Question 1

An output gap with Y < Y*

Accepted Answer

A)  is desirable because it keeps wage costs low. 
B)  represents a loss of output due to unemployed resources. 
C)  tends to force prices up. 
D)  occurs when there is excess demand. 
E)  is known as an inflationary boom. 
A)  is desirable because it keeps wage costs low. 
B)  represents a loss of output due to unemployed resources. 
C)  tends to force prices up. 
D)  occurs when there is excess demand. 
E)  is known as an inflationary boom. B

Question 2

Suppose a small city has a population of 100 000 and a labour force of 60 000. Employment is 55 000 and 5000 workers are unemployed. How many people are not in the labour force?

Accepted Answer

A)  40 000 
B)  35 000 
C)  30 000 
D)  5000 
E)  0 
A)  40 000 
B)  35 000 
C)  30 000 
D)  5000 
E)  0 A

Question 3

Short-run fluctuations in real GDP around its trend value are

Accepted Answer

A)  generally ignored by economists, because these fluctuations do not affect behaviour of other variables such as the unemployment rate. 
B)  generally ignored by economists, because these fluctuations are constant and predictable. 
C)  referred to in economics as ʺbackground noise.ʺ 
D)  referred to in economics as ʺthe business cycle.ʺ 
E)  unimportant to the study of macroeconomics. 
A)  generally ignored by economists, because these fluctuations do not affect behaviour of other variables such as the unemployment rate. 
B)  generally ignored by economists, because these fluctuations are constant and predictable. 
C)  referred to in economics as ʺbackground noise.ʺ 
D)  referred to in economics as ʺthe business cycle.ʺ 
E)  unimportant to the study of macroeconomics. D

Question 4

In the study of short-run fluctuations in national income, potential income output) is usually assumed to be

Accepted Answer

A)  falling at its average growth rate. 
B)  moving together with potential output in neighbouring countries. 
C)  constant. 
D)  equal to actual income. 
E)  irrelevant, as the economy is rarely there. 
A)  falling at its average growth rate. 
B)  moving together with potential output in neighbouring countries. 
C)  constant. 
D)  equal to actual income. 
E)  irrelevant, as the economy is rarely there.

Question 5

If a countryʹs labour force is 15 million people, and 1.35 million of those are unemployed, the countryʹs unemployment rate is

Accepted Answer

A)  2.5%. 
B)  3.3%. 
C)  4.5%. 
D)  6.7%. 
E)  9.0%. 
A)  2.5%. 
B)  3.3%. 
C)  4.5%. 
D)  6.7%. 
E)  9.0%.

Question 6

Consider a small economy with 3 individuals. Individual A produces 100 chickens that sell for $8 each. Individual B produces 50 bags of corn that sell for $10 each. Individual C produces 40 bushels of apples that sell for $20 each. National product in this economy is

Accepted Answer

A)  100 chickens plus 50 bags of corn plus 40 bushels of apples. 
B)  190 units of goods produced. 
C)  $2100. 
D)  $2470. 
E)  Not determinable from the information provided. 
A)  100 chickens plus 50 bags of corn plus 40 bushels of apples. 
B)  190 units of goods produced. 
C)  $2100. 
D)  $2470. 
E)  Not determinable from the information provided.

Question 7

If the Canadian dollar exchange rate increases, the

Accepted Answer

A)  Canadian dollar depreciates relative to foreign currencies. 
B)  internal value of the dollar falls. 
C)  Canadian dollar appreciates relative to foreign currencies. 
D)  internal value of the dollar rises. 
E)  external value remains unaffected. 
A)  Canadian dollar depreciates relative to foreign currencies. 
B)  internal value of the dollar falls. 
C)  Canadian dollar appreciates relative to foreign currencies. 
D)  internal value of the dollar rises. 
E)  external value remains unaffected.

Question 8

Suppose Honest Robʹs Used Cars buys a used car for $2000 and resells it for $3000. The result of Honest Robʹs transactions is to

Accepted Answer

A)  decrease the value of national income by $3000. 
B)  decrease the value of national income by $1000. 
C)  leave the value of national income unchanged. 
D)  increase the value of national income by $1000. 
E)  increase the value of national income by $3000. 
A)  decrease the value of national income by $3000. 
B)  decrease the value of national income by $1000. 
C)  leave the value of national income unchanged. 
D)  increase the value of national income by $1000. 
E)  increase the value of national income by $3000.

