Practice Questions Nov 10
ECONOMICS 1022A NOVEMBER 2010 PRACTICE QUESTIONS: CHAPTER 24: 1) Which of the following best fits the definition of money? A) Gold. B) Any commodity or token that is generally acceptable as a means of payment. C) An obligation between the parties to a transaction. D) Any unit of account. E) Any medium of exchange. 2) Consider the following data from the economy of Adanac: · · · · ·
Currency outside banks: $15 billion Personal and non-personal chequable deposits: $40 billion Personal non-chequable deposits: $50 billion Non-personal non-chequable deposits: $125 billion Fixed term deposits: $200 billion
What is the value of M1 and the value of M2 in this economy in billions of dollars? A) 105; 230. B) 110; 235. C) 55; 430. D) 55; 230. E) 60; 430. 3) The Bank of Canada does not do which of the following? A) Supervise chartered banks. B) Lend money to the public. C) Act as a lender of last resort to banks. D) Issue bank notes. E) Hold government of Canada securities. 4) Suppose that a country has $50 billion in bank reserves, $100 billion in currency held by the public, and $500 billion in bank deposits. The currency drain ratio is A) 18%. B) 50%. C) 30%. D) 10%. E) 20%.
5) If households and firms find they are holding more money than desired, they will A) sell bonds, and the interest rate will rise. B) sell bonds, and the interest rate will fall. C) buy bonds, and the interest rate will rise. D) buy bonds, and the interest rate will fall. E) buy goods, and the price level will rise. 6) Real GDP is $2,000 billion, the price level is 120. Nominal GDP is A) $24 billion. B) $600 billion. C) $2,000 billion. D) $2,400 billion. E) $166.67 billion. 7) Suppose that the banking system has excess reserves of $10 million, the desired reserve ratio is 10 percent and the currency drain ratio is 40 percent. By how much will the quantity of money increase? A) $12.5 million. B) $28 million. C) $50 million. D) $40 million. E) $22 million. CHAPTER 25: Refer to the table below to answer the following questions. Table 1 Currency EU euro Japanese yen
2009 Exchange Rate 2010 Exchange Rate 2 euros/dollar 3 euros/dollar 120 yen/dollar 90 yen/dollar
8) Refer to Table 1. Between 2009 and 2010, the Canadian dollar ________ versus the euro and ________ versus the yen. A) appreciated; depreciated B) appreciated; appreciated C) depreciated; depreciated D) depreciated; appreciated E) not changed; not changed
9) Which of the following factors influence the demand for Canadian dollars? A) The exchange rate and the world demand for Canadian exports. B) Interest rates in Canada and other countries, and the expected future exchange rate. C) The world demand for Canadian exports and Canadian demand for imports. D) Both A and B. E) Both B and C. 10) Suppose interest rates are 3 percent in Japan and 6 percent in Canada. The current value of the exchange rate is 110 Japanese yen per dollar, and it is generally expected that in one year the exchange rate will be 106.7 yen per dollar. However, new information is released that changes everyone's expectations, and they think the exchange rate in one year will still be 110 yen per dollar. As a result of this change, A) the demand for Canadian dollars increases. B) the supply of Canadian dollars decreases. C) people will borrow in Canada and lend in Japan. D) the demand for Canadian dollars decreases. E) A and B. 11) Suppose you think that the exchange rate will depreciate over the next month. What should you do now in anticipation of profit? A) Buy Canadian dollars. B) Buy U.S. dollars. C) Sell Canadian dollars. D) Sell U.S. dollars. E) Do both B and C. Fact 1 You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero.
12) Refer to Fact 1. What is the net exports? A) -2 billion turkies B) -1 billion turkies C) 3 billion turkies D) -3 billion turkies E) 1 billion turkies
Use the table below to answer the following questions. Table 2
13) Refer to Table 2. If Mengia's official settlement balance was in balance every year, for which year or years can you say for sure there was a current account surplus? A) year 4 only B) year 2 only C) years 2 and 3 D) years 1 and 2 E) years 3 and 4 CHAPTER 26: 14) An increase in oil prices to a country that is a net importer of oil shifts A) both the short-run aggregate supply and long-run aggregate supply curves rightward. B) both the short-run aggregate supply and long-run aggregate supply curves leftward. C) the short-run aggregate supply curve leftward, but leaves the long-run aggregate supply curve unchanged. D) the long-run aggregate supply curve rightward, but leaves the short-run aggregate supply curve unchanged. E) the short-run aggregate supply curve leftward, but shifts the long-run aggregate supply curve rightward.
Use the figure below to answer the following questions.
Figure 1 15) Refer to Figure 1. Which graph illustrates what happens when government expenditure decreases? A) (a) B) (b) C) (c) D) (d) E) (a) and (b)
Use the figure below to answer the following questions.
