Random Practice Macro 100.tst
100ȱRandomȱPractice,ȱMacroeconomics 100ȱpracticeȱquestionsȱrandomlyȱchosenȱbyȱcomputerȱfromȱtheȱtextȇsȱtestȱbankȱforȱChaptersȱ19ȱthroughȱ30ȱplusȱ32ȱandȱ35. TheȱProf.ȱhasȱnotȱseenȱtheseȱquestions,ȱsoȱasȱtoȱavoidȱthemȱinfluencingȱhisȱchoiceȱofȱquestionsȱforȱtheȱFinal.ȱAsȱsuch,ȱheȱcanȇt stateȱwhetherȱtheȱdegreeȱofȱdifficultyȱofȱtheseȱpracticeȱquestions,ȱonȱavereage,ȱisȱmore,ȱlessȱorȱtheȱsameȱasȱyouȱshouldȱexpect forȱtheȱfinal.ȱTheȱanswersȱareȱlistedȱatȱtheȱend. MULTIPLEȱCHOICE.ȱȱChooseȱtheȱoneȱalternativeȱthatȱbestȱcompletesȱtheȱstatementȱorȱanswersȱtheȱquestion. 1) SupposeȱCanadaȇsȱexchangeȱrateȱwithȱtheȱeuroȱrisesȱfromȱ1.2ȱtoȱ1.4.ȱThisȱriseȱindicatesȱa(n) ________ȱofȱtheȱCanadianȱdollar,ȱwhichȱmeansȱitȱtakesȱ________ȱCanadianȱdollarsȱtoȱpurchaseȱone euro. A) depreciation;ȱfewer B) appreciation;ȱmore C) depreciation;ȱmore D) appreciation;ȱfewer
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2) Mostȱeconomistsȱbelieveȱthatȱtheȱsingleȱlargestȱcauseȱofȱrisingȱmaterialȱlivingȱstandardsȱoverȱlong periodsȱofȱtimeȱis A) realȱGDPȱgrowth. B) productivityȱgrowth. C) risingȱrealȱwages. D) growthȱinȱtheȱcapitalȱstock. E) risingȱemployment.
2)
3) EconomistsȱexpectȱsomeȱunemploymentȱtoȱexistȱevenȱatȱtimesȱofȱȈfullȱemploymentȈȱforȱallȱofȱthe followingȱreasonsȱEXCEPT: A) thereȱisȱsometimesȱaȱmismatchȱbetweenȱtheȱcharacteristicsȱofȱtheȱsupplyȱofȱlabourȱandȱthe demandȱforȱlabour. B) asȱtheȱeconomyȱchanges,ȱtheȱstructureȱofȱtheȱexistingȱlabourȱforceȱisȱnotȱtheȱsameȱasȱthe structureȱofȱlabourȱdemand. C) thereȱareȱalwaysȱsomeȱpeopleȱwhoȱquitȱtheirȱpresentȱjobsȱtoȱlookȱforȱotherȱjobs. D) actualȱGDPȱisȱrarelyȱequalȱtoȱpotentialȱGDP. E) peopleȱenteringȱtheȱlabourȱforceȱtypicallyȱtakeȱsomeȱtimeȱtoȱfindȱaȱjob.
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4) Ifȱaȱcountryȇsȱlabourȱforceȱisȱ15ȱmillionȱpeople,ȱandȱ1.35ȱmillionȱofȱthoseȱareȱunemployed,ȱthe countryȇsȱunemploymentȱrateȱis A) 2.5ȱpercent. B) 3.3ȱpercent. C) 4.5ȱpercent. D) 6.7ȱpercent. E) 9.0ȱpercent.
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5) Aȱworkerȱcurrentlyȱearningȱ$3000ȱperȱmonthȱhasȱnegotiatedȱaȱ4%ȱwageȱincreaseȱinȱanticipationȱof aȱ4%ȱinflationȱrateȱinȱtheȱnextȱyear.ȱUnderȱwhatȱscenarioȱwillȱtheȱworkerȱhaveȱaȱhigherȱpurchasing power? A) ifȱnextȱyearȇsȱinflationȱrateȱisȱ4% B) ifȱnextȱyearȇsȱinflationȱrateȱisȱ3% C) ifȱnextȱyearȱsomeȱpricesȱincreaseȱbyȱȱonlyȱ5% D) ifȱnextȱyearȇsȱinflationȱrateȱisȱ5% E) ifȱnextȱyearȱsomeȱpricesȱincreaseȱbyȱȱonlyȱ4%
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ȱ100ȱRandomȱpractice,ȱMacoreconomics 6) SupposeȱApplianceȱMartȱbuysȱaȱusedȱrefrigeratorȱforȱ$100,ȱrepairsȱit,ȱandȱresellsȱitȱforȱ$250.ȱThe resultȱofȱthisȱtransactionȱisȱto A) increaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$150. B) increaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$250. C) decreaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$100. D) leaveȱtheȱvalueȱofȱnationalȱproductȱunchanged. E) insufficientȱinformationȱtoȱknow.
6)
7) Inȱtheȱstudyȱofȱshort-runȱfluctuationsȱinȱnationalȱincome,ȱpotentialȱincomeȱ(output)ȱisȱusually assumedȱtoȱbe A) fallingȱatȱitsȱaverageȱgrowthȱrate. B) irrelevant,ȱasȱtheȱeconomyȱisȱrarelyȱthere. C) constant. D) equalȱtoȱactualȱincome. E) movingȱtogetherȱwithȱpotentialȱoutputȱinȱneighbouringȱcountries.
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8) TheȱȈvalueȱaddedȈȱforȱanȱindividualȱfirmȱisȱcalculatedȱby A) addingȱtheȱcostȱofȱtheȱintermediateȱgoodsȱusedȱbyȱtheȱfirm. B) addingȱupȱtheȱincomeȱreceivedȱbyȱtheȱfactorsȱofȱproductionȱusedȱbyȱtheȱfirm. C) subtractingȱtheȱincomeȱthatȱgoesȱtoȱtheȱfactorsȱofȱproductionȱusedȱbyȱtheȱfirmȱfromȱtheȱfirmȇs revenue. D) calculatingȱtheȱrevenueȱgeneratedȱbyȱtheȱfirm. E) calculatingȱtheȱprofitȱgeneratedȱbyȱtheȱfirm.
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9) Inȱtheȱnationalȱincomeȱandȱproductȱaccounts,ȱaȱreductionȱofȱinventoriesȱcountsȱas A) negativeȱinvestment. B) saving. C) positiveȱinvestment. D) depreciation. E) consumption.
9)
Theȱtableȱbelowȱshowsȱtotalȱoutputȱforȱanȱeconomyȱoverȱ2ȱyears. 2007 GoodȱA GoodȱB GoodȱC
Price $1.00 $2.00 $5.00
Quantity 100ȱunits 200ȱunits 100ȱunits
2008 Price GoodȱA $2.00 GoodȱB $3.00 GoodȱC $10.00
Quantity 120ȱunits 200ȱunits 98ȱunitsȱ
TABLEȱ20-3 10) ReferȱtoȱTableȱ20-3.ȱTheȱnominalȱGrossȱDomesticȱProductȱinȱ2008ȱwas A) $ȱȱȱ700. B) $ȱȱȱ840. C) $ȱȱȱ980. D) $1ȱ740.
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10) E) $1ȱ820.
ȱ100ȱRandomȱpractice,ȱMacoreconomics 11) Whichȱofȱtheȱfollowingȱisȱtheȱmostȱappropriateȱmeasureȱforȱevaluatingȱtheȱaverageȱmaterialȱliving standardsȱofȱCanadianȱresidents? A) perȱcapitaȱGrossȱDomesticȱProduct B) perȱcapitaȱNetȱNationalȱProduct C) disposableȱincome D) perȱcapitaȱGrossȱNationalȱProduct E) NetȱDomesticȱIncomeȱatȱFactorȱCost 12) StatisticsȱCanadaȱexcludesȱfromȱGDPȱtheȱvalueȱofȱgoodsȱandȱservicesȱexchangedȱȈunderȱthe counterȈȱbecause A) satisfactoryȱmethodsȱforȱtheirȱmeasurementȱhaveȱnotȱbeenȱdeveloped. B) theseȱgoodsȱareȱallȱintermediateȱgoods. C) theirȱproductionȱhasȱzeroȱopportunityȱcost. D) StatisticsȱCanadaȱisȱresponsibleȱforȱmakingȱanȱethicalȱdecisionȱaboutȱwhichȱactivitiesȱto excludeȱfromȱnationalȱincomeȱmeasures. E) theseȱgoodsȱdoȱnotȱcontributeȱtoȱwell-being.
11)
12)
FIGUREȱ20-1 13) ReferȱtoȱFigureȱ20-1.ȱWhichȱofȱtheȱfollowingȱyearsȱwasȱusedȱasȱtheȱbaseȱyearȱforȱconstructingȱreal GDP? A) 1980 B) 1985 C) 1990 D) 1993 E) 1995
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14) Considerȱaȱsimpleȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevelȱandȱdemand-determinedȱoutput.ȱIfȱthe marginalȱpropensityȱtoȱspendȱinȱsuchȱaȱmodelȱisȱbetweenȱzeroȱandȱone,ȱtheȱsimpleȱmultiplierȱis A) zero. B) aȱpositiveȱnumberȱbetweenȱzeroȱandȱone. C) one. D) aȱpositiveȱnumberȱgreaterȱthanȱoneȱbutȱlessȱthanȱinfinity. E) infinitelyȱlarge.
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ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ21-1 15) ReferȱtoȱFigureȱ21-1.ȱDesiredȱconsumptionȱexpendituresȱwillȱequalȱdisposableȱincomeȱatȱan incomeȱlevelȱof A) Y2 .
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B) Y3 . C) Y1 . D) moreȱthanȱY3 . E) zero. 16) Inȱtheȱsimpleȱmacroeconomicȱmodel,ȱȈautonomousȱexpendituresȈȱare A) thoseȱwhichȱareȱconstant. B) dependentȱonȱnationalȱincome. C) inducedȱexpenditures. D) non-domesticȱexpenditures. E) notȱdependentȱonȱnationalȱincome.
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17) Considerȱaȱsimpleȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevelȱandȱdemand-determinedȱoutput. Supposeȱtheȱlevelȱofȱactualȱnationalȱincomeȱisȱlessȱthanȱdesiredȱaggregateȱexpenditure.ȱȱInȱthisȱcase, A) nationalȱincomeȱmayȱincreaseȱorȱdecrease,ȱdependingȱonȱtheȱrelativeȱsizesȱofȱtheȱaverage propensityȱtoȱconsumeȱandȱtheȱaverageȱpropensityȱtoȱsave. B) shortagesȱofȱgoodsȱandȱreductionsȱinȱinventoriesȱwillȱcauseȱproducersȱtoȱincreaseȱoutputȱand nationalȱincomeȱtoȱrise. C) nationalȱincomeȱwillȱfall,ȱbecauseȱdesiredȱexpendituresȱareȱlessȱthanȱactualȱexpenditures. D) inventoriesȱwillȱbuildȱup,ȱcausingȱnationalȱincomeȱtoȱrise. E) thereȱwillȱbeȱnoȱchangeȱinȱnationalȱincomeȱbecauseȱonlyȱactualȱexpenditureȱisȱrelevant.
17)
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ȱ100ȱRandomȱpractice,ȱMacoreconomics 18) JeanȱBrisboisȇȱdisposableȱincomeȱroseȱfromȱ$40ȱ000ȱperȱyearȱtoȱ$42ȱ000ȱandȱhisȱdesired consumptionȱexpenditureȱroseȱfromȱ$38ȱ000ȱtoȱ$39ȱ600.ȱItȱcanȱbeȱconcludedȱthatȱhis A) averageȱpropensityȱtoȱsaveȱdecreasedȱfromȱ0.950ȱtoȱ0.943. B) marginalȱpropensityȱtoȱsaveȱisȱ0.80. C) marginalȱpropensityȱtoȱconsumeȱincreasedȱfromȱ0.050ȱtoȱ0.058. D) averageȱpropensityȱtoȱconsumeȱdecreasedȱfromȱ0.950ȱtoȱ0.943. E) marginalȱpropensityȱtoȱconsumeȱisȱ0.050.
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19) Totalȱdesiredȱsavingȱdividedȱbyȱtotalȱincomeȱisȱcalledȱthe A) totalȱpropensityȱtoȱsave. B) averageȱpropensityȱtoȱconsume. C) averageȱpropensityȱtoȱsave. D) marginalȱpropensityȱtoȱsave. E) averageȱpropensityȱtoȱspend.
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20) WeȱwouldȱexpectȱrealȱnationalȱincomeȱtoȱbeȱȈdemandȱdeterminedȈȱwhen A) theȱpriceȱlevelȱisȱassumedȱtoȱbeȱconstant. B) firmsȱhaveȱexcessȱcapacity. C) thereȱareȱunemployedȱresourcesȱinȱtheȱeconomy. D) firmsȱareȱpriceȱsetters. E) allȱofȱtheȱabove
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21) Transferȱpaymentsȱmadeȱbyȱtheȱgovernmentȱaffectȱitsȱnetȱtaxȱrevenues A) indirectlyȱthroughȱgovernmentȱpurchases. B) indirectlyȱthroughȱtheȱconsumptionȱfunction. C) indirectlyȱthroughȱnetȱexports. D) indirectlyȱthroughȱtheȱinvestmentȱfunction. E) directly.
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22) Considerȱaȱmacroȱmodelȱwithȱdemand-determinedȱoutput.ȱTheȱequationsȱare:ȱȱCȱ=ȱ150ȱ+ȱ0.8Yd,ȱYd =ȱY-Tȱ,ȱȱIȱ=ȱ400,ȱGȱ=ȱ700,ȱTȱ=ȱ0.2Y,ȱXȱ=ȱ130,ȱandȱIMȱ=ȱ0.14Y.ȱEquilibriumȱnationalȱincomeȱinȱthis modelȱisȱ________. A) 1ȱ120 B) 1ȱ350 C) 2ȱ240 D) 2ȱ760 E) 5ȱ400
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23) Considerȱaȱmacroȱmodelȱinȱwhichȱoutputȱisȱassumedȱtoȱbeȱdemand-determined.ȱOneȱsituation whichȱmayȱjustifyȱthisȱassumptionȱisȱwhen A) netȱexportsȱareȱnegative. B) theȱmarginalȱpropensityȱtoȱconsumeȱoutȱofȱdisposableȱincomeȱisȱequalȱtoȱtheȱmarginal propensityȱtoȱspendȱoutȱofȱnationalȱincome. C) netȱexportsȱareȱpositive. D) theȱeconomyȱisȱoperatingȱwithȱsomeȱunemployedȱresources. E) allȱresourcesȱinȱtheȱeconomyȱareȱfullyȱemployed.
