Deck 19: What Macroeconomics Is All About

Question 1

Suppose that in 2016 Canadaʹs automobile manufacturers produced 2 million cars priced at $20 000 each.And in 2017 they produced 1 million cars priced at $40 000 each.Ceteris paribus,the change in nominal national income is

A)a decrease because fewer cars were produced.
B)an increase because the price of each car increased.
C)insufficient information to know.
D)no change in nominal national income.
E)an increase because of inflation.

Answer 1

no change in nominal national income.

Question 2

the rate of unemployment.

A)1 only
B)2 only
C)3 only
D)1 and 2
E)1 and 3

Answer 2

1 and 3

Question 3

Consider a small economy with 3 individuals where each individual produces and sells $1000 worth of final goods and services.The national income for this economy is

A)$3000.
B)less than $3000 if some of the income is saved.
C)more than $3000 if some of the income is invested.
D)less than $3000 if there are taxes in this economy.
E)more than $3000 if the individuals are earning profits.

Answer 3

$3000.

Question 4

Which of the following is the best description of the business cycle?

A)the normal cycle of profits and losses by producers in the economy
B)the short-run fluctuations of national income around its trend value
C)a five-year period designed for national accounting purposes to capture the normal cycle of recession periods and boom periods
D)a ten-year period designed for national accounting purposes to capture the normal cycle of recession periods and boom periods
E)the fluctuations of one countryʹs national income in comparison to another countryʹs national income

Question 5

An example of a topic outside the scope of macroeconomics is

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 6

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

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 7

Which of the following is an equivalent term for ʺfull-employment outputʺ?

A)actual output
B)long-run output
C)gross national product (GNP)
D)gross domestic product (GDP)
E)potential output

Question 8

Which of the following is an accurate statement about real national income?

A)it always equals nominal national income
B)it changes by the same amount and in the same direction as does nominal national income
C)it changes only when the underlying quantities change
D)it refers to national income with no adjustment for changes in prices
E)it refers to national wealth but is not an indicator of current production

Question 9

In macroeconomics,the ʺoutput gapʺ is the difference between

A)output in the current year and output in the base year.
B)output and employment.
C)potential real national income and actual real national income.
D)real GNP and real GDP.
E)real and nominal national income.

Question 10

In macroeconomics,if the value of the national product increases,there is

A)an even larger increase in the value of income claims on that output,due to value added.
B)a decrease in value of income claims on that output,due to taxation.
C)a decrease in the value of income claims on that output,due to importing.
D)a decrease in the value of income claims on that output,due to household saving.
E)an equal increase in the value of income claims on that output.

Question 11

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

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 12

A nationʹs real national income in a given year measures the

A)dollar income earned by the nationʹs producing sector.
B)value of output produced by the economy,measured in constant dollars.
C)level of national income that is subject to taxation by the federal government.
D)market value of national output produced by the economy.
E)opportunity cost of the economyʹs national output.

Question 13

Real GDP measures

A)the constant-dollar value of the potential output of the nationʹs economy over the period of one year.
B)the quantity of total output produced by the nationʹs economy over the period of one year.
C)the fluctuations of national income around its long-term trend.
D)the annual growth rate of real national income.
E)the long-term trend in total output produced by the nationʹs economy.

Question 14

In order to determine the economyʹs real GDP growth rate between two time periods,we should look at

A)nominal national income,because it compares actual output in each time period.
B)real national income in each time period,which is equal to nominal national income corrected for price-level changes.
C)potential national income,corrected for price-level changes.
D)real national income in each period,which is equal to nominal national income corrected for quantity changes.
E)only the real national product from the latest time period.

Question 15

An upward trend in real national income over an extended period of time is called

A)an inflationary boom.
B)aggregate output.
C)constant-dollar national income.
D)potential national income.
E)economic growth.

Question 16

An equivalent term for ʺreal national incomeʺ is

A)nominal national income.
B)current-dollar national income.
C)constant-dollar national income.
D)actual national income.
E)potential national income.

Question 17

Suppose Appliance Mart buys a used refrigerator for $100,repairs it,and resells it for $250.The result of this transaction is to

A)increase the value of national product by $250.
B)leave the value of national product unchanged.
C)increase the value of national product by $150.
D)decrease the value of national product by $100.
E)There is insufficient information to know.

Question 18

What is potential or full-employment output?

A)the maximum GDP that an economy actually achieves throughout its entire history
B)achieved during periods when all of the labour force is employed
C)a goal that can never be achieved by the economy
D)the GDP that would be produced if the economyʹs resources were fully employed at a normal intensity of use
E)the GDP that could be produced if the economyʹs resources were fully employed at their maximum intensity of use

Question 19

To compare the economyʹs aggregate output in two different time periods,economists compare the

A)nominal national income for the two periods.
B)potential national incomes for the two periods.
C)real national income for the two periods.
D)unemployment rates for the two periods.
E)inflation rates for the two periods.