Figure 2 16) Refer to Figure 2. When the economy of Mythlo is in short-run macroeconomic equilibrium, the price level is A) 65. B) 95. C) 70. D) 75. E) 80. 17) If real GDP is greater than potential GDP, the economy is A) not in short-run equilibrium. B) in a recessionary equilibrium. C) in an above full-employment equilibrium. D) in a below full-employment equilibrium. E) in long-run equilibrium. 18) We observe a decrease in the price level and an increase in real GDP. Which of the following is a possible explanation? A) A decrease in the quantity of money. B) A decrease in expected future income. C) An increase in factor prices. D) An increase in the quantity of capital. E) An increase in expected future profits.
19) Consider an economy starting from a position of full employment. Which one of the following changes does not occur as a result of a decrease in aggregate demand? A) The price level decreases. B) The level of real GDP decreases in the short run. C) A recessionary gap arises. D) Factor prices decrease in the long run, shifting the short-run aggregate supply curve rightward. E) The long-run aggregate supply curve shifts leftward to create the new long-run equilibrium. CHAPTER 27: 20) Complete the following sentence. A household A) consumes or pays taxes out of disposable income. B) consumes, saves, or pays taxes out of disposable income. C) consumes or saves out of disposable income. D) only consumes out of disposable income. E) None of the above. 21) When the consumption function lies below the 45° line, households A) spend all of any increase in disposable income. B) consume more than their disposable income. C) are saving some portion of their disposable income. D) save all of any increase in disposable income. E) are dissaving. 22) Which of the following events would shift the consumption function upward? A) an increase in disposable income B) a decrease in disposable income C) a decrease in wealth D) a decrease in expected future disposable income E) an increase in wealth 23) If there is an unplanned increase in inventories, aggregate planned expenditure is A) greater than real GDP and firms increase production. B) greater than real GDP and firms decrease production. C) less than real GDP and firms increase production. D) less than real GDP and firms decrease production. E) less than real GDP and firms decrease investment.
Use the table below to answer the following question(s). Table 3 The following table shows the relationship between aggregate planned expenditure and GDP in the hypothetical economy of Econoworld. Real GDP (billions of 2002 dollars) 0 200 400 600 800
Aggregate planned expenditure (billions of 2002 dollars) 100 260 420 580 740
24) Refer to Table 3. The multiplier A) is 5. B) is 2.5. C) is 4. D) is 1.8. E) cannot be determined without more information. 25) Suppose that investment decreases by $15 billion. If the multiplier is 2, and the shortrun aggregate supply curve is positively sloped. In the short run, equilibrium real GDP A) decreases by $30 billion. B) decreases by more than $30 billion. C) decreases by less than $30 billion. D) increases by less than $30 billion. E) does not change.
Answer Key: 1) B 2) C 3) B 4) E 5) D 6) D 7) B 8) A 9) D 10) E 11) E 12) D 13) A 14) C 15) D 16) E 17) C 18) D 19) E 20) C 21) C 22) E 23) D 24) A 25) C
Currency outside banks: $15 billion Personal and non-personal chequable deposits: $40 billion Personal non-chequable deposits: $50 billion Non-personal non-chequable deposits: $125 billion Fixed term deposits: $200 billion
What is the value of M1 and the value of M2 in this economy in billions of dollars? A) 105; 230. B) 110; 235. C) 55; 430. D) 55; 230. E) 60; 430. 3) The Bank of Canada does not do which of the following? A) Supervise chartered banks. B) Lend money to the public. C) Act as a lender of last resort to banks. D) Issue bank notes. E) Hold government of Canada securities. 4) Suppose that a country has $50 billion in bank reserves, $100 billion in currency held by the public, and $500 billion in bank deposits. The currency drain ratio is A) 18%. B) 50%. C) 30%. D) 10%. E) 20%.
5) If households and firms find they are holding more money than desired, they will A) sell bonds, and the interest rate will rise. B) sell bonds, and the interest rate will fall. C) buy bonds, and the interest rate will rise. D) buy bonds, and the interest rate will fall. E) buy goods, and the price level will rise. 6) Real GDP is $2,000 billion, the price level is 120. Nominal GDP is A) $24 billion. B) $600 billion. C) $2,000 billion. D) $2,400 billion. E) $166.67 billion. 7) Suppose that the banking system has excess reserves of $10 million, the desired reserve ratio is 10 percent and the currency drain ratio is 40 percent. By how much will the quantity of money increase? A) $12.5 million. B) $28 million. C) $50 million. D) $40 million. E) $22 million. CHAPTER 25: Refer to the table below to answer the following questions. Table 1 Currency EU euro Japanese yen
2009 Exchange Rate 2010 Exchange Rate 2 euros/dollar 3 euros/dollar 120 yen/dollar 90 yen/dollar
8) Refer to Table 1. Between 2009 and 2010, the Canadian dollar ________ versus the euro and ________ versus the yen. A) appreciated; depreciated B) appreciated; appreciated C) depreciated; depreciated D) depreciated; appreciated E) not changed; not changed
9) Which of the following factors influence the demand for Canadian dollars? A) The exchange rate and the world demand for Canadian exports. B) Interest rates in Canada and other countries, and the expected future exchange rate. C) The world demand for Canadian exports and Canadian demand for imports. D) Both A and B. E) Both B and C. 10) Suppose interest rates are 3 percent in Japan and 6 percent in Canada. The current value of the exchange rate is 110 Japanese yen per dollar, and it is generally expected that in one year the exchange rate will be 106.7 yen per dollar. However, new information is released that changes everyone's expectations, and they think the exchange rate in one year will still be 110 yen per dollar. As a result of this change, A) the demand for Canadian dollars increases. B) the supply of Canadian dollars decreases. C) people will borrow in Canada and lend in Japan. D) the demand for Canadian dollars decreases. E) A and B. 11) Suppose you think that the exchange rate will depreciate over the next month. What should you do now in anticipation of profit? A) Buy Canadian dollars. B) Buy U.S. dollars. C) Sell Canadian dollars. D) Sell U.S. dollars. E) Do both B and C. Fact 1 You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero.