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24) WhenȱdeterminingȱtheȱAEȱfunctionȱforȱanȱopenȱeconomyȱwithȱgovernment,ȱitȱisȱgenerallyȱassumed thatȱasȱrealȱnationalȱincome A) increases,ȱnetȱexportsȱwillȱdecrease. B) decreases,ȱexportsȱwillȱdecrease. C) increases,ȱimportsȱwillȱdecrease. D) increases,ȱexportsȱwillȱdecrease. E) decreases,ȱnetȱexportsȱwillȱdecrease.
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ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ23-2 25) ReferȱtoȱFigureȱ23-2.ȱSupposeȱthatȱanȱincreaseȱinȱgovernmentȱpurchasesȱbyȱ50ȱcausesȱtheȱADȱcurve toȱshiftȱtoȱtheȱright,ȱasȱshown.ȱTheȱsimpleȱmultiplierȱisȱ________ȱandȱtheȱmultiplierȱisȱ________. A) 6;ȱ1.2 B) 2.8;ȱ1.2 C) 4;ȱ3.2 D) 4;ȱ2.8 E) 4;ȱ1.2
25)
26) Otherȱthingsȱbeingȱequal,ȱwhenȱtheȱdomesticȱpriceȱlevelȱfallsȱexogenously, A) theȱaggregateȱexpenditureȱfunctionȱshiftsȱdownward. B) importsȱofȱforeignȱgoodsȱrise. C) theȱnetȱexportȱfunctionȱshiftsȱupward. D) theȱnetȱexportȱfunctionȱshiftsȱdownward. E) Canadianȱgoodsȱbecomeȱmoreȱexpensiveȱrelativeȱtoȱforeignȱgoods.
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27) AggregateȱsupplyȱshocksȱcauseȱtheȱpriceȱlevelȱandȱrealȱGDPȱtoȱchangeȱin A) oppositeȱdirectionsȱbutȱbyȱtheȱsameȱamount. B) theȱsameȱdirectionȱandȱbyȱtheȱsameȱamount. C) theȱsameȱdirectionȱwithȱpriceȱchangingȱbyȱmoreȱthanȱoutput. D) oppositeȱdirectionsȱwithȱpriceȱchangingȱbyȱlessȱthanȱoutput. E) oppositeȱdirectionsȱbutȱnotȱnecessarilyȱbyȱtheȱsameȱamount.
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28) OverȱtheȱhorizontalȱrangeȱofȱtheȱeconomyȇsȱAS curveȱ(ifȱsuchȱaȱrangeȱexists),ȱaȱrightwardȱshiftȱof theȱADȱcurveȱwillȱresultȱin A) anȱincreaseȱinȱrealȱGDPȱandȱnoȱchangeȱinȱprices. B) anȱincreaseȱinȱpricesȱandȱnoȱchangeȱinȱrealȱGDP. C) anȱincreaseȱinȱbothȱrealȱGDPȱandȱprices. D) aȱdecreaseȱinȱrealȱGDPȱbutȱnoȱchangeȱinȱprices. E) aȱdecreaseȱinȱbothȱrealȱGDPȱandȱprices.
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ȱ100ȱRandomȱpractice,ȱMacoreconomics 29) Inȱaȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevel,ȱanȱincreaseȱinȱautonomousȱdesiredȱconsumptionȱwill causeȱtheȱAEȱcurveȱtoȱshift A) downwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱright. B) downwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱleft. C) upwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱleft. D) upwardȱandȱaȱmovementȱtoȱtheȱrightȱalongȱtheȱAD curve. E) upwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱright. 30) AnȱimportantȱautomaticȱfiscalȱstabilizerȱinȱCanadaȱis A) theȱmarginalȱpropensityȱtoȱimport. B) theȱexchangeȱrate. C) governmentȱȱpurchasesȱofȱgoodsȱandȱservices. D) theȱmarginalȱpropensityȱtoȱconsume. E) theȱincome-taxȱsystem.
29)
30)
TheȱdiagramȱbelowȱshowsȱanȱAD/ASȱmodelȱforȱaȱhypotheticalȱeconomy.ȱTheȱeconomyȱbeginsȱinȱlong-runȱequilibriumȱatȱpointȱA.
FIGUREȱ24-4 31) ReferȱtoȱFigureȱ24-4.ȱAfterȱtheȱpositiveȱaggregateȱsupplyȱshockȱshownȱinȱtheȱdiagram,ȱwhichȱofȱthe followingȱwouldȱshiftȱtheȱASȱcurveȱleftwardȱduringȱtheȱeconomyȇsȱadjustmentȱprocess? A) anȱincreaseȱinȱtheȱunemploymentȱrate B) anȱincreaseȱinȱwagesȱandȱotherȱfactorȱprices C) anȱincreaseȱinȱlabourȱproductivity D) anȱincreaseȱinȱfactorȱsupplies E) aȱdecreaseȱinȱwagesȱandȱotherȱfactorȱprices
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31)
ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ24-3 32) ReferȱtoȱFigureȱ24-3.ȱTheȱeconomyȱcannotȱbeȱinȱlong-runȱequilibriumȱatȱE1ȱbecauseȱthe
32)
A) AD 1 ȱcurveȱwillȱshiftȱbackȱtoȱtheȱleftȱdueȱtoȱaȱfallȱinȱcurrentȱconsumption. B) ASȱwillȱshiftȱtoȱtheȱleftȱdueȱtoȱanȱincreaseȱinȱwages. C) ASȱwillȱshiftȱtoȱtheȱleftȱdueȱtoȱanȱincreaseȱinȱtheȱpriceȱlevel. D) AD 1 ȱcurveȱwillȱshiftȱbackȱtoȱAD 0 dueȱtoȱanȱincreaseȱinȱtheȱpriceȱlevel. E) ASȱwillȱshiftȱtoȱtheȱrightȱdueȱtoȱaȱdecreaseȱinȱtheȱpriceȱlevel. 33) WhichȱofȱtheȱfollowingȱdescribesȱtheȱdistinctionȱbetweenȱtheȱPhillipsȱcurveȱandȱtheȱASȱcurve? A) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱtheȱrateȱof wageȱchangesȱonȱtheȱverticalȱaxis. B) TheȱASȱcurveȱhasȱtheȱrateȱofȱpriceȱinflationȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhas theȱrateȱofȱwageȱchangesȱonȱtheȱverticalȱaxis. C) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱtheȱrateȱof changeȱinȱtheȱinterestȱrateȱonȱtheȱverticalȱaxis. D) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱthe interestȱrateȱonȱtheȱverticalȱaxis. E) Thereȱisȱnoȱdistinction:ȱtheȱtwoȱcurvesȱareȱessentiallyȱtheȱsameȱthing.
33)
34) ConsiderȱtheȱAD/ASȱmodel,ȱandȱsupposeȱthatȱtheȱeconomyȱbeginsȱatȱpotentialȱoutput.ȱTheȱeffectȱof aȱpositiveȱASȱshockȱonȱrealȱGDPȱwillȱbeȱreversedȱinȱtheȱlongȱrunȱwithȱaȱ________ȱshiftȱinȱ________. A) rightward;ȱAD B) leftward;ȱAS C) leftward;ȱȱY* D) leftward;ȱAD E) rightward;ȱȱAS
34)
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ȱ100ȱRandomȱpractice,ȱMacoreconomics 35) GDPȱcanȱbeȱrepresentedȱbyȱtheȱequation:ȱGDPȱ= Fȱxȱ(Fe/F)ȱxȱ(GDP/Fe).ȱInȱthisȱequation,ȱtheȱterm (Fe/F)ȱrepresents A) incomeȱperȱperson. B) factorȱsupplyȱperȱlevelȱofȱoutput. C) theȱfactor-utilizationȱrate. D) factorȱproductivity. E) outputȱperȱcapital.
35)
36) Atȱanyȱgivenȱtime,ȱtheȱlevelȱofȱpotentialȱGDPȱdependsȱon A) theȱproductivityȱofȱfactorsȱofȱproduction. B) normalȱratesȱofȱutilizationȱforȱlabourȱandȱcapital. C) aȱgivenȱamountȱofȱavailableȱfactorsȱofȱproduction. D) allȱofȱtheȱabove E) noneȱofȱtheȱabove
36)
37) Forȱtheȱeconomyȱasȱaȱwhole,ȱchangesȱinȱtheȱfactor-utilizationȱrateȱareȱassociatedȱwithȱshort-run fluctuationsȱinȱoutputȱbecause A) firmsȱcannotȱchangeȱtheirȱpricesȱinȱtheȱshortȱrun. B) theȱshort-runȱfluctuationsȱinȱfactorȱsuppliesȱandȱproductivityȱcancelȱeachȱotherȱout. C) potentialȱoutputȱisȱaffectedȱbyȱtheȱfactor-utilizationȱrateȱinȱtheȱshortȱrun. D) itȱisȱcheaperȱforȱfirmsȱtoȱletȱtheirȱinventoriesȱaccumulateȱthanȱtoȱemployȱmoreȱworkers. E) factorȱpricesȱcanȱonlyȱfullyȱadjustȱinȱtheȱlongȱrun.
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38) Onȱtheȱbasisȱofȱbothȱtheoryȱandȱempiricalȱevidence,ȱmostȱeconomistsȱbelieveȱthatȱchangesȱin monetaryȱpolicyȱhave A) powerfulȱeffectsȱonȱrealȱGDPȱandȱfactorȱpricesȱbothȱinȱtheȱshortȱrunȱandȱinȱtheȱlongȱrun. B) noȱlong-runȱeffectȱonȱrealȱGDPȱbutȱaȱsubstantialȱlong-runȱeffectȱonȱinflation. C) noȱeffectȱonȱrealȱGDPȱorȱinflationȱinȱtheȱlongȱrun. D) noȱeffectȱonȱrealȱGDPȱorȱfactorȱutilizationȱinȱtheȱshortȱrun. E) importantȱlong-runȱeffectsȱbyȱchangingȱrealȱinterestȱrates.
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39) TheȱfourȱfundamentalȱdeterminantsȱofȱeconomicȱgrowthȱincludeȱallȱofȱtheȱfollowingȱEXCEPT: A) growthȱinȱfinancialȱcapital B) growthȱinȱhumanȱcapital C) growthȱinȱphysicalȱcapital D) growthȱinȱtheȱlabourȱforce E) technologicalȱimprovement
39)
40) OneȱimportantȱassumptionȱofȱtheȱNeoclassicalȱgrowthȱmodelȱisȱthat,ȱwithȱaȱgivenȱstateȱof technology, A) increasesȱinȱtheȱuseȱofȱsingleȱfactorȱbringȱdiminishingȱreturns. B) increasesȱinȱtheȱuseȱofȱaȱsingleȱfactorȱresultȱinȱconstantȱreturns. C) increasesȱinȱGDPȱareȱpossibleȱonlyȱifȱallȱfactorsȱareȱincreasedȱatȱanȱequalȱrate. D) theȱreturnȱfromȱsuccessiveȱunitsȱofȱaȱsingleȱfactorȱincreasesȱoverȱtime. E) increasesȱinȱtheȱuseȱofȱaȱsingleȱfactorȱbringȱincreasingȱreturns.
40)
9
ȱ100ȱRandomȱpractice,ȱMacoreconomics 41) Accordingȱtoȱsomeȱmodernȱtheoriesȱofȱlong-runȱgrowth,ȱsuccessiveȱincrementsȱofȱinvestmentȱhave ________ȱreturnsȱsinceȱsomeȱfixedȱcostsȱareȱ________ȱforȱsubsequentȱfirms. A) decreasing;ȱlower B) increasing;ȱlower C) decreasing;ȱhigher D) constant;ȱidentical E) increasing;ȱhigher
41)
42) InȱtheȱNeoclassicalȱgrowthȱmodel,ȱifȱcapitalȱandȱlabourȱgrowȱatȱtheȱsameȱrate,ȱweȱwillȱobserve A) risingȱGDPȱbutȱnoȱchangeȱinȱlivingȱstandards. B) risingȱGDPȱandȱincreasingȱlivingȱstandards. C) increasingȱlivingȱstandardsȱbutȱonlyȱforȱworkersȱusingȱlabour -intensiveȱproduction. D) risingȱGDPȱbutȱfallingȱlivingȱstandards. E) increasingȱlivingȱstandardsȱbutȱonlyȱforȱworkersȱusingȱcapital-intensiveȱproduction.
42)
43) AȱcentralȱbankȱcanȱȈcreateȈȱmoneyȱby A) sellingȱsomeȱofȱitsȱforeign-currencyȱreservesȱforȱdomesticȱcurrency. B) increasingȱtheȱrateȱofȱinflation. C) sellingȱgovernmentȱTreasuryȱbillsȱtoȱtheȱcommercialȱbanks. D) purchasingȱgovernmentȱsecuritiesȱonȱtheȱopenȱmarket. E) issuingȱitsȱownȱCentralȱBankȱbonds.
43)
44) Considerȱaȱnewȱdepositȱofȱ$10ȱ000ȱtoȱtheȱCanadianȱbankingȱsystem.ȱTheȱbankȱthatȱinitiallyȱreceives thisȱdepositȱwillȱfindȱitselfȱwith A) noȱexcessȱreservesȱifȱthereȱisȱnoȱreserveȱrequirement. B) $1ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ10ȱpercent. C) $2ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ10ȱpercent. D) $8ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ20ȱpercent. E) $10ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ100ȱpercent.
44)
45) IfȱtheȱBankȱofȱCanadaȱentersȱtheȱopenȱmarketȱandȱsellsȱ$1000ȱofȱgovernmentȱsecurities,ȱwhatȱwill beȱtheȱeventualȱchangeȱinȱtheȱmoneyȱsupplyȱgivenȱaȱ10ȱpercentȱtargetȱreserveȱratioȱinȱthe commercialȱbankingȱsystemȱandȱaȱ10ȱpercentȱcashȱdrain? A) increaseȱofȱ$10ȱ000 B) decreaseȱofȱ$1000 C) decreaseȱofȱ$10ȱ000 D) increaseȱofȱ$5000 E) decreaseȱofȱ$5000
45)
46) ȈExcessȱreservesȈȱforȱaȱcommercialȱbankȱreferȱto A) anyȱsurplusȱinȱtheȱbankȇsȱsupplyȱofȱgold. B) anyȱsurplusȱofȱchequableȱdeposits. C) anyȱreservesȱ(cashȱorȱdepositsȱwithȱtheȱBankȱofȱCanada)ȱthatȱtheȱbankȱholdsȱoverȱandȱabove itsȱdesiredȱreserves. D) excessȱdemandȱforȱmoneyȱfromȱthatȱbank. E) reservesȱ(cashȱorȱdepositsȱwithȱtheȱBankȱofȱCanada)ȱthatȱtheȱBankȱofȱCanadaȱrequiresȱthe bankȱtoȱhold.