Question 20

In macroeconomics,the term ʺnational incomeʺ refers to

A)all sales of both current production and used goods.
B)only those sales of currently produced goods sold to other nations.
C)the value of a nationʹs total wealth.
D)the value of the income generated by the production of total output.
E)total current spending by all households.

Question 21

On a graph showing real national income on the vertical axis and time on the horizontal axis,the fluctuations of real national income around the trend -line would indicate the

A)business cycle.
B)distribution of income.
C)inflation rate.
D)path of potential output.
E)unemployment rate.

Question 22

An output gap with Y < Y*

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.

Question 23

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

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.

Question 24

Which of the following correctly describes the meaning of the expression Y > Y*?

A)actual output is more than potential output - a recessionary gap
B)potential output is more than actual output - a recessionary gap
C)actual output is more than potential output - an inflationary gap
D)potential output is more than actual output - an inflationary gap

Question 25

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?

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

Question 26

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 the year 2014, it is probably the case that workers are ________ and factories are________.

A)facing cyclical unemployment; facing temporary shut downs
B)working longer than normal hours; facing temporary shutdowns
C)experiencing zero unemployment; operating extra shifts
D)experiencing zero unemployment; operating beyond their normal capacity
E)working longer than normal hours; operating beyond their normal capacity

Question 27

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 are the factors of production in this economy said to be ʺfully employedʺ?

A)2009,2010,2014
B)2011,2015
C)2012,2013
D)all years
E)none of the years

Question 28

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 an inflationary gap?

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

Question 29

In macroeconomics,what is the output gap?

A)the measure of output that could have been produced if the economy were fully employed
B)the dead-weight loss of inflation
C)the difference between nominal and real output
D)the percentage change in real GDP
E)the difference between Y and Y*

Question 30

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?

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

Question 31

On a graph showing real national income on the vertical axis and time on the horizontal axis,the trend -line would probably be a good approximation of the

A)business cycle.
B)distribution of income.
C)inflation rate.
D)path of potential output.
E)unemployment rate.

Question 32

When macroeconomists use the term ʺrecessionʺ they usually define it as a fall in real GDP that lasts for at least

A)one quarter.
B)two quarters.
C)three quarters.
D)one year.
E)two years.

Question 33

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 the year 2012, it is probably the case that workers are ________ and factories are________.

A)facing cyclical unemployment; facing temporary shut downs
B)working longer than normal hours; facing temporary shutdowns
C)experiencing zero unemployment; operating extra shifts
D)experiencing zero unemployment; operating beyond their normal capacity
E)working longer than normal hours; operating beyond their normal capacity

Question 34

Suppose actual output is less than potential output.If the output gap measures the output loss due to the failure to achieve full employment,it can generally be concluded that the larger this output gap,the

A)greater is the employment rate.
B)greater is the unemployment rate.
C)lower is frictional unemployment.
D)lower the deadweight loss of unemployment.
E)more upward pressure there is on prices.

Question 35

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 unemployment rate when this economy is at ʺfull employmentʺ?

A)5.9%
B)6.0%
C)6.3%
D)7.0%
E)7.1%

Question 36

Economic booms can cause problems as well as create benefits because they are often accompanied by

A)deflationary pressures.
B)excessive labour-force participation.
C)inflationary pressures.
D)pressure on the government budget deficit to rise.
E)rising real interest rates.

Question 37

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

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 38

Which of the following correctly describes the meaning of the expression Y < Y*?

A)actual output is less than potential output - a recessionary gap
B)potential output is less than actual output - a recessionary gap
C)actual output is less than potential output - an inflationary gap
D)potential output is less than actual output - an inflationary gap

Question 39

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 2012?

A)$420 billion
B)$418 billion
C)-$2 billion
D)-$20 billion
E)$2 billion

Question 40

Consider an economy in which existing capital is being used at a high degree,shortages in labour and goods markets are developing,and costs are rising.Which of the following terms best describes this stage of the business cycle?

A)trough
B)recovery
C)peak
D)recession
E)slump

Question 41

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

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 42

How is Canadaʹs unemployment rate determined?

A)The rate is determined by Canada Census data.
B)The rate is determined by a survey of Canadian employers.
C)The federal government department HRSDC (Human Resources and Skills Development Canada)conducts a monthly survey of the labour force.
D)Statistics Canada conducts a Labour Force Survey each month.
E)An estimate is produced by HRSDC based on the previous monthʹs unemployment rate adjusted by the current monthʹs job losses and job gains.

Question 43

Which of the following is the best example of cyclical unemployment?

A)A worker is laid off because his firm had to reduce production due to reduced demand.
B)A worker quits her current job to search for a better one.
C)An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta.
D)Bank tellers are unable to find jobs due to technological advances in the banking system.
E)Inflationary pressures have led to higher wages for all jobs.