Question 9

If nominal national income increased by 20% over a certain period of time while real national income increased by 10%, then

Accepted Answer

A)  everybody in the economy became worse off. 
B)  inflation has decreased during this time period. 
C)  the labour force increased by 10%. 
D)  the price level has declined by about 10%. 
E)  the price level has increased by approximately 10%. 
A)  everybody in the economy became worse off. 
B)  inflation has decreased during this time period. 
C)  the labour force increased by 10%. 
D)  the price level has declined by about 10%. 
E)  the price level has increased by approximately 10%.

Question 10

If the cyclical unemployment rate is greater than zero, then the

Accepted Answer

A)  economy is operating beyond full employment. 
B)  economy is operating at full employment. 
C)  economy is operating at less than full employment. 
D)  frictional unemployment rate is greater than the structural unemployment rate. 
E)  real-wage unemployment rate is negative. 
A)  economy is operating beyond full employment. 
B)  economy is operating at full employment. 
C)  economy is operating at less than full employment. 
D)  frictional unemployment rate is greater than the structural unemployment rate. 
E)  real-wage unemployment rate is negative.

Question 11

Suppose the unemployment rate is 8.5% and we know that frictional and structural unemployment together account for 5.5%. The cyclical unemployment rate is then

Accepted Answer

A)  14%. 
B)  8.5%. 
C)  5.5%. 
D)  3.0%. 
E)  -3.0%. 
A)  14%. 
B)  8.5%. 
C)  5.5%. 
D)  3.0%. 
E)  -3.0%.

Question 12

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.   TABLE 19-1
-Refer to Table 19-1. What is the output gap in 2010?

Accepted Answer

A)  $408 billion 
B)  $411 billion 
C)  $7.1 billion 
D)  $3 billion 
E)  -$3 billion 
A)  $408 billion 
B)  $411 billion 
C)  $7.1 billion 
D)  $3 billion 
E)  -$3 billion

Question 13

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.   TABLE 19-1
-Refer to Table 19-1. In which years was this economy experiencing a recessionary gap?

Accepted Answer

A)  2012, 2013 
B)  2009, 2010, 2014 
C)  2011, 2015 
D)  2009, 2010, 2011 
E)  2013, 2014, 2015 
A)  2012, 2013 
B)  2009, 2010, 2014 
C)  2011, 2015 
D)  2009, 2010, 2011 
E)  2013, 2014, 2015

Question 14

An example of a topic outside the scope of macroeconomics is

Accepted Answer

A)  changes in the price of a particular good in a specific market. 
B)  changes in the unemployment rate. 
C)  the aggregate growth rate of the economy. 
D)  the overall level of unemployment. 
E)  the level of productivity, as compared with that in the United States. 
A)  changes in the price of a particular good in a specific market. 
B)  changes in the unemployment rate. 
C)  the aggregate growth rate of the economy. 
D)  the overall level of unemployment. 
E)  the level of productivity, as compared with that in the United States.

Question 15

Women entered the labour force in large numbers in the 20th century and increased the economyʹs GDP. This change

Accepted Answer

A)  created inflationary gaps. 
B)  created recessionary gaps. 
C)  raised potential output. 
D)  was only possible in an economy operating above normal rates of utilization. 
E)  was only possible in an economy operating below normal rates of utilization. 
A)  created inflationary gaps. 
B)  created recessionary gaps. 
C)  raised potential output. 
D)  was only possible in an economy operating above normal rates of utilization. 
E)  was only possible in an economy operating below normal rates of utilization.

Question 16

Why is real income for an average Canadian today so much higher than it was for an average Canadian 100 years ago?