46)
10
ȱ100ȱRandomȱpractice,ȱMacoreconomics 47) Supposeȱthatȱatȱaȱgivenȱinterestȱrateȱandȱmoneyȱsupply,ȱallȱfirmsȱandȱhouseholdsȱsimultaneously tryȱtoȱreduceȱtheirȱmoneyȱbalances.ȱTheyȱdoȱthisȱbyȱtryingȱtoȱ________,ȱwhichȱcausesȱanȱexcess ________,ȱwhichȱcausesȱa(n)ȱ________,ȱandȱfinallyȱa(n)ȱ________ȱinȱtheȱinterestȱrate. A) buyȱbonds;ȱsupplyȱofȱbonds;ȱdecreaseȱinȱtheȱpriceȱofȱbonds;ȱincrease B) sellȱbonds;ȱdemandȱforȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease C) buyȱbonds;ȱdemandȱforȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease D) sellȱbonds;ȱsupplyȱofȱbonds;ȱdecreaseȱinȱtheȱpriceȱofȱbonds;ȱincrease E) sellȱbonds;ȱsupplyȱofȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease 48) AccordingȱtoȱtheȱviewsȱofȱtheȱClassicalȱeconomists,ȱifȱtheȱmoneyȱsupplyȱdoubles, A) realȱincomeȱwillȱdouble. B) thereȱwillȱbeȱnoȱeffectȱonȱmoneyȱprices. C) moneyȱpricesȱwillȱbeȱhalved. D) relativeȱpricesȱwillȱdouble. E) moneyȱpricesȱwillȱdouble.
47)
48)
FIGUREȱ28-2 49) ReferȱtoȱFigureȱ28-2.ȱStartingȱatȱequilibriumȱE0 ,ȱanȱincreaseȱinȱrealȱGDPȱwillȱleadȱtoȱa A) shiftȱofȱtheȱMDȱcurveȱtoȱtheȱrightȱandȱanȱincreaseȱinȱtheȱinterestȱrate. B) shiftȱofȱtheȱMs ȱcurveȱtoȱtheȱrightȱandȱaȱfallȱinȱtheȱinterestȱrate. C) shiftȱofȱtheȱMDȱcurveȱtoȱtheȱleftȱandȱaȱfallȱinȱtheȱinterestȱrate. D) downwardȱmovementȱalongȱtheȱMD curveȱandȱaȱlowerȱinterestȱrate. E) shiftȱofȱtheȱMs ȱcurveȱtoȱtheȱleftȱandȱanȱincreaseȱinȱtheȱinterestȱrate.
11
49)
ȱ100ȱRandomȱpractice,ȱMacoreconomics 50) Theȱmonetaryȱtransmissionȱmechanismȱdescribesȱhowȱchangesȱinȱtheȱdemandȱforȱorȱsupplyȱof moneyȱcauseȱchangesȱinȱtheȱinterestȱrate,ȱwhichȱthenȱcauseȱchangesȱin A) aggregateȱdemand,ȱrealȱGDPȱandȱtheȱpriceȱlevel. B) desiredȱinvestmentȱandȱnetȱexports. C) theȱinflationȱrate. D) potentialȱoutput. E) bothȱAȱandȱBȱareȱcorrect.
50)
51) Inȱ1994,ȱtheȱfederalȱministerȱofȱfinanceȱ(PaulȱMartin)ȱappointedȱGordonȱThiessenȱasȱtheȱnew governorȱofȱtheȱBankȱofȱCanadaȱ,ȱwhoȱproceededȱto A) increaseȱtheȱovernightȱlendingȱrateȱinȱorderȱtoȱstabilizeȱtheȱCanadian-U.S.ȱexchangeȱrate. B) continueȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessor. C) continueȱtheȱpopularȱlowȱovernightȱlendingȱpolicyȱofȱhisȱpredecessor. D) abandonȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessorȱin favourȱofȱaȱlow-interest-rateȱpolicy. E) abandonȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessorȱin favourȱofȱaȱpolicyȱdesignedȱtoȱdepreciateȱtheȱCanadianȱdollar.
51)
52) Ifȱweȱobserveȱthatȱtheȱbankȱrateȱhasȱfallen,ȱweȱcanȱconcludeȱthatȱthe A) BankȱofȱCanadaȱhasȱadjustedȱtheȱrateȱitȱpaysȱonȱTreasuryȱbills. B) BankȱofȱCanadaȱhasȱimplementedȱanȱexpansionaryȱmonetaryȱpolicy. C) BankȱofȱCanadaȱhasȱimplementedȱaȱcontractionaryȱmonetaryȱpolicy. D) BankȱofȱCanadaȱhasȱabandonedȱitsȱinflationȱtarget. E) GovernmentȱofȱCanadaȱhasȱreducedȱtheȱmoneyȱsupply.
52)
53) Aȱmeasureȱthatȱhasȱbeenȱdevelopedȱtoȱanalyzeȱtheȱamountȱofȱoutputȱthatȱmustȱbeȱgivenȱupȱin orderȱtoȱreduceȱtheȱinflationȱrateȱbyȱoneȱpercentageȱpointȱisȱcalledȱthe A) Phillipsȱmeasure. B) credibilityȱindex. C) miseryȱindex. D) sacrificeȱratio. E) outputȱgap.
53)
54) SupposeȱtheȱCanadianȱeconomyȱisȱboomingȱdueȱtoȱrisingȱnetȱexportsȱandȱthereȱisȱpoliticalȱpressure toȱmaintainȱtheȱȈgoodȱtimesȈ.ȱIfȱtheȱBankȱofȱCanadaȱdoesȱsoȱbyȱimplementingȱanȱexpansionary monetaryȱpolicy,ȱitȱwould A) causeȱaȱpermanentȱrecessionaryȱgap. B) increaseȱtheȱactualȱinflationȱrate. C) causeȱaȱtemporaryȱdropȱinȱinflation. D) beȱactingȱtoȱde-stabilizeȱtheȱeconomy. E) BothȱBȱandȱDȱareȱcorrect.
54)
55) Theȱsacrificeȱratioȱisȱaȱmeasureȱofȱthe A) theȱcrowdingȱoutȱofȱinvestmentȱdueȱtoȱincreasesȱinȱgovernmentȱpurchases. B) numberȱofȱpeopleȱunemployedȱdueȱtoȱdisinflation. C) lossȱofȱrealȱGDPȱassociatedȱwithȱinflation. D) unemploymentȱassociatedȱwithȱaȱrecessionaryȱgap. E) cumulativeȱlossȱinȱrealȱGDPȱdueȱtoȱaȱdisinflation.
55)
12
ȱ100ȱRandomȱpractice,ȱMacoreconomics 56) Considerȱanȱopen-economyȱAD/ASȱmacroȱmodel.ȱAnȱexpansionaryȱfiscalȱpolicyȱwillȱgenerally increaseȱtheȱgovernmentȇsȱbudgetȱ________ȱandȱalsoȱtendsȱtoȱ________ȱandȱthusȱ________ȱnet exports. A) noneȱofȱtheȱabove B) surplus;ȱdepreciateȱtheȱcurrency;ȱincrease C) deficit;ȱappreciateȱtheȱcurrency;ȱreduce D) surplus;ȱappreciateȱtheȱcurrency;ȱdecrease E) deficit;ȱappreciateȱtheȱcurrency;ȱincrease
56)
Theȱdiagramȱbelowȱshowsȱtwoȱbudgetȱdeficitȱfunctionsȱforȱaȱhypotheticalȱeconomy.
FIGUREȱ32-3 57) ConsiderȱFigureȱ32-3.ȱInitially,ȱsupposeȱthatȱrealȱGDPȱisȱ$100ȱmillionȱandȱtheȱbudgetȱdeficitȱisȱ$14 million,ȱasȱshownȱbyȱpointȱA.ȱWhichȱofȱtheȱfollowingȱeventsȱcouldȱresultȱinȱaȱmoveȱfromȱpointȱA toȱpointȱB? A) theȱeconomyȱenteringȱintoȱaȱboom B) theȱimplementationȱofȱaȱcontractionaryȱfiscalȱpolicy C) theȱimplementationȱofȱanȱexpansionaryȱfiscalȱpolicy D) theȱimplementationȱofȱanȱexpansionaryȱmonetaryȱpolicy E) theȱimplementationȱofȱaȱcontractionaryȱmonetaryȱpolicy
57)
58) Implementationȱofȱcyclicallyȱbalancedȱgovernmentȱbudgets A) isȱeasierȱwithȱfrequentȱchangesȱinȱpoliticalȱpower. B) requiresȱpreciseȱpredictionȱofȱpotentialȱGDPȱtoȱpinpointȱtheȱstagesȱofȱtheȱbusinessȱcycle. C) resultsȱinȱlargerȱoutputȱgapsȱthanȱwithȱannuallyȱbalancedȱbudgets. D) eliminatesȱtheȱneedȱforȱbuilt-inȱfiscalȱstabilizers. E) noneȱofȱtheȱabove.
58)
13
ȱ100ȱRandomȱpractice,ȱMacoreconomics 59) IfȱCanadaȇsȱcurrentȱaccountȱisȱinȱdeficit,ȱthenȱweȱcanȱbeȱsureȱthatȱthereȱisȱaȱ________ȱonȱtheȱcapital account,ȱwhichȱmeansȱaȱcapitalȱ________ȱtoȱ(from)ȱCanada. A) deficit;ȱoutflow B) deficit;ȱinflow C) surplus;ȱinflow D) surplus;ȱoutflow E) noneȱofȱtheȱabove
59)
60) Chinaȱfixesȱitsȱexchangeȱrateȱ(yuanȱperȱunitsȱofȱforeignȱcurrency)ȱatȱaȱrateȱwellȱaboveȱits free-marketȱequilibriumȱlevel.ȱInȱorderȱtoȱmaintainȱthisȱexchangeȱrate,ȱandȱtoȱpreventȱitsȱcurrency fromȱ________,ȱtheȱChineseȱcentralȱbankȱisȱrapidlyȱaccumulatingȱ________. A) appreciating;ȱforeign-exchangeȱreserves B) appreciating;ȱreservesȱofȱitsȱdomesticȱcurrency C) depreciating;ȱreservesȱofȱitsȱdomesticȱcurrency D) depreciating;ȱU.S.ȱdollars E) depreciating;ȱforeign-exchangeȱreserves
60)
61) Theȱ________ȱrepresentsȱtheȱdifferenceȱbetweenȱtheȱpaymentsȱandȱreceiptsȱfromȱinternational transactionsȱinȱgoodsȱandȱservices.ȱTheȱ________ȱrepresentsȱtheȱdifferenceȱbetweenȱpaymentsȱand receiptsȱfromȱinternationalȱtransactionsȱinȱassets. A) tradeȱbalance;ȱofficial-financingȱaccount B) merchandiseȱaccount;ȱinvestmentȱaccount C) capitalȱoutflow;ȱcapitalȱinflow D) tradeȱbalance;ȱcapital-serviceȱaccount E) currentȱaccountȱbalance;ȱcapitalȱaccountȱbalance
61)
62) Supposeȱactualȱoutputȱisȱlessȱthanȱpotentialȱoutput.ȱIfȱtheȱoutputȱgapȱmeasuresȱtheȱoutputȱlossȱdue toȱtheȱfailureȱtoȱachieveȱfullȱemployment,ȱitȱcanȱgenerallyȱbeȱconcludedȱthatȱtheȱlargerȱthisȱoutput gap,ȱthe A) lowerȱtheȱdeadweightȱlossȱofȱunemployment. B) greaterȱisȱtheȱunemploymentȱrate. C) greaterȱisȱtheȱemploymentȱrate. D) lowerȱisȱfrictionalȱunemployment. E) moreȱupwardȱpressureȱthereȱisȱonȱprices.
62)
63) Inflation,ȱtheȱrateȱofȱchangeȱofȱaverageȱpricesȱinȱtheȱeconomy,ȱgenerally A) hasȱnoȱrealȱeffectsȱifȱitȱisȱunanticipated. B) reducesȱtheȱrealȱvalueȱofȱexistingȱnominalȱdebt. C) increasesȱtheȱpurchasingȱpowerȱofȱmoney. D) increasesȱtheȱrealȱvalueȱofȱfixedȱmoneyȱincomes. E) benefitsȱcreditorsȱifȱitȱisȱunanticipated.
63)
64) RealȱGDPȱisȱequivalentȱto A) personalȱdisposableȱincomeȱplusȱdepreciation. B) theȱmarketȱvalueȱofȱallȱgoodsȱandȱservicesȱproducedȱinȱanȱeconomyȱperȱyear. C) theȱnominalȱvalueȱofȱGNPȱmultipliedȱbyȱtheȱGDPȱdeflator. D) theȱmoneyȱvalueȱofȱallȱgoodsȱandȱservicesȱproducedȱinȱanȱeconomyȱperȱyearȱplusȱimports. E) theȱvalueȱofȱallȱgoodsȱandȱservicesȱproducedȱinȱanȱeconomyȱperȱyearȱadjustedȱforȱprice changes.
64)
14
ȱ100ȱRandomȱpractice,ȱMacoreconomics TheȱtableȱbelowȱincludesȱdataȱrequiredȱtoȱcalculateȱGDPȱfromȱtheȱexpenditureȱside. Investmentȱexpenditure Wagesȱandȱsalariesȱȱȱȱȱ Consumptionȱexpenditureȱȱȱ Interestȱandȱinvestmentȱincome Businessȱprofitsȱȱȱȱȱȱȱȱȱȱ Depreciationȱȱȱȱ Governmentȱpurchasesȱȱȱ Netȱexportsȱȱȱȱȱȱȱȱȱȱȱ
$402.00 $1741.00 1302.40 $99.40 $70.40 $199.20 $486.80 $94.00
TABLEȱ20-1 65) ReferȱtoȱTableȱ20-1.ȱWhatȱisȱtheȱvalueȱofȱGDP? A) $2285.20 B) $1982.60 C) $2010.00
65) D) $2584.40
E) $1986.00
66) IfȱtheȱJonesȱfamilyȇsȱdisposableȱincomeȱincreasesȱfromȱ$1ȱ200ȱtoȱ$1ȱ700ȱandȱtheirȱdesiredȱsaving increasesȱfromȱ-$100ȱtoȱ+$100,ȱthenȱtheȱfamilyȇs A) averageȱpropensityȱtoȱconsumeȱisȱ0.60. B) marginalȱpropensityȱtoȱconsumeȱisȱ0.40. C) marginalȱpropensityȱtoȱsaveȱisȱ1. D) marginalȱpropensityȱtoȱconsumeȱisȱ0.60. E) averageȱpropensityȱtoȱconsumeȱisȱ0.40. DisposableȱIncome ȱȱȱȱ0 ȱȱ50 150 300
66)
DesiredȱConsumption ȱȱ10 ȱȱ30 ȱȱ70 130
TABLEȱ21-6 67) ReferȱtoȱTableȱ21-6.ȱTheȱmarginalȱpropensityȱtoȱconsumeȱisȱequalȱto A) 0.6. B) 0.8. C) 0.2. D) 0.67.
67) E) 0.4.
68) SupposeȱGȱ=ȱ300ȱandȱtheȱgovernmentȇsȱnetȱtaxȱrevenueȱisȱequalȱtoȱ0.12Y.ȱTheȱgovernmentȱbudget isȱbalancedȱwhenȱYȱequalsȱ________. A) 350 B) 1ȱ000 C) 2ȱ000 D) 2ȱ500 E) 3ȱ600
68)
69) Supposeȱexportsȱ(X)=100,ȱY=500,ȱandȱimportsȱareȱequalȱtoȱmY,ȱwhereȱmȱisȱtheȱmarginalȱpropensity toȱimport.ȱNetȱexportsȱwouldȱbeȱequalȱtoȱzeroȱifȱtheȱmarginalȱpropensityȱtoȱimportȱwere A) 1ȱpercent. B) 5ȱpercent. C) 10ȱpercent. D) 20ȱpercent. E) 50ȱpercent.
