MULTIPLE CHOICE. Choose The One Alternative That Best Completes The Statement or Answers The Question

Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the quest
1) Macroeconomics is mainly concerned with the study of 1)

A) fluctuations and trends in aggregated data.
B) fluctuations and trends in disaggregated data.
C) governments and their intervention in individual markets.
D) individual households and how they deal with problems like inflation and unemployment.
E) large economic units such as General Motors or Molson Breweries.
Answer:A
Diff: 1
Topic: 19.1a. the study of macroeconomics
Skill: Recall
2) The economic problems studied in macroeconomics include: 2)

1) the level of economic activity;
2) competition policy;
3) the rate of unemployment.
A) 2 only B) 1 and 3 C) 1 and 2 D) 3 only E) 1 only
Answer:B
Diff: 1
Skill: Recall
3) An example of a topic outside the scope of macroeconomics is 3)

A) the overall level of unemployment.
B) the level of productivity, as compared with that in the United States.
C) the aggregate growth rate of the economy.
D) changes in the price of a particular good in a specific market.
E) changes in the unemployment rate.
Answer:D
Diff: 1
Skill: Applied
4) An equivalent term for "real national income" is 4)

A) nominal national income.
B) actual national income.
C) constant-dollar national income.
D) current-dollar national income.
E) potential national income.
Answer:C
Diff: 1
Topic: 19.1b. national output/national income
Skill: Recall
1
5) A nation's real national income in a given year measures the 5)
A) dollar income earned by the nation's producing sector.
B) level of national income that is subject to taxation by the federal government.
C) market value of national output produced by the economy.
D) opportunity cost of the economy's national output.
E) value of output produced by the economy, measured in constant dollars.
Answer:E
Diff: 2
Skill: Recall
6) Real national income 6)

A) refers to national wealth but is not an indicator of current production.
B) changes only when the underlying quantities change.
C) refers to national income with no adjustment for changes in prices.
D) always equals nominal national income.
E) changes by the same amount and in the same direction as does nominal national income.
Answer:B
Diff: 2
Skill: Applied
7) In macroeconomics, the term "national income" refers to 7)

A) the value of a nation's total wealth.
B) the value of the income generated by the production of total output.
C) only those sales of currently produced goods sold to other nations.
D) total current spending by all households.
E) all sales of both current production and used goods.
Answer:B
Diff: 1
Skill: Recall
8) An upward trend in real national income over an extended period of time is called 8)
A) potential national income.
B) constant-dollar national income.
C) an inflationary boom.
D) economic growth.
E) aggregate output.
Answer:D
Diff: 1
Skill: Recall
2
9) Suppose that in 2010 Canada's automobile manufacturers produced 2 million cars priced9)at $20 000
each. And in 2011 they produced 1 million cars priced at $40 000 each. Ceteris paribus, the change in
nominal national income is
A) an increase because the price of each car increased.
B) an increase because of inflation.
C) insufficient information to know.
D) no change in nominal national income.
E) a decrease because fewer cars were produced.
Answer:D
Diff: 2
Skill: Applied
10)Suppose Honest Rob's Used Cars buys a used car for $2000 and resells it for $3000. The10)
result of
Honest Rob's transactions is to
A) increase the value of national income by $3000.
B) decrease the value of national income by $3000.
C) increase the value of national income by $1000.
D) decrease the value of national income by $1000.
E) leave the value of national income unchanged.
Answer:C
Diff: 2
Skill: Applied
11)
11)To compare the economy's aggregate output in two different time periods, economists compare the
A) real national income for the two periods.
B) inflation rates for the two periods.
C) nominal national income for the two periods.
D) unemployment rates for the two periods.
E) potential national incomes for the two periods.
Answer:A
Diff: 1
Skill: Applied
12)In determining the economy's real GDP growth rate between two time periods, 12)
A) only the real national product from the latest time period is relevant.
B) real national income, which is equal to nominal national income corrected for price-level
changes, should be used.
C) we should ignore prices completely, in order to examine output alone.
D) nominal national income should be used in comparing levels of output.
E) potential national income should be used.
Answer:B
Diff: 2
Skill: Applied
3
13)In macroeconomics, if the value of the national product increases, there is 13)
A) a decrease in value of income claims on that output, due to taxation.
B) a decrease in the value of income claims on that output, due to household saving.
C) an even larger increase in the value of income claims on that output, due to value added.
D) a decrease in the value of income claims on that output, due to importing.
E) an equal increase in the value of income claims on that output.
Answer:E
Diff: 2
Skill: Applied
14)Suppose Appliance Mart buys a used refrigerator for $100, repairs it, and resells it for $250.
14) The
result of this transaction is to
A) leave the value of national product unchanged.
B) increase the value of national product by $250.
C) increase the value of national product by $150.
D) decrease the value of national product by $100.
E) insufficient information to know.
Answer:C
Diff: 1
Skill: Applied
15)Probably the most commonly used measure of national income is 15)