Question 44

Suppose a country has an unemployment rate of 20%.If we know that the population is 38 million and the labour force is 25 million,then the number of people unemployed is

A)5 million.
B)13 million.
C)20 million.
D)7.6 million.
E)2.6 million.

Question 45

Suppose the city of Calgary,Alberta has a population of 1 million,a labour force of 575 000,and employment is equal to 545 000.The unemployment rate in Calgary is approximately

A)3.0%.
B)5.2%.
C)5.5%.
D)54.5%.
E)57.5%.

Question 46

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?

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

Question 47

Suppose the city of Calgary has a population of 1 million,a labour force of 575 000,and employment equal to 545 000.We can conclude that for legal and various other reasons ________ people are excluded from the

A)30 000
B)420 000
C)425 000
D)445 000
E)450 000

Question 48

If a countryʹs labour force is 15 million people,and 1 million of those are unemployed,the countryʹs unemployment rate is

A)2.5%.
B)3.3%.
C)4.5%.
D)6.7%.
E)7.1%.

Question 49

Suppose that a countryʹs population is 30 million and it has a labour force of 15 million people.Assuming it has 1.35 million people unemployed,the countryʹs unemployment rate is

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

Question 50

Suppose that a countryʹs population is 30 million and it has a labour force of 15 million people.If 14.5 million people are employed,the countryʹs unemployment rate is

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

Question 51

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

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

Question 52

Which of the following is the best example of frictional unemployment?

A)A worker is laid off because his firm has to reduce production due to reduced demand.
B)A worker quits her current job to search for a better one.
C)An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta.
D)Bank tellers are unable to find jobs due to technological advances in the banking system.
E)Inflationary pressures have led to higher wages for all jobs.

Question 53

Workers with experience and skills sometimes lose their jobs and become unemployed due to changing technology or market conditions,even while firms in other industries or regions are looking to hire more workers.This type of unemployment is called

A)cyclical unemployment.
B)frictional unemployment.
C)historical unemployment.
D)natural rate of unemployment.
E)structural unemployment.

Question 54

Consider the growth in Canadaʹs labour force and employment.Over the last 50 years,

A)the labour force has grown much more rapidly than employment.
B)both the labour force and employment have remained roughly constant.
C)the number of unemployed persons has been a much larger fraction of the labour force than it was during the first half of the 20th century.
D)the main trend of the economy has been one of growth in employment that roughly matches the growth in the labour force.
E)the main trend of the economy has been to have employment grow more rapidly than the growth in output.

Question 55

Canadaʹs unemployment rate has been as low as ________ in the 1960s and as high as ________ during the recession in the early 1980s.

A)4.6; 14
B)2.0; 15
C)5.5; 17
D)2.4; 10
E)3.4; 12

Question 56

If a countryʹs population is 15 million people,and 1 million of those are unemployed,the countryʹs unemployment rate is

A)2.5%.
B)3.3%.
C)6.7%.
D)7.1%
E)There is not enough information to know.

Question 57

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

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

Question 58

Cyclical unemployment is associated with which of the following?

A)changes to the economyʹs industrial structure resulting from growth in some industries and decline in others
B)an output level different from the economyʹs potential output
C)differences between the characteristics of the supply of labour and the demand for labour
D)people entering the labour force typically take some time to find a job
E)people quitting their present jobs to look for other jobs

Question 59

A worker is considered unemployed if that worker has no job,is legally eligible to work,

A)and is actively searching for employment.
B)and is not collecting unemployment insurance.
C)whether the worker is looking for a job or is not looking for a job.
D)but only if they previously held a job.
E)but only if they were previously employed for at least three consecutive months.

Question 60

The unemployment rate will understate the true amount of unemployment if

A)the unemployment rate is rising.
B)crime,divorce,and social unrest are all positively correlated with unemployment.
C)the official unemployment figure excludes discouraged workers who have stopped actively looking for work.
D)the labour force has grown more rapidly than output.
E)the actual unemployment rate is greater than the natural rate of unemployment.

Question 61

If the cyclical unemployment rate is negative,then the

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

Question 62

What is the approximate measure (2014 data)of Canadaʹs productivity in terms of real GDP per hour worked (expressed in 2007 dollars)?

A)$10
B)$92
C)$200
D)$475
E)$45

Question 63

The price level is measured in some time period with an index number,such as the number 118.6.How is such a number of use to us?

A)It allows us to compare it to the value of the same index number from another time period to determine the rate of change of the price level.
B)The index number tells us the rate of inflation.
C)It tells us the dollar value for the average basket of goods and services bought by the typical Canadian household.
D)It tells us the real value for the average basket of goods and services bought by the typical Canadian household.
E)It tells us the percentage change in the price level from the previous time period.

