Practice Midterm

Question 1

If the average income of an Australian is higher than the average of a Russia, it is most likely because

Answer 1

• productivity is higher in Australia than in Russia

Question 2

If the government wanted to enact a policy to increase living standards in the country, it might

Answer 2

• increase educational opportunities for workers

Question 3

When the German government increased the quantity of money in the German economy in the 1920s

Answer 3

• Germany experiences hyperinflation

Question 4

Since the early 1990s, inflation in Canada

Answer 4

• has been about 2 per cent per year

Question 5

Macroeconomists study

Answer 5

• economy wide phenomena

Question 6

If Susan decides to change the oil in her car herself instead of having speedy lube change the oil for her, GDP

Answer 6

• necessarily falls

Question 7

GDP

Answer 7

• excludes the value of intermediate goods because their value is already counted in the value of final goods

Question 8

A movie company makes 50,000 DVDs of one of its latest releases. It sells 300,000 of them before the end of the second quarter, and holds the other in its warehouse.

Answer 8

• the DVDs will be counted as a change in inventory in the second quarter and so will be included in second-quarter GDP

Question 9

An American company owns a fast food restaurant in Romania. The value of goods and services it produces is included in

Answer 9

• in Romania GDP, but not in U.S. GDP

Question 10

Transfer payments are

Answer 10

• not included in GDP because they are not payments for currently produced goods or services

Question 11

In 2015, Canadian GDP was about

Answer 11

• $2 trillion

Question 12

If in a given year an economy has consumption of $3000, investment of $2000, government purchases of $1500, exports of $500, imports of $600, taxes of $1200, transfer payments of $400, and depreciation of $300, ten GDP will equal

Answer 12

• $6400

Question 13

Suppose GDP consists of wheat and rice. In 2002, 20 bushels of wheat are sold at $4/bushel, and 10 bushels of rice are sold at $2/bushel. If the price of wheat was $2/bushel and the price of rice was $1/bushel in 200, the base year, nominal 2002 GDP is

Answer 13

• $100, real 2002 GDP is $50, and the GDP deflator is 200

Question 14

If a small country has current nominal GDP of $20 billion and a GDP deflator of 50, what is its real GDP

Answer 14

• $40 billion

Question 15

International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with

Answer 15

• longer life expectancy and a higher percentage of the population that is literate

Question 16

The CPI is a measure of the overall cost of

Answer 16

• goods and services bought by a typical consumer

Question 17

The price index is 320 in one year and 360 in the next. What was the inflation rate?

Answer 17

• 12.5 per cent

Question 18

When the relative price of a good increases, consumers will respond by buying

Answer 18

• less of it and more of its substitutes

Question 19

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2003 for $25. If the price index was 38.8 and is 180 in 2003, what’s the price of a 1970 bag of groceries in 2003 prices

Answer 19

• $37.11

Question 20

If the nominal interest rate is 8 per cent and rate of inflation is 2 per cent, the real interest rate is

Answer 20

• 6 per cent

Question 21

The average amount of goods and services produced from each hour of a worker’s time is called

Answer 21

• productivity

Question 22

The equipment and structures available to produce goods and services are called

Answer 22

• physical capital

Question 23

Examples of human capital

Answer 23

• knowledge acquired from early childhood education programs
• knowledge acquired from grade school
• knowledge acquired from the on-the-job training

Question 24

The catch-up effect refers to the idea that

Answer 24

• it is easier for a country to grow fast if it starts out relatively poor

Question 25

Which of the following represents national saving in a closed economy?

Answer 25

- Y-C-G

Question 26

In a closed economy, public saving is the

Answer 26

- amount of ta revenue that the government has left after paying for its spending

Question 27

If the tax revenue of the federal government exceeds spending, then the government

Answer 27

- runs a budget surplus

Question 28

If there is a surplus of loanable funds, then

Answer 28

- neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium

Question 29

Suppose parliament institutes an investment tax credit. What would happen in the market for loanable funds?

Answer 29

- the interest rate and investment would rise

Question 30

The ratio of debt to GDP in Canada tends to fall

Answer 30

- during the late 1990s

Question 31

Federal government fiscal policies have redistributed large amounts of money across regions in the last 40 years. In per capita terms, the primary recipient has been the province of ___ while the primary contributor has been the province of ____.

Answer 31

- Prince Edward Island, Alberta

Question 32

The Canadian province with the highest per capital market income levels over rate last 40 years has been

Answer 32

- Ontario

Question 33

Staple dependent economies tend to be

Answer 33

- unstable

Question 34

What is the future value of $750 one year from today if the interest rate is 3 per cent?

Answer 34

- 772.50

Question 35

Jackie puts $400 into an account where the interest rate is 10 per cent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance?

Answer 35

- 6 years

Question 36

The natural rate of unemployment is the

Answer 36

- amount of unemployment that the economy normally experiences

Question 37

The labour force equals the

Answer 37

- number of people employed plus the number of people unemployed

Question 38

The U.S. Bureau of Labour Statistics recently reported that there were 48.6 million people over age 25 who at least had a bachelor's degree. Of this number, 38.0 million were in the labour force and 36.9 million were employed. What were the labour-force participation rate and the unemployment rate fro this group?

Answer 38

- about 78 per cent and about 2.9 per cent

Question 39

Tom is looking for work after school, but everywhere he fills out an application he is told that so have lots of others. Simon has a law degree. Several firms have made him offers, but he think she might be able to find a firm where his talents could be put to better use.

Answer 39

- Tom is structurally unemployed, and Simon is frictionally unemployed

Question 40

When Arnold uses dollars to record his income and expenses, he is using money as a

Answer 40

- unit of account

Question 41

Fiat money

Answer 41

- has no intrinsic value

Question 42

Savings deposits are included in

Answer 42

- M2 but not M1

Question 43

The federal reserve is the

Answer 43

- U.S. central bank

Question 44

When Bank of Canada wants to change the money supply, it most frequently

Answer 44

- conducts open market operations

Question 45

Bank of Canada can increase the money supply by conducting open market

Answer 45

- purchases and lowering the bank rate

Question 46

Suppose that the reserve ratio is 5 per cent and that a bank has $1,000 in deposits. Its required reserves are

Answer 46

- $50

Question 47

If the reserve ratio is 10 per cent, the money multiplier is

Answer 47

- 10

Question 48

Which list contains actions that decrease the money supply

Answer 48

- raise the bank rate, raise the reserve requirement ratio

Question 49

Which of the following is not a tool of monetary policy

Answer 49

- increasing the deficit

Question 50

The bank rate is

Answer 50

- the interest rate Bank of Canada charges banks

Question 51

According to the classical dichotomy, which of the following is influenced by monetary factors?

Answer 51

- nominal interest rates

Question 52

The velocity of money is

Answer 52

- the average number o timers per year a dollar is spent

Question 53

If Y and V are constant, and M doubles, the quantity equation implies that the price level

Answer 53

- doubles

Question 54

Menu costs refer to

Answer 54

- the cost of more frequent price changes due to higher inflation

Question 55

A short period of falling incomes and rising unemployment is called a

Answer 55

- recession

Question 56

During a recession the economy experiences

Answer 56

- falling employment and income

Question 57

Business cycles

Answer 57

- are fluctuations in real GDP and related variables over time