69)
15
ȱ100ȱRandomȱpractice,ȱMacoreconomics 70) OnȱaȱgraphȱthatȱshowsȱtheȱderivationȱofȱtheȱADȱcurve,ȱanȱexogenousȱchangeȱinȱtheȱpriceȱlevel causes A) aȱshiftȱinȱtheȱAEȱcurveȱandȱaȱmovementȱalongȱtheȱADȱcurve. B) aȱmovementȱalongȱtheȱAEȱcurveȱbutȱnotȱalongȱtheȱADȱcurve. C) aȱmovementȱalongȱbothȱtheȱAEȱandȱADȱcurves. D) aȱshiftȱinȱbothȱtheȱAEȱandȱADȱcurves. E) aȱmovementȱalongȱtheȱAEȱcurveȱandȱaȱshiftȱinȱtheȱADȱcurve.
70)
71) Oneȱreasonȱwhyȱtheȱaggregateȱdemandȱ(AD)ȱcurveȱslopesȱdownwardȱisȱthat A) aggregateȱexpenditureȱincreasesȱasȱtheȱpriceȱlevelȱrises. B) decreasesȱinȱtheȱpriceȱlevelȱcauseȱincreasesȱinȱprivate-sectorȱwealthȱwhichȱleadȱtoȱincreasesȱin desiredȱconsumption. C) increasedȱproductionȱresultsȱinȱlowerȱproductionȱcosts. D) whenȱtheȱpriceȱlevelȱfallsȱconsumersȱincreaseȱtheirȱsavingȱrate. E) whenȱtheȱpriceȱlevelȱfallsȱfirmsȱmustȱcompeteȱmoreȱwhenȱoutputȱincreases.
71)
72) Supposeȱthatȱtheȱgovernmentȱannouncesȱtemporaryȱtaxȱcutsȱtoȱstimulateȱconsumersȇȱconsumption expendituresȱbutȱtheȱimpactȱofȱthisȱtaxȱchangeȱonȱȱconsumptionȱisȱobservedȱtoȱbeȱveryȱsmall.ȱThis outcomeȱmightȱbeȱexplainedȱbyȱtheȱfactȱthat A) theȱimpactȱofȱtheȱpolicyȱisȱdampenedȱbyȱtheȱautomaticȱfiscalȱstabilizers. B) theȱconsumersȱanticipateȱthatȱtheȱtaxȱchangeȱisȱonlyȱtemporaryȱandȱthusȱisȱunlikelyȱtoȱaffect theirȱȈlifetimeȈȱincome. C) thisȱeconomyȱisȱsufferingȱfromȱtheȱparadoxȱofȱthrift. D) thisȱeconomyȱisȱalreadyȱatȱitsȱlong-runȱequilibrium. E) theȱgovernmentȱhasȱlittleȱcredibility.
72)
73) Whichȱofȱtheȱfollowingȱwillȱoccurȱasȱpartȱofȱtheȱautomaticȱadjustmentȱprocessȱinȱanȱeconomyȱwith anȱinflationaryȱgap? A) increasingȱinvestment B) risingȱwages C) increasingȱtaxȱrates D) decliningȱgovernmentȱpurchases E) fallingȱprices
73)
74) InȱCanada,ȱtheȱlabour-forceȱparticipationȱrateȱisȱabout A) 66ȱpercent. B) 76ȱpercent. C) 92ȱpercent. D) 86ȱpercent. E) 90ȱpercent.
74)
75) Oneȱofȱtheȱbenefitsȱofȱlong-runȱeconomicȱgrowthȱis A) growthȱinȱnominalȱGDPȱgreaterȱthanȱrealȱGDP. B) aȱgreaterȱabilityȱtoȱreduceȱinequality. C) increasedȱfutureȱinterestȱrates. D) decreasedȱproductiveȱcapacity. E) decreasedȱcurrentȱsavingȱandȱincreasedȱcurrentȱconsumption.
75)
16
ȱ100ȱRandomȱpractice,ȱMacoreconomics 76) IfȱCanadianȱhouseholdsȱandȱbusinessesȱrefusedȱtoȱacceptȱCanadianȱdollarsȱinȱexchangeȱforȱgoods andȱservices,ȱtheȱvalueȱofȱtheȱCanadianȱdollarȱwould A) fall. B) stayȱconstantȱsinceȱitsȱvalueȱisȱdeterminedȱonlyȱbyȱtheȱBankȱofȱCanada. C) stayȱconstantȱsinceȱtheȱvalueȱdoesȱnotȱdependȱonȱpeopleȇsȱacceptabilityȱofȱit. D) riseȱsinceȱlessȱwouldȱbeȱinȱcirculation. E) stayȱconstantȱsinceȱitsȱvalueȱisȱdeterminedȱonlyȱbyȱtheȱGovernmentȱofȱCanada.
76)
77) IfȱrealȱGDPȱfalls,ȱotherȱthingsȱbeingȱequal,ȱweȱcanȱexpect A) anȱincreaseȱinȱtheȱspeculativeȱdemandȱforȱmoney. B) aȱdecreaseȱinȱtransactionsȱdemandȱforȱmoney. C) anȱincreaseȱinȱtransactionsȱdemandȱforȱmoney. D) anȱincreaseȱinȱtheȱtotalȱdemandȱforȱmoney. E) anȱincreaseȱinȱprecautionaryȱdemandȱforȱmoney.
77)
78) Becauseȱofȱtheȱvolatilityȱofȱfoodȱandȱenergyȱprices,ȱtheȱBankȱofȱCanadaȱpaysȱmoreȱattentionȱinȱthe shortȱrunȱtoȱchangesȱinȱ________ȱthanȱtoȱchangesȱinȱ________. A) coreȱinflation;ȱȱtotalȱCPIȱinflation B) inflationȱofȱtheȱGDPȱdeflator;ȱtotalȱCPIȱinflation C) theȱnominalȱexchangeȱrate;ȱtheȱrealȱexchangeȱrate D) totalȱCPIȱinflation;ȱcoreȱinflation E) totalȱCPIȱinflation;ȱinflationȱofȱtheȱGDPȱdeflator
78)
79) Assumeȱyourȱsalaryȱisȱ$2000ȱperȱmonthȱandȱyourȱemployerȱgivesȱyouȱaȱraiseȱofȱ6ȱpercent.ȱOverȱthe nextȱtwelveȱmonthsȱtheȱinflationȱrateȱisȱ12ȱpercent.ȱYourȱrealȱsalaryȱwillȱchangeȱby A) +ȱ6ȱpercent. B) -ȱ6ȱpercent. C) -ȱ12ȱpercent. D) +12ȱpercent. E) 0ȱpercent.
79)
80) IfȱtheȱCanadianȱfederalȱgovernmentȱadoptedȱaȱformalȱbalancedȱbudgetȱrule,ȱduringȱtimesȱthat GDPȱwasȱfallingȱitȱwouldȱhaveȱto A) increaseȱtaxȱratesȱand/orȱincreaseȱspendingȱwhichȱwouldȱdestabilizeȱtheȱeconomy. B) decreaseȱinterestȱpaymentsȱonȱtheȱdebt. C) increaseȱtaxȱratesȱand/orȱdecreaseȱspendingȱwhichȱwouldȱdestabilizeȱtheȱeconomy. D) decreaseȱtaxȱratesȱand/orȱincreaseȱspendingȱwhichȱwouldȱdestabilizeȱtheȱeconomy. E) decreaseȱspendingȱandȱtransferȱpaymentsȱwhileȱholdingȱtaxȱratesȱconstant.
80)
81) Supposeȱthatȱaȱcountryȇsȱprivateȱsavingȱisȱ$4ȱmillion,ȱitsȱinvestmentȱisȱ$10ȱmillion,ȱgovernment purchasesȱareȱ$6ȱmillion,ȱandȱnetȱtaxȱrevenuesȱareȱ$15ȱmillionȱinȱaȱgivenȱyear.ȱTheȱcurrentȱaccount balanceȱforȱthisȱcountryȱisȱa A) surplusȱofȱ$9ȱmillion. B) surplusȱofȱ$15ȱmillion. C) deficitȱofȱ$9ȱmillion. D) surplusȱofȱ$3ȱmillion. E) deficitȱofȱ$6ȱmillion.
81)
17
ȱ100ȱRandomȱpractice,ȱMacoreconomics 82) SupposeȱCanadaȇsȱexchangeȱrateȱwithȱtheȱU.S.ȱdollarȱfallsȱfromȱ1.21ȱtoȱ1.13.ȱThisȱfallȱindicatesȱa(n) ________ȱofȱtheȱCanadianȱdollar,ȱwhichȱmeansȱitȱtakesȱ________ȱCanadianȱdollarsȱtoȱpurchaseȱone U.S.ȱdollar. A) depreciation;ȱmore B) depreciation;ȱfewer C) appreciation;ȱmore D) appreciation;ȱfewer
82)
83) TransferȱpaymentsȱareȱexcludedȱfromȱtheȱgovernmentȱcomponentȱinȱtheȱcalculationȱofȱGDP because A) theyȱareȱsmallȱenoughȱtoȱignoreȱwhenȱcomputingȱtheȱnationalȱaccounts. B) theyȱareȱnotȱcountedȱasȱincomeȱbyȱanyȱeconomicȱagent. C) itȱisȱdifficultȱtoȱassessȱtheȱmarketȱvalueȱofȱaȱtransferȱpayment. D) theyȱdoȱnotȱgenerateȱadditionalȱincomeȱinȱtheȱeconomy. E) theyȱdoȱnotȱrepresentȱtheȱpurchaseȱofȱaȱgoodȱorȱaȱservice.
83)
84) Aggregateȱdesiredȱconsumptionȱdividedȱbyȱaggregateȱdisposableȱincomeȱisȱcalledȱthe A) totalȱpropensityȱtoȱsave. B) averageȱpropensityȱtoȱconsume. C) averageȱpropensityȱtoȱsave. D) marginalȱpropensityȱtoȱsave. E) averageȱpropensityȱtoȱspend.
84)
85) Considerȱtheȱfollowingȱnewsȱheadline:ȱȈFinanceȱministerȱannouncesȱthatȱtheȱfederalȱincome -tax rateȱwillȱriseȱbyȱthreeȱpercentageȱpoints.ȈȱAssumingȱthatȱaggregateȱoutputȱisȱdemand-determined, whatȱwillȱbeȱtheȱeffectȱofȱthisȱaction,ȱallȱotherȱthingsȱequal,ȱonȱtheȱAEȱfunctionȱandȱequilibrium nationalȱincome? A) theȱAEȱfunctionȱwillȱrotateȱupwardȱ(becomeȱsteeper)ȱandȱequilibriumȱnationalȱincomeȱwill rise. B) thereȱwillȱbeȱnoȱchangeȱinȱtheȱAEȱfunctionȱorȱinȱequilibriumȱnationalȱincome. C) theȱAEȱfunctionȱwillȱshiftȱdownȱparallelȱtoȱitselfȱandȱequilibriumȱnationalȱincomeȱwillȱfall. D) theȱAEȱfunctionȱwillȱshiftȱupȱparallelȱtoȱitselfȱandȱequilibriumȱnationalȱincomeȱwillȱrise. E) theȱAEȱfunctionȱwillȱrotateȱdownwardȱ(becomeȱflatter)ȱandȱnationalȱincomeȱwillȱfall.
85)
86) AȱleftwardȱshiftȱinȱtheȱeconomyȇsȱASȱcurveȱimpliesȱthat A) atȱanyȱgivenȱpriceȱlevel,ȱaȱlowerȱlevelȱofȱoutputȱwillȱbeȱsupplied. B) thereȱisȱaȱdemandȱshock. C) thereȱisȱaȱdecreaseȱinȱaggregateȱsupply. D) atȱanyȱgivenȱpriceȱlevel,ȱaȱhigherȱlevelȱofȱoutputȱwillȱbeȱsupplied. E) bothȱAȱandȱCȱareȱcorrect.
86)
87) AȱcommonȱassumptionȱamongȱmacroeconomistsȱisȱthatȱwhenȱrealȱGDPȱisȱlessȱthanȱpotential output,ȱfactorȱpricesȱadjustȱandȱthe A) ASȱcurveȱshiftsȱtoȱtheȱleftȱfairlyȱrapidly. B) ASȱcurveȱshiftsȱtoȱtheȱrightȱveryȱrapidly. C) ADȱcurveȱshiftsȱtoȱtheȱleftȱrapidly. D) ASȱcurveȱshiftsȱtoȱtheȱrightȱonlyȱveryȱslowly. E) noneȱofȱtheȱaboveȱ--ȱtheȱASȱcurveȱremainsȱunchanged.
87)
18
ȱ100ȱRandomȱpractice,ȱMacoreconomics 88) GDPȱcanȱbeȱrepresentedȱbyȱtheȱequation:ȱGDPȱ= Fȱxȱ(Fe/F)ȱxȱ(GDP/Fe).ȱThisȱequationȱtellsȱusȱthat realȱaggregateȱoutputȱcanȱbeȱexpressedȱasȱfactor A) supplyȱtimesȱequilibriumȱfactorȱpriceȱtimesȱfactorȱproductivity. B) utilizationȱtimesȱequilibriumȱfactorȱpriceȱtimesȱfactorȱproductivity. C) supplyȱtimesȱtheȱequilibriumȱfactorȱpriceȱtimesȱȱGDPȱperȱcapita. D) supplyȱtimesȱtheȱfactor-utilizationȱrateȱtimesȱfactorȱproductivity. E) priceȱtimesȱtheȱutilizationȱrateȱtimesȱGDPȱperȱcapita.
88)
89) InȱNeoclassicalȱgrowthȱtheory,ȱaverageȱmaterialȱlivingȱstandardsȱinȱanȱeconomyȱcouldȱfallȱwhen A) additionalȱunitsȱofȱcapitalȱareȱaddedȱtoȱtheȱotherȱfactors. B) thereȱisȱaȱdeclineȱinȱtheȱpopulation. C) thereȱisȱequalȱpercentageȱgrowthȱinȱcapitalȱandȱlabourȱinputs. D) technologyȱimproves. E) additionalȱunitsȱofȱlabourȱareȱaddedȱtoȱtheȱotherȱfactors.
89)
90) Supposeȱthatȱtheȱcashȱdrainȱinȱtheȱbankingȱsystemȱincreasesȱduringȱholidayȱperiods.ȱAsȱaȱresult, A) theȱcapacityȱofȱtheȱbankingȱtoȱcreateȱdepositȱmoneyȱisȱincreasedȱduringȱholidayȱperiods. B) theȱcapacityȱofȱtheȱbankingȱsystemȱtoȱcreateȱdepositȱmoneyȱisȱdampenedȱduringȱholiday periods. C) theȱmoneyȱsupplyȱwillȱautomaticallyȱincrease. D) commercialȱbanksȱdecreaseȱtheirȱtargetȱreserveȱratios. E) changesȱinȱreservesȱwillȱresultȱinȱnoȱchangeȱinȱdepositsȱduringȱholidayȱperiods.