Question 64

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

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 65

The most common measure of productivity is ________, which can be measured as real GDP divided by________.

A)indexed productivity; per capita output
B)factor productivity; the total number of factors employed in the economy
C)capital productivity; the number of units of capital employed in the economy
D)potential productivity; the total number of factors that would be employed in the economy at full employment
E)labour productivity; the number of units of work effort

Question 66

Inflation,the rate of change of average prices in the economy,generally

A)benefits creditors if it is unanticipated.
B)has no real effects if it is unanticipated.
C)increases the purchasing power of money.
D)reduces the real value of existing nominal debt.
E)increases the real value of fixed money incomes.

Question 67

Changes in productivity can be analyzed by looking at how GDP per employed worker changes over time or how GDP per hour worked changes over time.Why might one measure be more preferable than the other?

A)GDP per hour worked is preferable because it eliminates the need to adjust for variations in productivity between employed workers.
B)GDP per employed worker is more accurate because the data available on the number of employed workers is more accurate than the data available on the number of hours worked.
C)GDP per hour worked is more accurate because the average number of hours worked per employed worker has changed over time.
D)GDP per employed worker is preferable because the number of employed workers has risen significantly over time.
E)Both measures are equally good.

Question 68

Workers with marketable skills sometimes quit a job and become unemployed,with the expectation of soon finding a better job.This type of unemployment is called

A)cyclical unemployment.
B)frictional unemployment.
C)historical unemployment.
D)overly-optimistic unemployment.
E)structural unemployment.

Question 69

Consider a small economy with real GDP of $1 billion and the total number of hours worked equal to 5 million.Which of the following is the best measure of labour productivity in this economy?

A)real GDP per hour worked = $20
B)real GDP per employed worker = $20
C)real GDP per hour worked = $200
D)real GDP per employed worker = $200
E)Not able to determine from the information provided

Question 70

A change in the Consumer Price Index measures

A)a change in a specific absolute price.
B)a change in quantities of commodities sold.
C)a change in relative prices.
D)a change in a broad average price over some particular time span.
E)the change in gross domestic product.

Question 71

Consider a small economy with real GDP of $1 billion and the number of workers employed equal to 2500.Which of the following is the best measure of labour productivity in this economy?

A)real GDP per hour worked = $200
B)real GDP per employed worker = $200 000
C)real GDP per hour worked = $400
D)real GDP per employed worker = $400 000
E)Not able to determine from the information provided

Question 72

Suppose an employer and its employees enter into a wage contract specifying a wage increase of 2%.But suppose that the price level rises by 3% over the course of the contract.In this case,

A)the employeesʹ purchasing power will rise.
B)the employeesʹ purchasing power will fall.
C)the employer will experience a greater fall in purchasing power than would have occurred if the price level had held steady.
D)both employer and employees will benefit from increased purchasing power.
E)both employer and employees will experience a loss of purchasing power.

Question 73

Most economists believe that the single largest cause of rising material living standards over long periods of time is

A)productivity growth.
B)rising employment.
C)growth in the capital stock.
D)real GDP growth.
E)rising real wages.

Question 74

Consider a small economy with 2500 employed workers who worked a total of 5 million hours at an average wage of $40 per hour.Which of the following is the best measure of labour productivity in this economy?

A)real GDP per hour worked = $40
B)real GDP per employed worker = $80 000
C)real GDP per hour worked = $80
D)real GDP per employed worker = $125 000
E)Not able to determine from the information provided

Question 75

The three main reasons that Canadaʹs real GDP has increased steadily for many years are

A)rising employment,increasing levels of education of the labour force and the increase in the participation rate of women in the labour force.
B)an increasing stock of physical capital,increasing exports and rising employment.
C)the increase in life expectancy,the rise in employment and increasing productivity.
D)rising employment,increasing stock of physical capital and increasing productivity.
E)increasing productivity of labour,increasing productivity of land and increasing productivity of the capital stock.

Question 76

In some macroeconomic analyses,it is common to treat the level of productivity as roughly constant.This is a justifiable assumption in

A)the long run.
B)the short run.
C)both the long run and the short run.
D)neither the long run nor the short run.
E)macroeconomics but not microeconomics.

Question 77

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

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

Question 78

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

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 79

In general,productivity is a measure of

A)the economyʹs ability to increase real GDP per capita.
B)the amount of output that the economy produces per unit of input.
C)real GDP as a function of total employment.
D)the total amount of output that the economy is capable of producing.
E)potential output.

Question 80

As the banking industry becomes more and more automated,tellers find themselves with unneeded skills and some of them become unemployed.At the same time,software engineers are in increasing demand.These unemployed tellers would be classified as

A)cyclically unemployed.
B)frictionally unemployed.
C)naturally unemployed.
D)structurally unemployed.
E)underemployed.