A) constant dollar national income.
B) gross national product.
C) current dollar national income.
D) dollar value of potential output.
E) gross domestic product.
Answer:E
Diff: 1
Skill: Recall
16)Real GDP measures 16)

A) the long-term trend in total output produced by the nation's economy.
B) the annual growth rate of real national income.
C) the quantity of total output produced by the nation's economy over the period of one year.
D) the fluctuations of national income around its long-term trend.
E) the constant-dollar value of the potential output of the nation's economy over the period of
one year.
Answer:C
Diff: 1
Skill: Recall
4
17)Consider a small economy with 3 individuals where each individual produces $1000 worth of final
17)
goods and services. The national income for this economy is
A) less than $3000 if there are taxes in this economy.
B) less than $3000 if some of the income is saved.
C) more than $3000 if the individuals are earning profits.
D) $3000.
E) more than $3000 if some of the income is invested.
Answer:D
Diff: 2
Skill: Applied
18)Consider a small economy with 3 individuals. Individual A produces 100 chickens that sell for $8
18)
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) $2100.
B) 190 units of goods produced.
C) $2470
D) 100 chickens plus 50 bags of corn plus 40 bushels of apples.
E) not determinable from the information provided.
Answer:A
Diff: 2
Skill: Applied
19)The three main reasons that Canada's real GDP has increased steadily for many years are 19)
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) rising employment, increasing stock of physical capital and increasing productivity.
D) the increase in life expectancy, the rise in employment and increasing productivity.
E) increasing productivity of labour, increasing productivity of land and increasing productivity
of the capital stock.
Answer:C
Diff: 2
Topic: 19.1c. potential output and output gaps
Skill: Recall
20)Potential or full-employment output is 20)

A) the GDP that would be produced if the economy's resources were fully employed at a normal
intensity of use.
B) a goal that can never be achieved by the economy.
C) the GDP that could be produced if the economy's resources were fully employed at their
maximum intensity of use.
D) the maximum GDP that an economy actually achieves throughout its entire history.
E) achieved during periods when all of the labour force is employed.
Answer:A
Diff: 1
Skill: Recall
5
21)In macroeconomics, the "output gap" is the difference between 21)
A) real and nominal national income.
B) output and employment.
C) real GNP and real GDP.
D) output in the current year and output in the base year.
E) potential real national income and actual real national income.
Answer:E
Diff: 1
Skill: Recall
22)The output gap is the 22)

A) difference between Y and *. Y
B) dead-weight loss of inflation.
C) percentage change in real GDP.
D) measure of output that could have been produced if the economy were fully employed.
E) difference between nominal and real output.
Answer:A
Diff: 2
Skill: Recall
23)An output gap with Y <* Y 23)