90)
19
ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ28-2 91) ReferȱtoȱFigureȱ28-2.ȱIfȱtheȱinterestȱrateȱisȱi1 ,ȱtheȱsubsequentȱadjustmentȱinȱtheȱmoneyȱmarketȱisȱas
91)
follows: A) theȱinterestȱrateȱwillȱremainȱatȱi1ȱbecauseȱtheȱmoneyȱmarketȱisȱinȱequilibriumȱatȱthisȱinterest rate. B) excessȱsupplyȱofȱmoneyȱleadsȱtoȱtheȱpurchaseȱofȱbonds,ȱwhichȱinȱturnȱcausesȱtheȱinterestȱrate toȱfall. C) excessȱdemandȱforȱmoneyȱleadsȱtoȱaȱpurchaseȱofȱbonds,ȱwhichȱinȱturnȱcausesȱtheȱinterestȱrate toȱrise. D) theȱM s ȱcurveȱwillȱshiftȱtoȱtheȱleftȱsoȱasȱtoȱmaintainȱtheȱinterestȱrateȱatȱi2 . E) excessȱdemandȱforȱmoneyȱleadsȱtoȱaȱsaleȱofȱbonds,ȱwhichȱinȱturnȱcausesȱtheȱinterestȱrateȱto rise. 92) SupposeȱCanadianȱrealȱGDPȱisȱequalȱtoȱpotentialȱGDP.ȱȱAnȱappreciationȱofȱtheȱCanadianȱdollar thenȱimpliesȱthatȱtheȱBankȱofȱCanadaȱshouldȱengageȱin A) anȱincreaseȱinȱinflationȱbecauseȱofȱtheȱhigherȱcostȱofȱimports. B) noȱchangeȱinȱmonetaryȱpolicyȱbecauseȱtheȱexchangeȱrateȱisȱalwaysȱallowedȱtoȱfloatȱfreely. C) eitherȱaȱcontractionaryȱorȱanȱexpansionaryȱpolicy,ȱdependingȱonȱtheȱcauseȱofȱthe appreciation. D) aȱtighteningȱofȱmonetaryȱpolicyȱbecauseȱofȱtheȱexcessȱdemandȱforȱCanadianȱproductsȱthatȱis creatingȱtheȱappreciation. E) aȱlooseningȱofȱmonetaryȱpolicyȱbecauseȱofȱtheȱexcessȱdemandȱforȱCanadianȱproductsȱthatȱis creatingȱtheȱappreciation.
20
92)
ȱ100ȱRandomȱpractice,ȱMacoreconomics 93) ȱConsiderȱanȱeconomyȱthatȱisȱinȱtheȱprocessȱofȱaȱdisinflation.ȱȱIfȱtheȱsacrificeȱratioȱisȱ3,ȱthen A) theȱcumulativeȱlossȱofȱoutputȱinȱtheȱeconomyȱwillȱreachȱaȱtotalȱofȱ3ȱpercent. B) unemploymentȱincreasesȱbyȱ3ȱpercentȱduringȱtheȱperiodȱofȱdisinflation C) unemploymentȱincreasesȱbyȱ3ȱpercentȱforȱeveryȱoneȱpercentȱreductionȱinȱinflation. D) itȱcostsȱ3ȱpercentȱofȱGDPȱtoȱreduceȱinflationȱbyȱoneȱpercentageȱpoint. E) theȱcostsȱofȱdisinflationȱareȱ3ȱtimesȱtheȱbenefitsȱofȱdisinflation.
93)
94) DoȱweȱgetȱaȱusefulȱandȱmeaningfulȱstatisticȱbyȱdividingȱtheȱnationalȱdebtȱbyȱtheȱGDP? A) Noȱ--ȱweȱareȱessentiallyȱȈdividingȱapplesȱbyȱorangesȈ,ȱwhichȱisȱunhelpful. B) Noȱ--ȱdividingȱaȱstockȱbyȱaȱflowȱcanȱneverȱbeȱsensible. C) Yesȱ--ȱweȱcanȱseeȱtheȱburdenȱofȱtheȱdebtȱmoreȱclearlyȱthanȱusingȱtheȱnationalȱdebtȱfigure alone. D) Yesȱ--ȱweȱcanȱthenȱseeȱhowȱmuchȱofȱtheȱnationalȱdebtȱisȱowedȱbyȱeachȱindividualȱcitizen. E) Noȱ--ȱtheȱGDPȱisȱnotȱaȱmeaningfulȱmeasureȱofȱtheȱwell-beingȱofȱtheȱeconomy.
94)
95) WhenȱaȱgroceryȱimporterȱinȱSwedenȱbuysȱQuebecȱmapleȱsyrup,ȱthis A) appearsȱasȱaȱcreditȱitemȱonȱtheȱSwedishȱcurrentȱaccount. B) appearsȱasȱaȱdebitȱitemȱonȱtheȱCanadianȱcurrentȱaccount. C) appearsȱasȱaȱcreditȱitemȱonȱtheȱCanadianȱcurrentȱaccount. D) appearsȱasȱaȱdebitȱitemȱonȱtheȱSwedishȱcurrentȱaccount. E) bothȱCȱandȱD
95)
96) WhenȱmacroeconomistsȱuseȱtheȱtermȱȈrecessionȈȱtheyȱusuallyȱdefineȱitȱasȱaȱfallȱinȱrealȱGDPȱthat lastsȱforȱatȱleast A) oneȱyear. B) threeȱquarters. C) oneȱquarter. D) twoȱquarters. E) twoȱyears.
96)
97) AnȱexampleȱofȱanȱitemȱthatȱwouldȱbeȱexcludedȱfromȱaȱmeasureȱofȱGDPȱfromȱtheȱexpenditureȱside is A) theȱpurchaseȱofȱaȱtattooȱforȱMaryȱSmithȇsȱankle. B) theȱpurchaseȱofȱwindowsȱbyȱanȱautomobileȱassemblyȱplant. C) aȱnewȱtruckȱpurchasedȱbyȱaȱfurniture-deliveryȱcompany. D) governmentȱpensionȱpaymentsȱtoȱaȱretiredȱperson. E) fertilizerȱpurchasedȱbyȱFarmerȱJonesȱtoȱincreaseȱcropȱyields.
97)
Considerȱtheȱfollowingȱinformationȱdescribingȱaȱclosedȱeconomyȱwithȱnoȱgovernmentȱandȱwhereȱaggregateȱoutputȱisȱdemandȱdetermined: 1. 2. 3. 4.
theȱequilibriumȱconditionȱisȱYȱ=ȱCȱ+ȱI theȱmarginalȱpropensityȱtoȱsaveȱisȱ0.25 theȱautonomousȱpartȱofȱCȱisȱ$30 investmentȱisȱautonomousȱandȱisȱ$40
ȱ TABLEȱ21-1 98) ReferȱtoȱTableȱ21-1.ȱTheȱequilibriumȱlevelȱofȱnationalȱincomeȱwillȱbe A) $ȱȱ70. B) $ȱȱ93. C) $120. D) $160.
21
98) E) $280.
ȱ100ȱRandomȱpractice,ȱMacoreconomics 99) Supposeȱthatȱrealȱnationalȱincomeȱ(Y)ȱisȱequalȱtoȱ800ȱandȱthatȱgovernmentȱpurchasesȱareȱequalȱto 200.ȱIfȱtheȱgovernmentȇsȱnetȱtaxȱrevenuesȱareȱequalȱtoȱtY,ȱwhereȱtȱisȱtheȱnetȱtaxȱrate,ȱthenȱwhatȱis theȱvalueȱofȱtȱnecessaryȱforȱtheȱgovernmentȱtoȱhaveȱaȱbalancedȱbudget? A) 20ȱpercent B) 25ȱpercent C) 30ȱpercent D) 35ȱpercent E) 40ȱpercent 100) TheȱaggregateȱsupplyȱcurveȱwillȱshiftȱasȱaȱresultȱofȱaȱchangeȱinȱanyȱofȱtheȱfollowingȱEXCEPT A) theȱpriceȱlevel. B) technology. C) labourȱproductivity. D) theȱwageȱrate. E) theȱcostȱofȱcapital.
22
99)
100)
AnswerȱKey Testname:ȱRANDOMȱPRACTICEȱMACROȱ100
1) C 2) B 3) D 4) E 5) B 6) A 7) C 8) B 9) A 10) E 11) D 12) A 13) D 14) D 15) A 16) E 17) B 18) D 19) C 20) E 21) E 22) D 23) D 24) A 25) E 26) C 27) E 28) A 29) E 30) E 31) B 32) B 33) A 34) B 35) C 36) D 37) E 38) B 39) A 40) A 41) B 42) A 43) D 44) D 45) E 46) C 47) C 48) E 49) A 50) E
51) B 52) B 53) D 54) E 55) E 56) C 57) B 58) B 59) C 60) A 61) E 62) B 63) B 64) E 65) A 66) D 67) E 68) D 69) D 70) A 71) B 72) B 73) B 74) A 75) B 76) A 77) B 78) A 79) B 80) C 81) D 82) D 83) E 84) B 85) E 86) E 87) D 88) D 89) E 90) B 91) E 92) C 93) D 94) C 95) E 96) D 97) D 98) E 99) B 100) A 23
1)
2) Mostȱeconomistsȱbelieveȱthatȱtheȱsingleȱlargestȱcauseȱofȱrisingȱmaterialȱlivingȱstandardsȱoverȱlong periodsȱofȱtimeȱis A) realȱGDPȱgrowth. B) productivityȱgrowth. C) risingȱrealȱwages. D) growthȱinȱtheȱcapitalȱstock. E) risingȱemployment.
2)
3) EconomistsȱexpectȱsomeȱunemploymentȱtoȱexistȱevenȱatȱtimesȱofȱȈfullȱemploymentȈȱforȱallȱofȱthe followingȱreasonsȱEXCEPT: A) thereȱisȱsometimesȱaȱmismatchȱbetweenȱtheȱcharacteristicsȱofȱtheȱsupplyȱofȱlabourȱandȱthe demandȱforȱlabour. B) asȱtheȱeconomyȱchanges,ȱtheȱstructureȱofȱtheȱexistingȱlabourȱforceȱisȱnotȱtheȱsameȱasȱthe structureȱofȱlabourȱdemand. C) thereȱareȱalwaysȱsomeȱpeopleȱwhoȱquitȱtheirȱpresentȱjobsȱtoȱlookȱforȱotherȱjobs. D) actualȱGDPȱisȱrarelyȱequalȱtoȱpotentialȱGDP. E) peopleȱenteringȱtheȱlabourȱforceȱtypicallyȱtakeȱsomeȱtimeȱtoȱfindȱaȱjob.
3)
4) Ifȱaȱcountryȇsȱlabourȱforceȱisȱ15ȱmillionȱpeople,ȱandȱ1.35ȱmillionȱofȱthoseȱareȱunemployed,ȱthe countryȇsȱunemploymentȱrateȱis A) 2.5ȱpercent. B) 3.3ȱpercent. C) 4.5ȱpercent. D) 6.7ȱpercent. E) 9.0ȱpercent.
4)
5) Aȱworkerȱcurrentlyȱearningȱ$3000ȱperȱmonthȱhasȱnegotiatedȱaȱ4%ȱwageȱincreaseȱinȱanticipationȱof aȱ4%ȱinflationȱrateȱinȱtheȱnextȱyear.ȱUnderȱwhatȱscenarioȱwillȱtheȱworkerȱhaveȱaȱhigherȱpurchasing power? A) ifȱnextȱyearȇsȱinflationȱrateȱisȱ4% B) ifȱnextȱyearȇsȱinflationȱrateȱisȱ3% C) ifȱnextȱyearȱsomeȱpricesȱincreaseȱbyȱȱonlyȱ5% D) ifȱnextȱyearȇsȱinflationȱrateȱisȱ5% E) ifȱnextȱyearȱsomeȱpricesȱincreaseȱbyȱȱonlyȱ4%
5)
1
ȱ100ȱRandomȱpractice,ȱMacoreconomics 6) SupposeȱApplianceȱMartȱbuysȱaȱusedȱrefrigeratorȱforȱ$100,ȱrepairsȱit,ȱandȱresellsȱitȱforȱ$250.ȱThe resultȱofȱthisȱtransactionȱisȱto A) increaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$150. B) increaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$250. C) decreaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$100. D) leaveȱtheȱvalueȱofȱnationalȱproductȱunchanged. E) insufficientȱinformationȱtoȱknow.
6)
7) Inȱtheȱstudyȱofȱshort-runȱfluctuationsȱinȱnationalȱincome,ȱpotentialȱincomeȱ(output)ȱisȱusually assumedȱtoȱbe A) fallingȱatȱitsȱaverageȱgrowthȱrate. B) irrelevant,ȱasȱtheȱeconomyȱisȱrarelyȱthere. C) constant. D) equalȱtoȱactualȱincome. E) movingȱtogetherȱwithȱpotentialȱoutputȱinȱneighbouringȱcountries.
7)
8) TheȱȈvalueȱaddedȈȱforȱanȱindividualȱfirmȱisȱcalculatedȱby A) addingȱtheȱcostȱofȱtheȱintermediateȱgoodsȱusedȱbyȱtheȱfirm. B) addingȱupȱtheȱincomeȱreceivedȱbyȱtheȱfactorsȱofȱproductionȱusedȱbyȱtheȱfirm. C) subtractingȱtheȱincomeȱthatȱgoesȱtoȱtheȱfactorsȱofȱproductionȱusedȱbyȱtheȱfirmȱfromȱtheȱfirmȇs revenue. D) calculatingȱtheȱrevenueȱgeneratedȱbyȱtheȱfirm. E) calculatingȱtheȱprofitȱgeneratedȱbyȱtheȱfirm.
8)
9) Inȱtheȱnationalȱincomeȱandȱproductȱaccounts,ȱaȱreductionȱofȱinventoriesȱcountsȱas A) negativeȱinvestment. B) saving. C) positiveȱinvestment. D) depreciation. E) consumption.
9)
Theȱtableȱbelowȱshowsȱtotalȱoutputȱforȱanȱeconomyȱoverȱ2ȱyears. 2007 GoodȱA GoodȱB GoodȱC
Price $1.00 $2.00 $5.00
Quantity 100ȱunits 200ȱunits 100ȱunits
2008 Price GoodȱA $2.00 GoodȱB $3.00 GoodȱC $10.00
Quantity 120ȱunits 200ȱunits 98ȱunitsȱ
TABLEȱ20-3 10) ReferȱtoȱTableȱ20-3.ȱTheȱnominalȱGrossȱDomesticȱProductȱinȱ2008ȱwas A) $ȱȱȱ700. B) $ȱȱȱ840. C) $ȱȱȱ980. D) $1ȱ740.
