# BUSINESS

**Fill in the table below. The current wage is $200 and the price of output (Q) is $30. Each box is worth ½ of a point. Enter whole numbers only (no commas, no decimals, no dollar signs) and if a value is negative, be sure to enter the negative sign.**

L |
Q |
MP_{L} |
MRP |
Marginal Profit |
Total Profit |

0 | 0 | – – – – – | – – – – – | – – – – – – – – – – – | 0 |

1 | 7 | [removed] | [removed] | [removed] | [removed] |

2 | 15 | [removed] | [removed] | [removed] | [removed] |

3 | 22 | [removed] | [removed] | [removed] | [removed] |

4 | 28 | [removed] | [removed] | [removed] | [removed] |

5 | 33 | [removed] | [removed] | [removed] | [removed] |

6 | 37 | [removed] | [removed] | [removed] | [removed] |

**Use the table from question 1 to complete the next six questions. Enter the correct values in the boxes below. Enter only whole numbers (no commas, no decimals, no dollar signs). Each fill-in-the-blank below is worth 3 points.**

This profit maximizing firm will hire [removed] workers.

This profit maximizing firm will produce [removed] units of output.

This firm’s maximum profit equals [removed] .

**Now suppose that the wage falls to $170. You will need to recalculate the values from the table, given this new wage, to answer the questions below.**

This profit maximizing firm will now hire [removed] workers.

This profit maximizing firm will now produce [removed] units of output.

This firm’s maximum profit now equals [removed] .

**Use the following information to answer the next nine questions. Each fill-in-the-blank is worth 3 points.**

**If your answer is in decimal form, enter it with 2 decimal places. For example, if your answer is .4, enter it into the fill-in-the-blank as .40, or if your answer is 1.4, enter it into the fill-in-the-blank as 1.40. If there are no decimals in your answer, you will simply enter the number; so if your answer is 2, enter 2 with no decimals. Do not use commas.**

Suppose the economy is characterized as follows:

AE = C + I + G + (X-M)

C = 800 + .75(Y – T) – 30 (r)

I = 600 – 50(r)

G = 300

X- M = -25

T = 80

r = 5

Price level P is fixed at 1 (P=1)

**Use the information above to get expressions for the consumption function and the AE equation.**

The vertical intercept for the consumption function is [removed] .

The slope of the consumption function is [removed] .

The vertical intercept of the AE equation is [removed] .

The slope of the AE equation is [removed] .

Equilibrium output is equal to [removed] .

Equilibrium consumption is equal to [removed] .

**Suppose the investment demand function changes and is now I=700 – 50(r).**

The new value of equilibrium output is [removed] .

The new value of equilibrium consumption is [removed] .

Recall that the consumption function is C = 800 + .75(Y – T) – 30 (r). The Keynesian spending multiplier in this economy is [removed] .

**Use the following information to answer the next four questions. Each multiple choice question is worth 3 points.**

mm = money multiplier = .8

MB = monetary base = 4000

Money Demand: M_{d} = P X [ a_{0} + .5 (Y) – 200 (i) ]

where: a_{0} = 1200, Y = 6000

For simplicity we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%. Y is also held constant in this problem.

What is the equilibrium interest rate (i)?

[removed] A) .20%

[removed] B) 1%

[removed] C) 5%

[removed] D) 8%

[removed] E) None of the above are correct

Suppose a_{0} falls to 800. What is the new equilibrium interest rate?

[removed] A) .33%

[removed] B) 3%

[removed] C) 4%

[removed] D) 6%

[removed] E) None of the above are correct

Suppose that the Fed wanted to keep interest rates constant at their initial level (the value you found in #1). What would the Fed have to do in terms of open market operations to achieve this?

[removed] A) 500 in open market sales

[removed] B) 500 in open market purchases

[removed] C) 400 in open market sales

[removed] D) 400 in open market purchases

[removed] E) 2800 in open market sales