A) occurs when there is excess demand.
B) is known as an inflationary boom.
C) tends to force prices up.
D) results in a loss of output due to unemployed resources.
E) is desirable because it keeps wage costs low.
Answer:D
Diff: 2
Skill: Applied
24)Suppose actual output is less than potential output. If the output gap measures the output loss due
24)
to the failure to achieve full employment, it can generally be concluded that the larger this output
gap, the
A) lower the deadweight loss of unemployment.
B) greater is the employment rate.
C) more upward pressure there is on prices.
D) greater is the unemployment rate.
E) lower is frictional unemployment.
Answer:D
Diff: 2
Skill: Applied
6
25)Economic booms can cause problems as well as create benefits because they are often accompanied
25)
by
A) inflationary pressures.
B) deflationary pressures.
C) rising real interest rates.
D) excessive labour-force participation.
E) pressure on the government budget deficit to rise.
Answer:A
Diff: 2
Skill: Applied
26)In the study of short-run fluctuations in national income, potential income (output) is usually
26)
assumed to be
A) irrelevant, as the economy is rarely there.
B) equal to actual income.
C) falling at its average growth rate.
D) moving together with potential output in neighbouring countries.
E) constant.
Answer:E
Diff: 1
Skill: Applied
27)Short-run fluctuations in real GDP around its trend value are 27)
A) referred to in economics as "the business cycle".
B) generally ignored by economists, because these fluctuations are constant and predictable.
C) referred to in economics as "background noise".
D) unimportant to the study of macroeconomics.
E) generally ignored by economists, because these fluctuations do not affect behaviour of other
variables such as the unemployment rate.
Answer:A
Diff: 1
Skill: Applied
28)Consider an economy in which existing capital is being used at a high degree, shortages 28)
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) slump B) peak C) trough D) recovery E) recession
Answer:B
Diff: 2
Skill: Applied
7
29)On a graph showing real national income on the vertical axis and time on the horizontal axis,
29) the
trend- line would probably be a good approximation of the
A) inflation rate.
B) path of potential output.
C) distribution of income.
D) business cycle.
E) unemployment rate.
Answer:B
Diff: 1
Skill: Applied
30)On a graph showing real national income on the vertical axis and time on the horizontal axis,
30) the
fluctuations of real national income around the
- line
trend
would indicate the
A) distribution of income.
B) path of potential output.
C) unemployment rate.
D) inflation rate.
E) business cycle.
Answer:E
Diff: 1
Skill: Applied
31)When macroeconomists use the term "recession" they usually define it as a fall in real GDP
31)that
lasts for at least
A) three quarters.
B) one year.
C) two quarters.
D) two years.
E) one quarter.
Answer:C
Diff: 1
Skill: Recall
8
The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar
Actual Output Potential Output Unemployment Rate

Year (billions of $) (billions of $) ($ of labour force)
2002 402 404 7.1
2003 408 411 7.2
2004 415 415 6.3
2005 420 418 5.9
2006 422 420 6.0
2007 420 423 7.0
2008 425 425 6.3
TABLE 19
-1
32)Refer to Table 19-1. In which years was this economy experiencing a recessionary gap? 32)
A) 2005, 2006
B) 2002, 2003, 2004
C) 2006, 2007, 2008
D) 2004, 2008
E) 2002, 2003, 2007
Answer:E
Diff: 2
Skill: Applied
33)Refer to Table 19-1. In which years was this economy experiencing an inflationary gap? 33)
A) 2002, 2003
B) 2005, 2006
C) 2006, 2007
D) 2002, 2003, 2007
E) 2004, 2008
Answer:B
Diff: 2
Skill: Applied
34)
34)Refer to Table 19-1. What is the unemployment rate when this economy is at full employment?
A) 6.3% B) 7.0% C) 7.1% D) 5.9% E) 6.0%
Answer:A
Diff: 2
Skill: Applied
9
35)Refer to Table 19-1. In which years are the factors of production in this economy being utilized
35) at a
normal rate?
A) 2005, 2006
B) 2002, 2003, 2007
C) 2004, 2008
D) all years
E) none of the years
Answer:C
Diff: 2
Skill: Applied
36)Refer to Table 19-1. What is the output gap in 2003? 36)

A) $7.1 billion
B) -$3 billion
C) $3 billion
D) $411 billion
E) $408 billion
Answer:B
Diff: 2
Skill: Applied
37)Refer to Table 19-1. In the year 2005, it is probably the case that workers are ________ and
37)factories
are ________.
A) facing cyclical unemployment; facing temporary shut downs
B) experiencing zero unemployment; operating beyond their normal capacity
C) working longer than normal hours; operating beyond their normal capacity
D) experiencing zero unemployment; operating extra shifts
E) working longer than normal hours; facing temporary shutdowns
Answer:C
Diff: 2
Skill: Applied
th the
38)Women entered the labour force in large numbers in century
20 and increased the economy's
38)
GDP. This change
A) created recessionary gaps.
B) created inflationary gaps.
C) was only possible in an economy operating below normal rates of utilization.
D) raised potential output.
E) was only possible in an economy operating above normal rates of utilization.
Answer:D
Diff: 2
Skill: Recall
10
39)A worker is considered unemployed if that worker has no job, is legally eligible to work, 39)
A) whether the worker is looking for a job or is not looking for a job.
B) but only if they were previously employed for at least three consecutive months.
C) and is actively searching for employment.
D) but only if they previously held a job.
E) and is not collecting unemployment insurance.
Answer:C
Diff: 1
Topic: 19.1d. employment, unemployment and the labour force
Skill: Applied
40)Over the last 50 years in Canada, 40)