2
10) E) $1ȱ820.
ȱ100ȱRandomȱpractice,ȱMacoreconomics 11) Whichȱofȱtheȱfollowingȱisȱtheȱmostȱappropriateȱmeasureȱforȱevaluatingȱtheȱaverageȱmaterialȱliving standardsȱofȱCanadianȱresidents? A) perȱcapitaȱGrossȱDomesticȱProduct B) perȱcapitaȱNetȱNationalȱProduct C) disposableȱincome D) perȱcapitaȱGrossȱNationalȱProduct E) NetȱDomesticȱIncomeȱatȱFactorȱCost 12) StatisticsȱCanadaȱexcludesȱfromȱGDPȱtheȱvalueȱofȱgoodsȱandȱservicesȱexchangedȱȈunderȱthe counterȈȱbecause A) satisfactoryȱmethodsȱforȱtheirȱmeasurementȱhaveȱnotȱbeenȱdeveloped. B) theseȱgoodsȱareȱallȱintermediateȱgoods. C) theirȱproductionȱhasȱzeroȱopportunityȱcost. D) StatisticsȱCanadaȱisȱresponsibleȱforȱmakingȱanȱethicalȱdecisionȱaboutȱwhichȱactivitiesȱto excludeȱfromȱnationalȱincomeȱmeasures. E) theseȱgoodsȱdoȱnotȱcontributeȱtoȱwell-being.
11)
12)
FIGUREȱ20-1 13) ReferȱtoȱFigureȱ20-1.ȱWhichȱofȱtheȱfollowingȱyearsȱwasȱusedȱasȱtheȱbaseȱyearȱforȱconstructingȱreal GDP? A) 1980 B) 1985 C) 1990 D) 1993 E) 1995
13)
14) Considerȱaȱsimpleȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevelȱandȱdemand-determinedȱoutput.ȱIfȱthe marginalȱpropensityȱtoȱspendȱinȱsuchȱaȱmodelȱisȱbetweenȱzeroȱandȱone,ȱtheȱsimpleȱmultiplierȱis A) zero. B) aȱpositiveȱnumberȱbetweenȱzeroȱandȱone. C) one. D) aȱpositiveȱnumberȱgreaterȱthanȱoneȱbutȱlessȱthanȱinfinity. E) infinitelyȱlarge.
14)
3
ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ21-1 15) ReferȱtoȱFigureȱ21-1.ȱDesiredȱconsumptionȱexpendituresȱwillȱequalȱdisposableȱincomeȱatȱan incomeȱlevelȱof A) Y2 .
15)
B) Y3 . C) Y1 . D) moreȱthanȱY3 . E) zero. 16) Inȱtheȱsimpleȱmacroeconomicȱmodel,ȱȈautonomousȱexpendituresȈȱare A) thoseȱwhichȱareȱconstant. B) dependentȱonȱnationalȱincome. C) inducedȱexpenditures. D) non-domesticȱexpenditures. E) notȱdependentȱonȱnationalȱincome.
16)
17) Considerȱaȱsimpleȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevelȱandȱdemand-determinedȱoutput. Supposeȱtheȱlevelȱofȱactualȱnationalȱincomeȱisȱlessȱthanȱdesiredȱaggregateȱexpenditure.ȱȱInȱthisȱcase, A) nationalȱincomeȱmayȱincreaseȱorȱdecrease,ȱdependingȱonȱtheȱrelativeȱsizesȱofȱtheȱaverage propensityȱtoȱconsumeȱandȱtheȱaverageȱpropensityȱtoȱsave. B) shortagesȱofȱgoodsȱandȱreductionsȱinȱinventoriesȱwillȱcauseȱproducersȱtoȱincreaseȱoutputȱand nationalȱincomeȱtoȱrise. C) nationalȱincomeȱwillȱfall,ȱbecauseȱdesiredȱexpendituresȱareȱlessȱthanȱactualȱexpenditures. D) inventoriesȱwillȱbuildȱup,ȱcausingȱnationalȱincomeȱtoȱrise. E) thereȱwillȱbeȱnoȱchangeȱinȱnationalȱincomeȱbecauseȱonlyȱactualȱexpenditureȱisȱrelevant.
17)
4
ȱ100ȱRandomȱpractice,ȱMacoreconomics 18) JeanȱBrisboisȇȱdisposableȱincomeȱroseȱfromȱ$40ȱ000ȱperȱyearȱtoȱ$42ȱ000ȱandȱhisȱdesired consumptionȱexpenditureȱroseȱfromȱ$38ȱ000ȱtoȱ$39ȱ600.ȱItȱcanȱbeȱconcludedȱthatȱhis A) averageȱpropensityȱtoȱsaveȱdecreasedȱfromȱ0.950ȱtoȱ0.943. B) marginalȱpropensityȱtoȱsaveȱisȱ0.80. C) marginalȱpropensityȱtoȱconsumeȱincreasedȱfromȱ0.050ȱtoȱ0.058. D) averageȱpropensityȱtoȱconsumeȱdecreasedȱfromȱ0.950ȱtoȱ0.943. E) marginalȱpropensityȱtoȱconsumeȱisȱ0.050.
18)
19) Totalȱdesiredȱsavingȱdividedȱbyȱtotalȱincomeȱisȱcalledȱthe A) totalȱpropensityȱtoȱsave. B) averageȱpropensityȱtoȱconsume. C) averageȱpropensityȱtoȱsave. D) marginalȱpropensityȱtoȱsave. E) averageȱpropensityȱtoȱspend.
19)
20) WeȱwouldȱexpectȱrealȱnationalȱincomeȱtoȱbeȱȈdemandȱdeterminedȈȱwhen A) theȱpriceȱlevelȱisȱassumedȱtoȱbeȱconstant. B) firmsȱhaveȱexcessȱcapacity. C) thereȱareȱunemployedȱresourcesȱinȱtheȱeconomy. D) firmsȱareȱpriceȱsetters. E) allȱofȱtheȱabove
20)
21) Transferȱpaymentsȱmadeȱbyȱtheȱgovernmentȱaffectȱitsȱnetȱtaxȱrevenues A) indirectlyȱthroughȱgovernmentȱpurchases. B) indirectlyȱthroughȱtheȱconsumptionȱfunction. C) indirectlyȱthroughȱnetȱexports. D) indirectlyȱthroughȱtheȱinvestmentȱfunction. E) directly.
21)
22) Considerȱaȱmacroȱmodelȱwithȱdemand-determinedȱoutput.ȱTheȱequationsȱare:ȱȱCȱ=ȱ150ȱ+ȱ0.8Yd,ȱYd =ȱY-Tȱ,ȱȱIȱ=ȱ400,ȱGȱ=ȱ700,ȱTȱ=ȱ0.2Y,ȱXȱ=ȱ130,ȱandȱIMȱ=ȱ0.14Y.ȱEquilibriumȱnationalȱincomeȱinȱthis modelȱisȱ________. A) 1ȱ120 B) 1ȱ350 C) 2ȱ240 D) 2ȱ760 E) 5ȱ400
22)
23) Considerȱaȱmacroȱmodelȱinȱwhichȱoutputȱisȱassumedȱtoȱbeȱdemand-determined.ȱOneȱsituation whichȱmayȱjustifyȱthisȱassumptionȱisȱwhen A) netȱexportsȱareȱnegative. B) theȱmarginalȱpropensityȱtoȱconsumeȱoutȱofȱdisposableȱincomeȱisȱequalȱtoȱtheȱmarginal propensityȱtoȱspendȱoutȱofȱnationalȱincome. C) netȱexportsȱareȱpositive. D) theȱeconomyȱisȱoperatingȱwithȱsomeȱunemployedȱresources. E) allȱresourcesȱinȱtheȱeconomyȱareȱfullyȱemployed.
23)
24) WhenȱdeterminingȱtheȱAEȱfunctionȱforȱanȱopenȱeconomyȱwithȱgovernment,ȱitȱisȱgenerallyȱassumed thatȱasȱrealȱnationalȱincome A) increases,ȱnetȱexportsȱwillȱdecrease. B) decreases,ȱexportsȱwillȱdecrease. C) increases,ȱimportsȱwillȱdecrease. D) increases,ȱexportsȱwillȱdecrease. E) decreases,ȱnetȱexportsȱwillȱdecrease.
24)
5
ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ23-2 25) ReferȱtoȱFigureȱ23-2.ȱSupposeȱthatȱanȱincreaseȱinȱgovernmentȱpurchasesȱbyȱ50ȱcausesȱtheȱADȱcurve toȱshiftȱtoȱtheȱright,ȱasȱshown.ȱTheȱsimpleȱmultiplierȱisȱ________ȱandȱtheȱmultiplierȱisȱ________. A) 6;ȱ1.2 B) 2.8;ȱ1.2 C) 4;ȱ3.2 D) 4;ȱ2.8 E) 4;ȱ1.2
25)
26) Otherȱthingsȱbeingȱequal,ȱwhenȱtheȱdomesticȱpriceȱlevelȱfallsȱexogenously, A) theȱaggregateȱexpenditureȱfunctionȱshiftsȱdownward. B) importsȱofȱforeignȱgoodsȱrise. C) theȱnetȱexportȱfunctionȱshiftsȱupward. D) theȱnetȱexportȱfunctionȱshiftsȱdownward. E) Canadianȱgoodsȱbecomeȱmoreȱexpensiveȱrelativeȱtoȱforeignȱgoods.
26)
27) AggregateȱsupplyȱshocksȱcauseȱtheȱpriceȱlevelȱandȱrealȱGDPȱtoȱchangeȱin A) oppositeȱdirectionsȱbutȱbyȱtheȱsameȱamount. B) theȱsameȱdirectionȱandȱbyȱtheȱsameȱamount. C) theȱsameȱdirectionȱwithȱpriceȱchangingȱbyȱmoreȱthanȱoutput. D) oppositeȱdirectionsȱwithȱpriceȱchangingȱbyȱlessȱthanȱoutput. E) oppositeȱdirectionsȱbutȱnotȱnecessarilyȱbyȱtheȱsameȱamount.
27)
28) OverȱtheȱhorizontalȱrangeȱofȱtheȱeconomyȇsȱAS curveȱ(ifȱsuchȱaȱrangeȱexists),ȱaȱrightwardȱshiftȱof theȱADȱcurveȱwillȱresultȱin A) anȱincreaseȱinȱrealȱGDPȱandȱnoȱchangeȱinȱprices. B) anȱincreaseȱinȱpricesȱandȱnoȱchangeȱinȱrealȱGDP. C) anȱincreaseȱinȱbothȱrealȱGDPȱandȱprices. D) aȱdecreaseȱinȱrealȱGDPȱbutȱnoȱchangeȱinȱprices. E) aȱdecreaseȱinȱbothȱrealȱGDPȱandȱprices.
28)
6
ȱ100ȱRandomȱpractice,ȱMacoreconomics 29) Inȱaȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevel,ȱanȱincreaseȱinȱautonomousȱdesiredȱconsumptionȱwill causeȱtheȱAEȱcurveȱtoȱshift A) downwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱright. B) downwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱleft. C) upwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱleft. D) upwardȱandȱaȱmovementȱtoȱtheȱrightȱalongȱtheȱAD curve. E) upwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱright. 30) AnȱimportantȱautomaticȱfiscalȱstabilizerȱinȱCanadaȱis A) theȱmarginalȱpropensityȱtoȱimport. B) theȱexchangeȱrate. C) governmentȱȱpurchasesȱofȱgoodsȱandȱservices. D) theȱmarginalȱpropensityȱtoȱconsume. E) theȱincome-taxȱsystem.
29)
30)
TheȱdiagramȱbelowȱshowsȱanȱAD/ASȱmodelȱforȱaȱhypotheticalȱeconomy.ȱTheȱeconomyȱbeginsȱinȱlong-runȱequilibriumȱatȱpointȱA.
FIGUREȱ24-4 31) ReferȱtoȱFigureȱ24-4.ȱAfterȱtheȱpositiveȱaggregateȱsupplyȱshockȱshownȱinȱtheȱdiagram,ȱwhichȱofȱthe followingȱwouldȱshiftȱtheȱASȱcurveȱleftwardȱduringȱtheȱeconomyȇsȱadjustmentȱprocess? A) anȱincreaseȱinȱtheȱunemploymentȱrate B) anȱincreaseȱinȱwagesȱandȱotherȱfactorȱprices C) anȱincreaseȱinȱlabourȱproductivity D) anȱincreaseȱinȱfactorȱsupplies E) aȱdecreaseȱinȱwagesȱandȱotherȱfactorȱprices
7
31)
ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ24-3 32) ReferȱtoȱFigureȱ24-3.ȱTheȱeconomyȱcannotȱbeȱinȱlong-runȱequilibriumȱatȱE1ȱbecauseȱthe
32)
A) AD 1 ȱcurveȱwillȱshiftȱbackȱtoȱtheȱleftȱdueȱtoȱaȱfallȱinȱcurrentȱconsumption. B) ASȱwillȱshiftȱtoȱtheȱleftȱdueȱtoȱanȱincreaseȱinȱwages. C) ASȱwillȱshiftȱtoȱtheȱleftȱdueȱtoȱanȱincreaseȱinȱtheȱpriceȱlevel. D) AD 1 ȱcurveȱwillȱshiftȱbackȱtoȱAD 0 dueȱtoȱanȱincreaseȱinȱtheȱpriceȱlevel. E) ASȱwillȱshiftȱtoȱtheȱrightȱdueȱtoȱaȱdecreaseȱinȱtheȱpriceȱlevel. 33) WhichȱofȱtheȱfollowingȱdescribesȱtheȱdistinctionȱbetweenȱtheȱPhillipsȱcurveȱandȱtheȱASȱcurve? A) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱtheȱrateȱof wageȱchangesȱonȱtheȱverticalȱaxis. B) TheȱASȱcurveȱhasȱtheȱrateȱofȱpriceȱinflationȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhas theȱrateȱofȱwageȱchangesȱonȱtheȱverticalȱaxis. C) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱtheȱrateȱof changeȱinȱtheȱinterestȱrateȱonȱtheȱverticalȱaxis. D) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱthe interestȱrateȱonȱtheȱverticalȱaxis. E) Thereȱisȱnoȱdistinction:ȱtheȱtwoȱcurvesȱareȱessentiallyȱtheȱsameȱthing.
33)
34) ConsiderȱtheȱAD/ASȱmodel,ȱandȱsupposeȱthatȱtheȱeconomyȱbeginsȱatȱpotentialȱoutput.ȱTheȱeffectȱof aȱpositiveȱASȱshockȱonȱrealȱGDPȱwillȱbeȱreversedȱinȱtheȱlongȱrunȱwithȱaȱ________ȱshiftȱinȱ________. A) rightward;ȱAD B) leftward;ȱAS C) leftward;ȱȱY* D) leftward;ȱAD E) rightward;ȱȱAS
34)
8
ȱ100ȱRandomȱpractice,ȱMacoreconomics 35) GDPȱcanȱbeȱrepresentedȱbyȱtheȱequation:ȱGDPȱ= Fȱxȱ(Fe/F)ȱxȱ(GDP/Fe).ȱInȱthisȱequation,ȱtheȱterm (Fe/F)ȱrepresents A) incomeȱperȱperson. B) factorȱsupplyȱperȱlevelȱofȱoutput. C) theȱfactor-utilizationȱrate. D) factorȱproductivity. E) outputȱperȱcapital.