Accepted Answer

A)  Because of the increase in the labour force due to rising population, immigration and the increase in female labour-force participation. 
B)  Primarily because productivity per worker is so much higher today than in the past. 
C)  Because inflation has been maintained at relatively low levels throughout that time. 
D)  Because free-trade agreements have vastly increased real incomes. 
E)  Because the life span of the average worker has increased from about 55 years to about 80 years over that time period. 
A)  Because of the increase in the labour force due to rising population, immigration and the increase in female labour-force participation. 
B)  Primarily because productivity per worker is so much higher today than in the past. 
C)  Because inflation has been maintained at relatively low levels throughout that time. 
D)  Because free-trade agreements have vastly increased real incomes. 
E)  Because the life span of the average worker has increased from about 55 years to about 80 years over that time period.

Question 17

Suppose the Bank of Montreal wants a 5% real rate of return on all its loans, and anticipates an annual inflation rate of 4%. It should therefore lend its money at a nominal interest rate of

Accepted Answer

A)  10%. 
B)  9%. 
C)  5%. 
D)  4%. 
E)  1%. 
A)  10%. 
B)  9%. 
C)  5%. 
D)  4%. 
E)  1%.

Question 18

If 27 million people are employed and 3 million people are unemployed, what is the unemployment rate?

Accepted Answer

A)  11% 
B)  89% 
C)  10% 
D)  90% 
E)  Not able to determine from the information provided 
A)  11% 
B)  89% 
C)  10% 
D)  90% 
E)  Not able to determine from the information provided

Question 19

If the Consumer Price Index changes from 120 in the year 2012 to 126 in the year 2014, the average rate of inflation per year over this two-year period is approximately

Accepted Answer

A)  6%. 
B)  5%. 
C)  3%. 
D)  2.5%. 
E)  1.5%. 
A)  6%. 
B)  5%. 
C)  3%. 
D)  2.5%. 
E)  1.5%.

Question 20

If the price index is P1 in year 1 and P2 in year 3, the average inflation rate per year over this period is calculated as

Accepted Answer

A)  P2 - P1) × 100/2). 
B)  [P2 - P1)/P1] × 100. 
C)  [P2 - P1)/P1] × [100/2]. 
D)  [P1 - P2)/P2] × 100. 
E)  [P1 - P2)/P2] × [100/2]. 
A)  P2 - P1) × 100/2). 
B)  [P2 - P1)/P1] × 100. 
C)  [P2 - P1)/P1] × [100/2]. 
D)  [P1 - P2)/P2] × 100. 
E)  [P1 - P2)/P2] × [100/2].

Exam 19: What Macroeconomics Is All About

An output gap with Y < Y*

Suppose a small city has a population of 100 000 and a labour force of 60 000. Employment is 55 000 and 5000 workers are unemployed. How many people are not in the labour force?

Short-run fluctuations in real GDP around its trend value are

In the study of short-run fluctuations in national income, potential income output) is usually assumed to be

If a countryʹs labour force is 15 million people, and 1.35 million of those are unemployed, the countryʹs unemployment rate is

Consider a small economy with 3 individuals. Individual A produces 100 chickens that sell for $8 each. Individual B produces 50 bags of corn that sell for $10 each. Individual C produces 40 bushels of apples that sell for $20 each. National product in this economy is

If the Canadian dollar exchange rate increases, the

Suppose Honest Robʹs Used Cars buys a used car for $2000 and resells it for $3000. The result of Honest Robʹs transactions is to

If nominal national income increased by 20% over a certain period of time while real national income increased by 10%, then

If the cyclical unemployment rate is greater than zero, then the

Suppose the unemployment rate is 8.5% and we know that frictional and structural unemployment together account for 5.5%. The cyclical unemployment rate is then

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. What is the output gap in 2010?

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. In which years was this economy experiencing a recessionary gap?

An example of a topic outside the scope of macroeconomics is

Women entered the labour force in large numbers in the 20th century and increased the economyʹs GDP. This change

Why is real income for an average Canadian today so much higher than it was for an average Canadian 100 years ago?

Suppose the Bank of Montreal wants a 5% real rate of return on all its loans, and anticipates an annual inflation rate of 4%. It should therefore lend its money at a nominal interest rate of

If 27 million people are employed and 3 million people are unemployed, what is the unemployment rate?

If the Consumer Price Index changes from 120 in the year 2012 to 126 in the year 2014, the average rate of inflation per year over this two-year period is approximately

If the price index is P1 in year 1 and P2 in year 3, the average inflation rate per year over this period is calculated as

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