A) the main trend of the economy has been one of growth in employment that roughly matches
the growth in the labour force.
B) the labour force has grown much more rapidly than employment.
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 to have employment grow more rapidly than the
growth in output.
E) both the labour force and employment have remained roughly constant.
Answer:A
Diff: 2
Skill: Recall
41)If a country's labour force is 15 million people, and 1 million of those are unemployed, the country's
41)
unemployment rate is
A) 2.5 percent.
B) 3.3 percent.
C) 4.5 percent.
D) 6.7 percent.
E) 9.0 percent.
Answer:D
Diff: 2
Skill: Applied
42)If a country's labour force is 15 million people, and 500 000 of those are unemployed, the42)
country's
A) 2.5 percent.
B) 3.3 percent.
C) 4.5 percent.
D) 6.7 percent.
E) 9.0 percent.
Answer:B
Diff: 2
Skill: Applied
11
43)If a country's labour force is 15 million people, and 1.35 million of those are unemployed,43)
the
country's unemployment rate is
A) 2.5 percent.
B) 3.3 percent.
C) 4.5 percent.
D) 6.7 percent.
E) 9.0 percent.
Answer:E
Diff: 2
Skill: Applied
44)Suppose that a country's population is 30 million and it has a labour force of 15 million people.
44)
Assuming it has 1.35 million people unemployed, the country's unemployment rate is
A) 2.5 percent.
B) 3.3 percent.
C) 4.5 percent.
D) 6.7 percent.
E) 9.0 percent.
Answer:E
Diff: 2
Skill: Applied
45)Suppose that a country's population is 30 million and it has a labour force of 15 million people.
45)
Assuming it has 500 000 people unemployed, the country's unemployment rate is
A) 2.5 percent.
B) 3.3 percent.
C) 4.5 percent.
D) 6.7 percent.
E) 9.0 percent.
Answer:B
Diff: 2
Skill: Applied
46)Suppose the city of Calgary has a population of 1 million, a labour force of 575 000, and 46)
employment equal to 545 000 . We can conclude that for legal and various other reasons ________
people are excluded from the labour force.
A) 395 000 B) 420 000 C) 425 000 D) 445 000 E) 450 000
Answer:C
Diff: 2
Skill: Applied
12
47)Suppose the city of Calgary, Alberta has a population of 1 million, a labour force of 575 000,
47) and
employment is equal to 545 000. The unemployment rate in Calgary is approximately
A) 3.0 percent.
B) 5.2 percent.
C) 5.5 percent.
D) 54..5 percent.
E) 57.5 percent.
Answer:B
Diff: 2
Skill: Applied
48)If a country's labour force is 20 million people, and 1 million people are unemployed, the48)
country's
A) 0.5 percent.
B) 3.5 percent.
C) 2.5 percent.
D) 5 percent.
E) 4 percent.
Answer:D
Diff: 2
Skill: Applied
49)Suppose a small city has a population of 100 000 and a labour force of 60 000. Employment
49) is 55
000 and 5,000 workers are unemployed. How many people are not in the labour force?
A) 40 000 B) 35 000 C) 5000 D) 0 E) 30 000
Answer:A
Diff: 1
Skill: Applied
50)If 27 million people are employed and 3 million people are unemployed, what is the 50)
unemployment rate?
A) 90%
B) 89%
C) 10%
D) 11%
E) indeterminable from the information provided.
Answer:C
Diff: 3
Skill: Applied
13
51)Which of the following is the best example of frictional unemployment? 51)
A) A worker is laid off because his firm has to reduce production due to reduced demand.
B) Inflationary pressures have led to higher wages for all jobs.
C) Bank tellers are unable to find jobs due to technological advances in the banking system.
D) A worker quits her current job to search for a better one.
E) An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta.
Answer:D
Diff: 2
Topic: 19.1e. frictional, structural and cyclical unemployment
Skill: Applied
52)Which of the following is the best example of cyclical unemployment? 52)