35)
36) Atȱanyȱgivenȱtime,ȱtheȱlevelȱofȱpotentialȱGDPȱdependsȱon A) theȱproductivityȱofȱfactorsȱofȱproduction. B) normalȱratesȱofȱutilizationȱforȱlabourȱandȱcapital. C) aȱgivenȱamountȱofȱavailableȱfactorsȱofȱproduction. D) allȱofȱtheȱabove E) noneȱofȱtheȱabove
36)
37) Forȱtheȱeconomyȱasȱaȱwhole,ȱchangesȱinȱtheȱfactor-utilizationȱrateȱareȱassociatedȱwithȱshort-run fluctuationsȱinȱoutputȱbecause A) firmsȱcannotȱchangeȱtheirȱpricesȱinȱtheȱshortȱrun. B) theȱshort-runȱfluctuationsȱinȱfactorȱsuppliesȱandȱproductivityȱcancelȱeachȱotherȱout. C) potentialȱoutputȱisȱaffectedȱbyȱtheȱfactor-utilizationȱrateȱinȱtheȱshortȱrun. D) itȱisȱcheaperȱforȱfirmsȱtoȱletȱtheirȱinventoriesȱaccumulateȱthanȱtoȱemployȱmoreȱworkers. E) factorȱpricesȱcanȱonlyȱfullyȱadjustȱinȱtheȱlongȱrun.
37)
38) Onȱtheȱbasisȱofȱbothȱtheoryȱandȱempiricalȱevidence,ȱmostȱeconomistsȱbelieveȱthatȱchangesȱin monetaryȱpolicyȱhave A) powerfulȱeffectsȱonȱrealȱGDPȱandȱfactorȱpricesȱbothȱinȱtheȱshortȱrunȱandȱinȱtheȱlongȱrun. B) noȱlong-runȱeffectȱonȱrealȱGDPȱbutȱaȱsubstantialȱlong-runȱeffectȱonȱinflation. C) noȱeffectȱonȱrealȱGDPȱorȱinflationȱinȱtheȱlongȱrun. D) noȱeffectȱonȱrealȱGDPȱorȱfactorȱutilizationȱinȱtheȱshortȱrun. E) importantȱlong-runȱeffectsȱbyȱchangingȱrealȱinterestȱrates.
38)
39) TheȱfourȱfundamentalȱdeterminantsȱofȱeconomicȱgrowthȱincludeȱallȱofȱtheȱfollowingȱEXCEPT: A) growthȱinȱfinancialȱcapital B) growthȱinȱhumanȱcapital C) growthȱinȱphysicalȱcapital D) growthȱinȱtheȱlabourȱforce E) technologicalȱimprovement
39)
40) OneȱimportantȱassumptionȱofȱtheȱNeoclassicalȱgrowthȱmodelȱisȱthat,ȱwithȱaȱgivenȱstateȱof technology, A) increasesȱinȱtheȱuseȱofȱsingleȱfactorȱbringȱdiminishingȱreturns. B) increasesȱinȱtheȱuseȱofȱaȱsingleȱfactorȱresultȱinȱconstantȱreturns. C) increasesȱinȱGDPȱareȱpossibleȱonlyȱifȱallȱfactorsȱareȱincreasedȱatȱanȱequalȱrate. D) theȱreturnȱfromȱsuccessiveȱunitsȱofȱaȱsingleȱfactorȱincreasesȱoverȱtime. E) increasesȱinȱtheȱuseȱofȱaȱsingleȱfactorȱbringȱincreasingȱreturns.
40)
9
ȱ100ȱRandomȱpractice,ȱMacoreconomics 41) Accordingȱtoȱsomeȱmodernȱtheoriesȱofȱlong-runȱgrowth,ȱsuccessiveȱincrementsȱofȱinvestmentȱhave ________ȱreturnsȱsinceȱsomeȱfixedȱcostsȱareȱ________ȱforȱsubsequentȱfirms. A) decreasing;ȱlower B) increasing;ȱlower C) decreasing;ȱhigher D) constant;ȱidentical E) increasing;ȱhigher
41)
42) InȱtheȱNeoclassicalȱgrowthȱmodel,ȱifȱcapitalȱandȱlabourȱgrowȱatȱtheȱsameȱrate,ȱweȱwillȱobserve A) risingȱGDPȱbutȱnoȱchangeȱinȱlivingȱstandards. B) risingȱGDPȱandȱincreasingȱlivingȱstandards. C) increasingȱlivingȱstandardsȱbutȱonlyȱforȱworkersȱusingȱlabour -intensiveȱproduction. D) risingȱGDPȱbutȱfallingȱlivingȱstandards. E) increasingȱlivingȱstandardsȱbutȱonlyȱforȱworkersȱusingȱcapital-intensiveȱproduction.
42)
43) AȱcentralȱbankȱcanȱȈcreateȈȱmoneyȱby A) sellingȱsomeȱofȱitsȱforeign-currencyȱreservesȱforȱdomesticȱcurrency. B) increasingȱtheȱrateȱofȱinflation. C) sellingȱgovernmentȱTreasuryȱbillsȱtoȱtheȱcommercialȱbanks. D) purchasingȱgovernmentȱsecuritiesȱonȱtheȱopenȱmarket. E) issuingȱitsȱownȱCentralȱBankȱbonds.
43)
44) Considerȱaȱnewȱdepositȱofȱ$10ȱ000ȱtoȱtheȱCanadianȱbankingȱsystem.ȱTheȱbankȱthatȱinitiallyȱreceives thisȱdepositȱwillȱfindȱitselfȱwith A) noȱexcessȱreservesȱifȱthereȱisȱnoȱreserveȱrequirement. B) $1ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ10ȱpercent. C) $2ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ10ȱpercent. D) $8ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ20ȱpercent. E) $10ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ100ȱpercent.
44)
45) IfȱtheȱBankȱofȱCanadaȱentersȱtheȱopenȱmarketȱandȱsellsȱ$1000ȱofȱgovernmentȱsecurities,ȱwhatȱwill beȱtheȱeventualȱchangeȱinȱtheȱmoneyȱsupplyȱgivenȱaȱ10ȱpercentȱtargetȱreserveȱratioȱinȱthe commercialȱbankingȱsystemȱandȱaȱ10ȱpercentȱcashȱdrain? A) increaseȱofȱ$10ȱ000 B) decreaseȱofȱ$1000 C) decreaseȱofȱ$10ȱ000 D) increaseȱofȱ$5000 E) decreaseȱofȱ$5000
45)
46) ȈExcessȱreservesȈȱforȱaȱcommercialȱbankȱreferȱto A) anyȱsurplusȱinȱtheȱbankȇsȱsupplyȱofȱgold. B) anyȱsurplusȱofȱchequableȱdeposits. C) anyȱreservesȱ(cashȱorȱdepositsȱwithȱtheȱBankȱofȱCanada)ȱthatȱtheȱbankȱholdsȱoverȱandȱabove itsȱdesiredȱreserves. D) excessȱdemandȱforȱmoneyȱfromȱthatȱbank. E) reservesȱ(cashȱorȱdepositsȱwithȱtheȱBankȱofȱCanada)ȱthatȱtheȱBankȱofȱCanadaȱrequiresȱthe bankȱtoȱhold.
46)
10
ȱ100ȱRandomȱpractice,ȱMacoreconomics 47) Supposeȱthatȱatȱaȱgivenȱinterestȱrateȱandȱmoneyȱsupply,ȱallȱfirmsȱandȱhouseholdsȱsimultaneously tryȱtoȱreduceȱtheirȱmoneyȱbalances.ȱTheyȱdoȱthisȱbyȱtryingȱtoȱ________,ȱwhichȱcausesȱanȱexcess ________,ȱwhichȱcausesȱa(n)ȱ________,ȱandȱfinallyȱa(n)ȱ________ȱinȱtheȱinterestȱrate. A) buyȱbonds;ȱsupplyȱofȱbonds;ȱdecreaseȱinȱtheȱpriceȱofȱbonds;ȱincrease B) sellȱbonds;ȱdemandȱforȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease C) buyȱbonds;ȱdemandȱforȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease D) sellȱbonds;ȱsupplyȱofȱbonds;ȱdecreaseȱinȱtheȱpriceȱofȱbonds;ȱincrease E) sellȱbonds;ȱsupplyȱofȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease 48) AccordingȱtoȱtheȱviewsȱofȱtheȱClassicalȱeconomists,ȱifȱtheȱmoneyȱsupplyȱdoubles, A) realȱincomeȱwillȱdouble. B) thereȱwillȱbeȱnoȱeffectȱonȱmoneyȱprices. C) moneyȱpricesȱwillȱbeȱhalved. D) relativeȱpricesȱwillȱdouble. E) moneyȱpricesȱwillȱdouble.
47)
48)
FIGUREȱ28-2 49) ReferȱtoȱFigureȱ28-2.ȱStartingȱatȱequilibriumȱE0 ,ȱanȱincreaseȱinȱrealȱGDPȱwillȱleadȱtoȱa A) shiftȱofȱtheȱMDȱcurveȱtoȱtheȱrightȱandȱanȱincreaseȱinȱtheȱinterestȱrate. B) shiftȱofȱtheȱMs ȱcurveȱtoȱtheȱrightȱandȱaȱfallȱinȱtheȱinterestȱrate. C) shiftȱofȱtheȱMDȱcurveȱtoȱtheȱleftȱandȱaȱfallȱinȱtheȱinterestȱrate. D) downwardȱmovementȱalongȱtheȱMD curveȱandȱaȱlowerȱinterestȱrate. E) shiftȱofȱtheȱMs ȱcurveȱtoȱtheȱleftȱandȱanȱincreaseȱinȱtheȱinterestȱrate.
11
49)
ȱ100ȱRandomȱpractice,ȱMacoreconomics 50) Theȱmonetaryȱtransmissionȱmechanismȱdescribesȱhowȱchangesȱinȱtheȱdemandȱforȱorȱsupplyȱof moneyȱcauseȱchangesȱinȱtheȱinterestȱrate,ȱwhichȱthenȱcauseȱchangesȱin A) aggregateȱdemand,ȱrealȱGDPȱandȱtheȱpriceȱlevel. B) desiredȱinvestmentȱandȱnetȱexports. C) theȱinflationȱrate. D) potentialȱoutput. E) bothȱAȱandȱBȱareȱcorrect.
50)
51) Inȱ1994,ȱtheȱfederalȱministerȱofȱfinanceȱ(PaulȱMartin)ȱappointedȱGordonȱThiessenȱasȱtheȱnew governorȱofȱtheȱBankȱofȱCanadaȱ,ȱwhoȱproceededȱto A) increaseȱtheȱovernightȱlendingȱrateȱinȱorderȱtoȱstabilizeȱtheȱCanadian-U.S.ȱexchangeȱrate. B) continueȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessor. C) continueȱtheȱpopularȱlowȱovernightȱlendingȱpolicyȱofȱhisȱpredecessor. D) abandonȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessorȱin favourȱofȱaȱlow-interest-rateȱpolicy. E) abandonȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessorȱin favourȱofȱaȱpolicyȱdesignedȱtoȱdepreciateȱtheȱCanadianȱdollar.
51)
52) Ifȱweȱobserveȱthatȱtheȱbankȱrateȱhasȱfallen,ȱweȱcanȱconcludeȱthatȱthe A) BankȱofȱCanadaȱhasȱadjustedȱtheȱrateȱitȱpaysȱonȱTreasuryȱbills. B) BankȱofȱCanadaȱhasȱimplementedȱanȱexpansionaryȱmonetaryȱpolicy. C) BankȱofȱCanadaȱhasȱimplementedȱaȱcontractionaryȱmonetaryȱpolicy. D) BankȱofȱCanadaȱhasȱabandonedȱitsȱinflationȱtarget. E) GovernmentȱofȱCanadaȱhasȱreducedȱtheȱmoneyȱsupply.
52)
53) Aȱmeasureȱthatȱhasȱbeenȱdevelopedȱtoȱanalyzeȱtheȱamountȱofȱoutputȱthatȱmustȱbeȱgivenȱupȱin orderȱtoȱreduceȱtheȱinflationȱrateȱbyȱoneȱpercentageȱpointȱisȱcalledȱthe A) Phillipsȱmeasure. B) credibilityȱindex. C) miseryȱindex. D) sacrificeȱratio. E) outputȱgap.
53)
54) SupposeȱtheȱCanadianȱeconomyȱisȱboomingȱdueȱtoȱrisingȱnetȱexportsȱandȱthereȱisȱpoliticalȱpressure toȱmaintainȱtheȱȈgoodȱtimesȈ.ȱIfȱtheȱBankȱofȱCanadaȱdoesȱsoȱbyȱimplementingȱanȱexpansionary monetaryȱpolicy,ȱitȱwould A) causeȱaȱpermanentȱrecessionaryȱgap. B) increaseȱtheȱactualȱinflationȱrate. C) causeȱaȱtemporaryȱdropȱinȱinflation. D) beȱactingȱtoȱde-stabilizeȱtheȱeconomy. E) BothȱBȱandȱDȱareȱcorrect.
54)
55) Theȱsacrificeȱratioȱisȱaȱmeasureȱofȱthe A) theȱcrowdingȱoutȱofȱinvestmentȱdueȱtoȱincreasesȱinȱgovernmentȱpurchases. B) numberȱofȱpeopleȱunemployedȱdueȱtoȱdisinflation. C) lossȱofȱrealȱGDPȱassociatedȱwithȱinflation. D) unemploymentȱassociatedȱwithȱaȱrecessionaryȱgap. E) cumulativeȱlossȱinȱrealȱGDPȱdueȱtoȱaȱdisinflation.
55)
12
ȱ100ȱRandomȱpractice,ȱMacoreconomics 56) Considerȱanȱopen-economyȱAD/ASȱmacroȱmodel.ȱAnȱexpansionaryȱfiscalȱpolicyȱwillȱgenerally increaseȱtheȱgovernmentȇsȱbudgetȱ________ȱandȱalsoȱtendsȱtoȱ________ȱandȱthusȱ________ȱnet exports. A) noneȱofȱtheȱabove B) surplus;ȱdepreciateȱtheȱcurrency;ȱincrease C) deficit;ȱappreciateȱtheȱcurrency;ȱreduce D) surplus;ȱappreciateȱtheȱcurrency;ȱdecrease E) deficit;ȱappreciateȱtheȱcurrency;ȱincrease
56)
Theȱdiagramȱbelowȱshowsȱtwoȱbudgetȱdeficitȱfunctionsȱforȱaȱhypotheticalȱeconomy.