12) Refer to Fact 1. What is the net exports? A) -2 billion turkies B) -1 billion turkies C) 3 billion turkies D) -3 billion turkies E) 1 billion turkies
Use the table below to answer the following questions. Table 2
13) Refer to Table 2. If Mengia's official settlement balance was in balance every year, for which year or years can you say for sure there was a current account surplus? A) year 4 only B) year 2 only C) years 2 and 3 D) years 1 and 2 E) years 3 and 4 CHAPTER 26: 14) An increase in oil prices to a country that is a net importer of oil shifts A) both the short-run aggregate supply and long-run aggregate supply curves rightward. B) both the short-run aggregate supply and long-run aggregate supply curves leftward. C) the short-run aggregate supply curve leftward, but leaves the long-run aggregate supply curve unchanged. D) the long-run aggregate supply curve rightward, but leaves the short-run aggregate supply curve unchanged. E) the short-run aggregate supply curve leftward, but shifts the long-run aggregate supply curve rightward.
Use the figure below to answer the following questions.
Figure 1 15) Refer to Figure 1. Which graph illustrates what happens when government expenditure decreases? A) (a) B) (b) C) (c) D) (d) E) (a) and (b)
Use the figure below to answer the following questions.
Figure 2 16) Refer to Figure 2. When the economy of Mythlo is in short-run macroeconomic equilibrium, the price level is A) 65. B) 95. C) 70. D) 75. E) 80. 17) If real GDP is greater than potential GDP, the economy is A) not in short-run equilibrium. B) in a recessionary equilibrium. C) in an above full-employment equilibrium. D) in a below full-employment equilibrium. E) in long-run equilibrium. 18) We observe a decrease in the price level and an increase in real GDP. Which of the following is a possible explanation? A) A decrease in the quantity of money. B) A decrease in expected future income. C) An increase in factor prices. D) An increase in the quantity of capital. E) An increase in expected future profits.
19) Consider an economy starting from a position of full employment. Which one of the following changes does not occur as a result of a decrease in aggregate demand? A) The price level decreases. B) The level of real GDP decreases in the short run. C) A recessionary gap arises. D) Factor prices decrease in the long run, shifting the short-run aggregate supply curve rightward. E) The long-run aggregate supply curve shifts leftward to create the new long-run equilibrium. CHAPTER 27: 20) Complete the following sentence. A household A) consumes or pays taxes out of disposable income. B) consumes, saves, or pays taxes out of disposable income. C) consumes or saves out of disposable income. D) only consumes out of disposable income. E) None of the above. 21) When the consumption function lies below the 45° line, households A) spend all of any increase in disposable income. B) consume more than their disposable income. C) are saving some portion of their disposable income. D) save all of any increase in disposable income. E) are dissaving. 22) Which of the following events would shift the consumption function upward? A) an increase in disposable income B) a decrease in disposable income C) a decrease in wealth D) a decrease in expected future disposable income E) an increase in wealth 23) If there is an unplanned increase in inventories, aggregate planned expenditure is A) greater than real GDP and firms increase production. B) greater than real GDP and firms decrease production. C) less than real GDP and firms increase production. D) less than real GDP and firms decrease production. E) less than real GDP and firms decrease investment.
Use the table below to answer the following question(s). Table 3 The following table shows the relationship between aggregate planned expenditure and GDP in the hypothetical economy of Econoworld. Real GDP (billions of 2002 dollars) 0 200 400 600 800
Aggregate planned expenditure (billions of 2002 dollars) 100 260 420 580 740
24) Refer to Table 3. The multiplier A) is 5. B) is 2.5. C) is 4. D) is 1.8. E) cannot be determined without more information. 25) Suppose that investment decreases by $15 billion. If the multiplier is 2, and the shortrun aggregate supply curve is positively sloped. In the short run, equilibrium real GDP A) decreases by $30 billion. B) decreases by more than $30 billion. C) decreases by less than $30 billion. D) increases by less than $30 billion. E) does not change.
Answer Key: 1) B 2) C 3) B 4) E 5) D 6) D 7) B 8) A 9) D 10) E 11) E 12) D 13) A 14) C 15) D 16) E 17) C 18) D 19) E 20) C 21) C 22) E 23) D 24) A 25) C