A) A worker is laid off because his firm had to reduce production due to reduced demand.
B) Bank tellers are unable to find jobs due to technological advances in the banking system.
C) Inflationary pressures have led to higher wages for all jobs.
D) A worker quits her current job to search for a better one.
E) An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta.
Answer:A
Diff: 2
Skill: Applied
53)Economists expect some unemployment to exist even at times of "full employment" for, among
53)
others, the following reasons:
1) actual GDP is rarely equal to potential GDP;
2) as the economy changes, the structure of the existing labour force is not the same as the structure
of labour demand;
3) people entering the labour force typically take some time to find a job.
A) 2 and 3 B) 3 only C) 1 and 2 D) 2 only E) 1 only
Answer:A
Diff: 2
Skill: Applied
54)The unemployment rate will overstate the true amount of unemployment if: 54)
A) Crime, divorce, and social unrest are all positively correlated with unemployment.
B) The actual unemployment rate is greater than the natural rate of unemployment.
C) The unemployment rate is rising.
D) The official unemployment figure includes discouraged workers who have stopped actively
looking for work.
E) The labour force has grown more rapidly than output.
Answer:D
Diff: 3
Skill: Applied
14
55)Cyclical unemployment is associated with 55)
A) changes to the economy's industrial structure resulting from growth in some industries and
decline in others.
B) people entering the labour force typically take some time to find a job.
C) people quitting their present jobs to look for other jobs.
D) differences between the characteristics of the supply of labour and the demand for labour.
E) an output level different from the economy's potential output.
Answer:E
Diff: 2
Skill: Applied
56)Workers with experience and skills sometimes lose their jobs and become unemployed due 56)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) structural unemployment.
B) frictional unemployment.
C) historical unemployment.
D) cyclical unemployment.
E) natural rate of unemployment.
Answer:A
Diff: 2
Skill: Applied
57)Workers with marketable skills sometimes quit a job and become unemployed, with the 57)
expectation of soon finding a better job. This type of unemployment is called
A) overly-optimistic unemployment.
B) historical unemployment.
C) cyclical unemployment.
D) frictional unemployment.
E) structural unemployment.
Answer:D
Diff: 2
Skill: Applied
58)Suppose the unemployment rate is 8.5 percent and we know that frictional and structural
58)
unemployment together account for 5.5 percent. The cyclical unemployment rate is then
A) 14 percent.
B) 8.5 percent.
C) 5.5 percent.
D) 3.0 percent.
E) -3.0 percent.
Answer:D
Diff: 2
Skill: Applied
15
59)If the cyclical unemployment rate is negative, then the 59)
A) economy is operating at less than full employment.
B) frictional unemployment rate is negative.
C) economy is operating beyond full employment.
D) real-wage unemployment rate is negative.
E) frictional unemployment rate is greater than the structural unemployment rate.
Answer:C
Diff: 2
Skill: Applied
60)If the cyclical unemployment rate is greater than zero, then the 60)
A) frictional unemployment rate is greater than the structural unemployment rate.
B) economy is operating beyond full employment.
C) economy is operating at full employment.
D) real-wage unemployment rate is negative.
E) economy is operating at less than full employment.
Answer:E
Diff: 2
Skill: Applied
61)As the banking industry becomes more and more automated, tellers find themselves with61)
unneeded skills and some of them become unemployed. At the same time, computer programmers
are in high demand. These unemployed tellers would be classified as
A) cyclically unemployed.
B) underemployed.
C) frictionally unemployed.
D) structurally unemployed.
E) naturally unemployed.
Answer:D
Diff: 2
Skill: Applied
62)In some macroeconomic analyses, it is common to treat the level of productivity as roughly
62)
constant. This is a justifiable assumption in
A) macroeconomics but not microeconomics.
B) neither the long run nor the short run.
C) the long run.
D) the short run.
E) both the long run and the short run.
Answer:D
Diff: 1
Topic: 19.1f. productivity
Skill: Recall
16
63)In general, productivity is a measure of 63)
A) the amount of output that the economy produces per unit of input.
B) real GDP as a function of total employment.
C) the economy's ability to increase real GDP per capita.
D) the total amount of output that the economy is capable of producing.
E) potential output.
Answer:A
Diff: 1
Skill: Recall
64)The most common measure of productivity is ________, which can be measured as real GDP 64)
divided by ________.
A) potential productivity; the total number of factors that would be employed in the economy at
full employment.
B) indexed productivity; per capita output
C) factor productivity; the total number of factors employed in the economy
D) labour productivity; the number of units of work effort
E) capital productivity; the number of units of capital employed in the economy
Answer:D
Diff: 2
Skill: Recall
65)Consider a small economy with real GDP of $1 billion and the total number of hours worked 65) 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 hour worked = $200
C) real GDP per employed worker = $200
D) real GDP per employed worker = $20
Answer:B
Diff: 3
Skill: Applied
66)Consider a small economy with real GDP of $1 billion and the number of workers employed 66)equal
to 2500. Which of the following is the best measure of labour productivity in this economy?
A) real GDP per employed worker = $200 000
B) real GDP per employed worker = $400 000
C) real GDP per hour worked = $200
D) real GDP per hour worked = $400
E) indeterminable from the information provided
Answer:B
Diff: 3
Skill: Applied
17
67)Consider a small economy with 2500 employed workers who worked a total of 5 million hours
67) 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 = $80
B) real GDP per employed worker = $80 000
C) real GDP per employed worker = $125 000
D) real GDP per hour worked = $40
Answer:E
Diff: 3
Skill: Applied
68)Most economists believe that the single largest cause of rising material living standards 68)
over long
periods of time is
A) rising employment.
B) productivity growth.
C) growth in the capital stock.
D) rising real wages.
E) real GDP growth.
Answer:B
Diff: 1
Skill: Recall
69)A change in a price index measures 69)

A) a change in a specific absolute price.
B) a change in quantities of commodities sold.
C) the change in gross domestic product.
D) a change in relative prices.
E) a change in some broad average price over some particular time span.
Answer:E
Diff: 2
Topic: 19.1g. inflation and the price level
Skill: Applied
70)Inflation, the rate of change of average prices in the economy, generally 70)
A) increases the purchasing power of money.
B) increases the real value of fixed money incomes.
C) has no real effects if it is unanticipated.
D) benefits creditors if it is unanticipated.
E) reduces the real value of existing nominal debt.
Answer:E
Diff: 2
Skill: Applied
18
71)Suppose an employer and its employees enter into a wage contract specifying a wage increase
71) of 2
percent. But suppose that the price level rises by 3 percent over the course of the contract. In this
case,
A) the employees' purchasing power will rise.
B) both employer and employees will experience a loss of purchasing power.
C) the employees' purchasing power will fall.
D) the employer will experience a greater fall in purchasing power than would have occurred if
the price level had held steady.
E) both employer and employees will benefit from increased purchasing power.
Answer:C
Diff: 2
Skill: Applied
72)If nominal national income increased by 10 percent over a certain period of time while real
72)national
income increased by 20 percent, then
A) the price level has increased by approximately 10 percent.
B) everybody in the economy became worse off.
C) the price level has declined by about 10 percent.
D) the labour force increased by 10 percent.
E) inflation has occurred during this time period.
Answer:C
Diff: 2
Skill: Applied
73)If nominal national income increased by 20 percent over a certain period of time while real
73)national
income increased by 10 percent, then
A) inflation has decreased during this time period.
B) everybody in the economy became worse off.
C) the price level has increased by approximately 10 percent.
D) the price level has declined by about 10 percent.
E) the labour force increased by 10 percent.
Answer:C
Diff: 2
Skill: Applied
74)If a country is experiencing inflation, the change in the nominal national product will 74)
A) be falling faster than the rate of inflation.
B) overstate the inflation rate.
C) equal the change in the real national product.
D) understate the value of national income.
E) overstate the change in the real value of production.
Answer:E
Diff: 2
Skill: Applied
19
75)Economic theory argues that there will be fewer real effects from inflation as long as the75)
A) whole private sector is unaware that it is happening.
B) actual rate of inflation is less than 5 percent.
C) anticipated rate of inflation is less than the actual rate of inflation.
D) anticipated rate of inflation is more than the actual rate of inflation.
E) inflation is fully anticipated and no one changes their behaviour.
Answer:E
Diff: 1
Skill: Applied
76)The group that tends to be most hurt by unexpected inflation is 76)

A) banks.
B) individuals with unindexed pensions.
C) employers.
D) fixed-income earners.
E) both B and D are correct.
Answer:E
Diff: 1
Skill: Recall
77)If the Consumer Price Index changes from 120 in year one to 122 in year two, the rate of77)
inflation in
the intervening year is
A) 20 percent.
B) 0 percent.
C) 22 percent.
D) 2.0 percent.
E) 1.67 percent.
Answer:E
Diff: 3
Skill: Applied
78)If the Consumer Price Index changes from 120 in year one to 144 in year two, the rate of78)
inflation in
the intervening year is
A) 10 percent.
B) 12.5 percent.
C) 20 percent.
D) 25 percent.
E) 30 percent.
Answer:C
Diff: 3
Skill: Applied
20
79)If the Consumer Price Index changes from 120 in the year 2009 to 126 in the year 2011, 79)
the average
rate of inflation per year over this- year
two period is approximately
A) 2.5 percent.
B) 5 percent.
C) 1.5 percent.
D) 6 percent.
E) 3 percent.
Answer:A
Diff: 3
Skill: Applied
80)If the price index is 1 in

P one year and2Pin the next year, the inflation rate from one year to the
80)
next is calculated as
A) [(P2 - P1)/P1] x 100
B)[(P1 - P2)/P2] x 100
C) (P2 - P1) x 100
D) (P2/P1) x 100
E)(P1/P2) x 100
Answer:A
Diff: 2
Skill: Applied
81)If the price index is 1 in

P year 1 and2Pin year 3, the average inflation rate per year over this 81)
period is calculated as
A) [(P2 - P1)/P1] x [100/2]
B)[(P1 - P2)/P2] x [100/2]
C) [(P2 - P1)/P1] x 100
D) [(P1 - P2)/P2] x 100
E)(P2 - P1) x (100/2)
Answer:A
Diff: 3
Skill: Applied
82)Suppose that a price index for a certain basket of goods and services has a value of 150 in
82)2009 and
a value of 156 in 2010. This index suggests that the cost of the market basket of goods and services
A) was four percent higher in 2010 than in 2009.
B) was approximately the same in 2010 and 2009.
C) was 156 percent higher in 2010 than in 2009.
D) was six percent lower in 2010 than in 2009.
E) was six percent higher in 2010 than in 2009.
Answer:A
Diff: 2
Skill: Applied
21
83)Which of the following statements is logically valid? 83)
A) If the rate of inflation is high, the nominal rate of interest must be low.
B) If the nominal interest rate is high, the real interest rate must be high.
C) If the real interest rate is less than the nominal interest rate, inflation must be negative.
D) If the rate of inflation is less than the nominal interest rate, the real interest rate is positive.
E) If the real interest rate is less than the nominal interest rate, inflation must be zero.
Answer:D
Diff: 3
Skill: Applied
84)A worker currently earning $3000 per month has negotiated a 4% wage increase in anticipation
84) of a
4% inflation rate in the next year. Under what scenario will the worker have a higher purchasing
power?
A) if next year some prices increase by only 5%
B) if next year some prices increase by only 4%
C) if next year's inflation rate is 3%
D) if next year's inflation rate is 4%
E) if next year's inflation rate is 5%
Answer:C
Diff: 2
Skill: Applied
85)Suppose that at the end of a given year there has been unanticipated inflation of 4 percent.
85) Who is
better off at the end of the year?
A) a bank that lent money at the beginning of the year
B) a bank that lent money at the end of the year
C) a consumer who borrowed money at the end of the year
D) a consumer who borrowed money at the beginning of the year
E) a consumer who lent money at the end of the year
Answer:D
Diff: 2
Skill: Applied
86)If constant-dollar national income decreased by $6 billion over a one-year period, then it86)
must be
true that
A) the level of individual output decreased.
B) aggregate output decreased and the price level increased.
C) aggregate output decreased.
D) aggregate output increased and the price level decreased.
E) the price level decreased.
Answer:C
Diff: 2
Skill: Applied
22
87)The real interest rate must be 87)
A) positive if the nominal rate of interest is greater than the rate of inflation.
B) low if the nominal interest rate is high.
C) high if the inflation rate is greater than the nominal interest rate.
D) high if the nominal interest rate is high.
E) negative if the nominal rate of interest is greater than the rate of inflation.
Answer:A
Diff: 2
Topic: 19.1h. real and nominal interest rates
Skill: Applied
88)The real rate of interest is equal to the nominal interest rate 88)
A) divided by the price level.
B) multiplied by the rate of inflation.
C) plus the price level.
D) plus the risk ratio.
E) minus the rate of inflation.
Answer:E
Diff: 1
Skill: Recall
89)Suppose the Bank of Montreal wants a five percent real rate of return on all its loans, and89)
anticipates an annual inflation rate of four percent. It should therefore lend its money at a nominal
interest rate of
A) ten percent.
B) nine percent.
C) five percent.
D) four percent.
E) one percent.
Answer:B
Diff: 2
Skill: Applied
90)Suppose the Bank of Montreal wants a four percent real rate of return on all its loans, and 90)
anticipates an annual inflation rate of six percent. It should therefore lend its money at a nominal
interest rate of
A) ten percent.
B) nine percent.
C) five percent.
D) four percent.
E) one percent.
Answer:A
Diff: 2
Skill: Applied
23
91)Assume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $110 91) at the end
of the year. If inflation over that one year is 7%, what real rate of interest does Sarah earn on her
$100?
A) 3% B) 7% C) 10% D) 13% E) 17%
Answer:A
Diff: 2
Skill: Applied
92)Consider the situations of a lender of money and a borrower of money. Which of the following
92)
situations is least burdensome for the borrower?
A) nominal interest rate of 15% and an inflation rate of 8%
B) nominal interest rate of 29% and an inflation rate of 21%
C) nominal interest rate of 10% and an inflation rate of 1%
D) nominal interest rate of 4% and an inflation rate of 4%
E) nominal interest rate of 8% and an inflation rate of 2%
Answer:D
Diff: 2
Skill: Applied
93)
93)During the 1970s, Canada experienced an unusual pattern of interest rates. During this period
A) the inflation rate was negative, implying a real interest rate that was higher than the nominal
interest rate.
B) the inflation rate was negative, implying a nominal interest rate higher than the real interest
rate.
C) the nominal and real interest rates were equal to each other.
D) the inflation rate exceeded the nominal interest rate, implying a negative real interest rate.
E) the nominal interest rate was less than the real interest rate.
Answer:D
Diff: 2
Skill: Recall
94)The Canadian exchange rate is defined to be the 94)

A) number of Canadian dollars needed to buy one unit of foreign currency.
B) system of quotas imposed on the international exchange of goods.
C) term for foreign currencies or claims on foreign currencies.
D) number of ounces of gold it takes to buy one hundred Canadian dollars.
E) value of one Canadian dollar in terms of foreign currencies.
Answer:A
Diff: 1
Topic: 19.1i. the exchange rate and depreciation/appreciation
Skill: Recall
24
95)If the Canadian dollar exchange rate increases, the 95)
A) Canadian dollar appreciates relative to foreign currencies.
B) external value remains unaffected.
C) internal value of the dollar falls.
D) internal value of the dollar rises.
E) Canadian dollar depreciates relative to foreign currencies.
Answer:E
Diff: 2
Skill: Applied
96)If one Canadian dollar can be exchanged for 0.5 euros, we say that the Canadian-euro exchange
96)
rate is
A) 2.0. B) 0.5. C) 5.0. D) 20. E) 1.0.
Answer:A
Diff: 2
Skill: Applied
97)If 0.75 U.S. dollars can be exchanged for one Canadian dollar, we say that the Canadian-U.S.
97)
exchange rate is
A) 1.25. B) 1.33. C) 0.75. D) 75. E) 1.0.
Answer:B
Diff: 2
Skill: Applied
98)Suppose Canada's exchange rate with the euro rises from 1.2 to 1.4. This rise indicates a(n)
98)
________ of the Canadian dollar, which means it takes ________ Canadian dollars to purchase one
euro.
A) depreciation; fewer B) depreciation; more
C) appreciation; more D) appreciation; fewer
Answer:B
Diff: 2
Skill: Applied
99)Suppose Canada's exchange rate with the U.S. dollar falls from 1.21 to 1.13. This fall indicates
99) a(n)
________ of the Canadian dollar, which means it takes ________ Canadian dollars to purchase one
U.S. dollar.
A) appreciation; fewer B) depreciation; more
C) depreciation; fewer D) appreciation; more
Answer:A
Diff: 2
Skill: Applied
25
100)It is important for policy makers to recognize that most macroeconomic variables are characterized
100)
by
A) the impacts of the business cycle.
B) long-run economic growth.
C) long-run trends and short-run fluctuations.
D) short-run fluctuations that need to be smoothed for a well-functioning economy.
E) gradual increases over long periods of time.
Answer:C
Diff: 1
Topic: 19.2. growth vs. fluctuations
Skill: Recall
26

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Exam

1) Macroeconomics is mainly concerned with the study of 1)

2) The economic problems studied in macroeconomics include: 2)

3) An example of a topic outside the scope of macroeconomics is 3)

4) An equivalent term for "real national income" is 4)

6) Real national income 6)

7) In macroeconomics, the term "national income" refers to 7)

15)Probably the most commonly used measure of national income is 15)

16)Real GDP measures 16)

20)Potential or full-employment output is 20)

22)The output gap is the 22)

23)An output gap with Y <* Y 23)

Actual Output Potential Output Unemployment Rate

36)Refer to Table 19-1. What is the output gap in 2003? 36)

40)Over the last 50 years in Canada, 40)

52)Which of the following is the best example of cyclical unemployment? 52)

69)A change in a price index measures 69)

76)The group that tends to be most hurt by unexpected inflation is 76)

80)If the price index is 1 in

81)If the price index is 1 in

94)The Canadian exchange rate is defined to be the 94)

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