Question 1 -7

1) Explain the business cycle by describing the phases and turning points. (10 marks) 2) What would happen to measured GDP if more people started hiring workers to do house chores such as cooking and cleaning? (5 marks) 3) Explain how underground economic activity affects measurement of GDP. (5 marks) 4) The table below shows Danielle's utility from ice cream and romance novels. Ice cream Romance novels Quantity 1 2 3 4 5 6 a) What is Danielle's marginal utility from the 4th novel? (4 marks) b) The price of ice cream is $5 per gallon and a novel is $10. If Danielle's budget for these two goods is $50 and she buys 2 gallons of ice cream, how many novels can she buy? If she buys 6 gallons of ice cream, what is her marginal utility per dollar spent on novels? (10 marks) c) Which combination of the two goods is better: 4 gallons of ice cream and 3 novels or 6 gallons of ice cream and 2 novels? (6 marks) 5) Suppose that Arnold spends all his income on bratwursts and piano lessons and his marginal utility per dollar on bratwursts is lower than that on piano lessons. Is Arnold maximizing his utility? Why or why not? (5 marks) 6) Jessica is a young doctor who has just started her own practice. Her previous position paid her $80,000 a year. For office space, she uses a building which she owns and which she has rented in the past for $40,000 a year. Her total revenue from her new practice is $250,000. She pays $50,000 to other firms for materials and supplies, and she pays $40,000 in wages to her ofce nurse. Assume that Jessica's building and equipment do not depreciate and that her normal prot is $20,000. a) What is the opportunity cost of all factors of production employed by Jessica? (5 marks) in) What is Jessica's economic prot? (5 marks) ate_or umber millions Workin a_enou1ation r210 ahor force 146 8 mlo ent 138.0 7) List and discuss the four economic functions that depository institutions provide their customers. (8 marks)