinants.