Economics 102H                                       Midterm Exam


Answer each of the following questions.  You may use the back of the page if necessary.  Point values
are indicated in each question.


1) Explain the diagram below.  Be sure to state on what the curve depends.  That is, what would cause
it to shift in the way depicted?  Compare and contrast points B and C.  (15 points)


 



















2)  Explain the diagram below.  Be sure to state on what the curve depends.  What would cause it to
shift in the way depicted? (20 points)
















3) An important component of total spending in an economy is consumption expenditure.  This is often
described in a model as a function.  What are the determinants of consumption expenditure and how do
changes in these determinants shift the consumption function?  (15 points)



















4) Total spending, or aggregate expenditure, is the sum of consumption spending and several other
types of spending.  What are these additional types of spending?  What is included and what is not
included in each?  (15 points)




5) You are given the following model of the macroeconomy:
C = 100 + .80(Y-T); I = 500; G = 1000; (X-IM) = -100; T = 900.  Find the equilibrium level of
real GDP.  Show this in an appropriate diagram and explain intuitively why no other level of real GDP
can be equilibrium.  What is the multiplier for this model?  (20 points)























6) Describe the relationship between the aggregate demand curve and the total expenditure diagram.  It
may help to use the total expenditure diagram below to derive the aggregate demand curve.  Be sure to
mention how the AD gets its downward slope and what causes it to shift. (15 points)