FIGUREȱ32-3 57) ConsiderȱFigureȱ32-3.ȱInitially,ȱsupposeȱthatȱrealȱGDPȱisȱ$100ȱmillionȱandȱtheȱbudgetȱdeficitȱisȱ$14 million,ȱasȱshownȱbyȱpointȱA.ȱWhichȱofȱtheȱfollowingȱeventsȱcouldȱresultȱinȱaȱmoveȱfromȱpointȱA toȱpointȱB? A) theȱeconomyȱenteringȱintoȱaȱboom B) theȱimplementationȱofȱaȱcontractionaryȱfiscalȱpolicy C) theȱimplementationȱofȱanȱexpansionaryȱfiscalȱpolicy D) theȱimplementationȱofȱanȱexpansionaryȱmonetaryȱpolicy E) theȱimplementationȱofȱaȱcontractionaryȱmonetaryȱpolicy
57)
58) Implementationȱofȱcyclicallyȱbalancedȱgovernmentȱbudgets A) isȱeasierȱwithȱfrequentȱchangesȱinȱpoliticalȱpower. B) requiresȱpreciseȱpredictionȱofȱpotentialȱGDPȱtoȱpinpointȱtheȱstagesȱofȱtheȱbusinessȱcycle. C) resultsȱinȱlargerȱoutputȱgapsȱthanȱwithȱannuallyȱbalancedȱbudgets. D) eliminatesȱtheȱneedȱforȱbuilt-inȱfiscalȱstabilizers. E) noneȱofȱtheȱabove.
58)
13
ȱ100ȱRandomȱpractice,ȱMacoreconomics 59) IfȱCanadaȇsȱcurrentȱaccountȱisȱinȱdeficit,ȱthenȱweȱcanȱbeȱsureȱthatȱthereȱisȱaȱ________ȱonȱtheȱcapital account,ȱwhichȱmeansȱaȱcapitalȱ________ȱtoȱ(from)ȱCanada. A) deficit;ȱoutflow B) deficit;ȱinflow C) surplus;ȱinflow D) surplus;ȱoutflow E) noneȱofȱtheȱabove
59)
60) Chinaȱfixesȱitsȱexchangeȱrateȱ(yuanȱperȱunitsȱofȱforeignȱcurrency)ȱatȱaȱrateȱwellȱaboveȱits free-marketȱequilibriumȱlevel.ȱInȱorderȱtoȱmaintainȱthisȱexchangeȱrate,ȱandȱtoȱpreventȱitsȱcurrency fromȱ________,ȱtheȱChineseȱcentralȱbankȱisȱrapidlyȱaccumulatingȱ________. A) appreciating;ȱforeign-exchangeȱreserves B) appreciating;ȱreservesȱofȱitsȱdomesticȱcurrency C) depreciating;ȱreservesȱofȱitsȱdomesticȱcurrency D) depreciating;ȱU.S.ȱdollars E) depreciating;ȱforeign-exchangeȱreserves
60)
61) Theȱ________ȱrepresentsȱtheȱdifferenceȱbetweenȱtheȱpaymentsȱandȱreceiptsȱfromȱinternational transactionsȱinȱgoodsȱandȱservices.ȱTheȱ________ȱrepresentsȱtheȱdifferenceȱbetweenȱpaymentsȱand receiptsȱfromȱinternationalȱtransactionsȱinȱassets. A) tradeȱbalance;ȱofficial-financingȱaccount B) merchandiseȱaccount;ȱinvestmentȱaccount C) capitalȱoutflow;ȱcapitalȱinflow D) tradeȱbalance;ȱcapital-serviceȱaccount E) currentȱaccountȱbalance;ȱcapitalȱaccountȱbalance
61)
62) Supposeȱactualȱoutputȱisȱlessȱthanȱpotentialȱoutput.ȱIfȱtheȱoutputȱgapȱmeasuresȱtheȱoutputȱlossȱdue toȱtheȱfailureȱtoȱachieveȱfullȱemployment,ȱitȱcanȱgenerallyȱbeȱconcludedȱthatȱtheȱlargerȱthisȱoutput gap,ȱthe A) lowerȱtheȱdeadweightȱlossȱofȱunemployment. B) greaterȱisȱtheȱunemploymentȱrate. C) greaterȱisȱtheȱemploymentȱrate. D) lowerȱisȱfrictionalȱunemployment. E) moreȱupwardȱpressureȱthereȱisȱonȱprices.
62)
63) Inflation,ȱtheȱrateȱofȱchangeȱofȱaverageȱpricesȱinȱtheȱeconomy,ȱgenerally A) hasȱnoȱrealȱeffectsȱifȱitȱisȱunanticipated. B) reducesȱtheȱrealȱvalueȱofȱexistingȱnominalȱdebt. C) increasesȱtheȱpurchasingȱpowerȱofȱmoney. D) increasesȱtheȱrealȱvalueȱofȱfixedȱmoneyȱincomes. E) benefitsȱcreditorsȱifȱitȱisȱunanticipated.
63)
64) RealȱGDPȱisȱequivalentȱto A) personalȱdisposableȱincomeȱplusȱdepreciation. B) theȱmarketȱvalueȱofȱallȱgoodsȱandȱservicesȱproducedȱinȱanȱeconomyȱperȱyear. C) theȱnominalȱvalueȱofȱGNPȱmultipliedȱbyȱtheȱGDPȱdeflator. D) theȱmoneyȱvalueȱofȱallȱgoodsȱandȱservicesȱproducedȱinȱanȱeconomyȱperȱyearȱplusȱimports. E) theȱvalueȱofȱallȱgoodsȱandȱservicesȱproducedȱinȱanȱeconomyȱperȱyearȱadjustedȱforȱprice changes.
64)
14
ȱ100ȱRandomȱpractice,ȱMacoreconomics TheȱtableȱbelowȱincludesȱdataȱrequiredȱtoȱcalculateȱGDPȱfromȱtheȱexpenditureȱside. Investmentȱexpenditure Wagesȱandȱsalariesȱȱȱȱȱ Consumptionȱexpenditureȱȱȱ Interestȱandȱinvestmentȱincome Businessȱprofitsȱȱȱȱȱȱȱȱȱȱ Depreciationȱȱȱȱ Governmentȱpurchasesȱȱȱ Netȱexportsȱȱȱȱȱȱȱȱȱȱȱ
$402.00 $1741.00 1302.40 $99.40 $70.40 $199.20 $486.80 $94.00
TABLEȱ20-1 65) ReferȱtoȱTableȱ20-1.ȱWhatȱisȱtheȱvalueȱofȱGDP? A) $2285.20 B) $1982.60 C) $2010.00
65) D) $2584.40
E) $1986.00
66) IfȱtheȱJonesȱfamilyȇsȱdisposableȱincomeȱincreasesȱfromȱ$1ȱ200ȱtoȱ$1ȱ700ȱandȱtheirȱdesiredȱsaving increasesȱfromȱ-$100ȱtoȱ+$100,ȱthenȱtheȱfamilyȇs A) averageȱpropensityȱtoȱconsumeȱisȱ0.60. B) marginalȱpropensityȱtoȱconsumeȱisȱ0.40. C) marginalȱpropensityȱtoȱsaveȱisȱ1. D) marginalȱpropensityȱtoȱconsumeȱisȱ0.60. E) averageȱpropensityȱtoȱconsumeȱisȱ0.40. DisposableȱIncome ȱȱȱȱ0 ȱȱ50 150 300
66)
DesiredȱConsumption ȱȱ10 ȱȱ30 ȱȱ70 130
TABLEȱ21-6 67) ReferȱtoȱTableȱ21-6.ȱTheȱmarginalȱpropensityȱtoȱconsumeȱisȱequalȱto A) 0.6. B) 0.8. C) 0.2. D) 0.67.
67) E) 0.4.
68) SupposeȱGȱ=ȱ300ȱandȱtheȱgovernmentȇsȱnetȱtaxȱrevenueȱisȱequalȱtoȱ0.12Y.ȱTheȱgovernmentȱbudget isȱbalancedȱwhenȱYȱequalsȱ________. A) 350 B) 1ȱ000 C) 2ȱ000 D) 2ȱ500 E) 3ȱ600
68)
69) Supposeȱexportsȱ(X)=100,ȱY=500,ȱandȱimportsȱareȱequalȱtoȱmY,ȱwhereȱmȱisȱtheȱmarginalȱpropensity toȱimport.ȱNetȱexportsȱwouldȱbeȱequalȱtoȱzeroȱifȱtheȱmarginalȱpropensityȱtoȱimportȱwere A) 1ȱpercent. B) 5ȱpercent. C) 10ȱpercent. D) 20ȱpercent. E) 50ȱpercent.
69)
15
ȱ100ȱRandomȱpractice,ȱMacoreconomics 70) OnȱaȱgraphȱthatȱshowsȱtheȱderivationȱofȱtheȱADȱcurve,ȱanȱexogenousȱchangeȱinȱtheȱpriceȱlevel causes A) aȱshiftȱinȱtheȱAEȱcurveȱandȱaȱmovementȱalongȱtheȱADȱcurve. B) aȱmovementȱalongȱtheȱAEȱcurveȱbutȱnotȱalongȱtheȱADȱcurve. C) aȱmovementȱalongȱbothȱtheȱAEȱandȱADȱcurves. D) aȱshiftȱinȱbothȱtheȱAEȱandȱADȱcurves. E) aȱmovementȱalongȱtheȱAEȱcurveȱandȱaȱshiftȱinȱtheȱADȱcurve.
70)
71) Oneȱreasonȱwhyȱtheȱaggregateȱdemandȱ(AD)ȱcurveȱslopesȱdownwardȱisȱthat A) aggregateȱexpenditureȱincreasesȱasȱtheȱpriceȱlevelȱrises. B) decreasesȱinȱtheȱpriceȱlevelȱcauseȱincreasesȱinȱprivate-sectorȱwealthȱwhichȱleadȱtoȱincreasesȱin desiredȱconsumption. C) increasedȱproductionȱresultsȱinȱlowerȱproductionȱcosts. D) whenȱtheȱpriceȱlevelȱfallsȱconsumersȱincreaseȱtheirȱsavingȱrate. E) whenȱtheȱpriceȱlevelȱfallsȱfirmsȱmustȱcompeteȱmoreȱwhenȱoutputȱincreases.
71)
72) Supposeȱthatȱtheȱgovernmentȱannouncesȱtemporaryȱtaxȱcutsȱtoȱstimulateȱconsumersȇȱconsumption expendituresȱbutȱtheȱimpactȱofȱthisȱtaxȱchangeȱonȱȱconsumptionȱisȱobservedȱtoȱbeȱveryȱsmall.ȱThis outcomeȱmightȱbeȱexplainedȱbyȱtheȱfactȱthat A) theȱimpactȱofȱtheȱpolicyȱisȱdampenedȱbyȱtheȱautomaticȱfiscalȱstabilizers. B) theȱconsumersȱanticipateȱthatȱtheȱtaxȱchangeȱisȱonlyȱtemporaryȱandȱthusȱisȱunlikelyȱtoȱaffect theirȱȈlifetimeȈȱincome. C) thisȱeconomyȱisȱsufferingȱfromȱtheȱparadoxȱofȱthrift. D) thisȱeconomyȱisȱalreadyȱatȱitsȱlong-runȱequilibrium. E) theȱgovernmentȱhasȱlittleȱcredibility.
72)
73) Whichȱofȱtheȱfollowingȱwillȱoccurȱasȱpartȱofȱtheȱautomaticȱadjustmentȱprocessȱinȱanȱeconomyȱwith anȱinflationaryȱgap? A) increasingȱinvestment B) risingȱwages C) increasingȱtaxȱrates D) decliningȱgovernmentȱpurchases E) fallingȱprices
73)
74) InȱCanada,ȱtheȱlabour-forceȱparticipationȱrateȱisȱabout A) 66ȱpercent. B) 76ȱpercent. C) 92ȱpercent. D) 86ȱpercent. E) 90ȱpercent.
74)
75) Oneȱofȱtheȱbenefitsȱofȱlong-runȱeconomicȱgrowthȱis A) growthȱinȱnominalȱGDPȱgreaterȱthanȱrealȱGDP. B) aȱgreaterȱabilityȱtoȱreduceȱinequality. C) increasedȱfutureȱinterestȱrates. D) decreasedȱproductiveȱcapacity. E) decreasedȱcurrentȱsavingȱandȱincreasedȱcurrentȱconsumption.
75)
16
ȱ100ȱRandomȱpractice,ȱMacoreconomics 76) IfȱCanadianȱhouseholdsȱandȱbusinessesȱrefusedȱtoȱacceptȱCanadianȱdollarsȱinȱexchangeȱforȱgoods andȱservices,ȱtheȱvalueȱofȱtheȱCanadianȱdollarȱwould A) fall. B) stayȱconstantȱsinceȱitsȱvalueȱisȱdeterminedȱonlyȱbyȱtheȱBankȱofȱCanada. C) stayȱconstantȱsinceȱtheȱvalueȱdoesȱnotȱdependȱonȱpeopleȇsȱacceptabilityȱofȱit. D) riseȱsinceȱlessȱwouldȱbeȱinȱcirculation. E) stayȱconstantȱsinceȱitsȱvalueȱisȱdeterminedȱonlyȱbyȱtheȱGovernmentȱofȱCanada.
76)
77) IfȱrealȱGDPȱfalls,ȱotherȱthingsȱbeingȱequal,ȱweȱcanȱexpect A) anȱincreaseȱinȱtheȱspeculativeȱdemandȱforȱmoney. B) aȱdecreaseȱinȱtransactionsȱdemandȱforȱmoney. C) anȱincreaseȱinȱtransactionsȱdemandȱforȱmoney. D) anȱincreaseȱinȱtheȱtotalȱdemandȱforȱmoney. E) anȱincreaseȱinȱprecautionaryȱdemandȱforȱmoney.
77)
78) Becauseȱofȱtheȱvolatilityȱofȱfoodȱandȱenergyȱprices,ȱtheȱBankȱofȱCanadaȱpaysȱmoreȱattentionȱinȱthe shortȱrunȱtoȱchangesȱinȱ________ȱthanȱtoȱchangesȱinȱ________. A) coreȱinflation;ȱȱtotalȱCPIȱinflation B) inflationȱofȱtheȱGDPȱdeflator;ȱtotalȱCPIȱinflation C) theȱnominalȱexchangeȱrate;ȱtheȱrealȱexchangeȱrate D) totalȱCPIȱinflation;ȱcoreȱinflation E) totalȱCPIȱinflation;ȱinflationȱofȱtheȱGDPȱdeflator
78)
79) Assumeȱyourȱsalaryȱisȱ$2000ȱperȱmonthȱandȱyourȱemployerȱgivesȱyouȱaȱraiseȱofȱ6ȱpercent.ȱOverȱthe nextȱtwelveȱmonthsȱtheȱinflationȱrateȱisȱ12ȱpercent.ȱYourȱrealȱsalaryȱwillȱchangeȱby A) +ȱ6ȱpercent. B) -ȱ6ȱpercent. C) -ȱ12ȱpercent. D) +12ȱpercent. E) 0ȱpercent.
79)
80) IfȱtheȱCanadianȱfederalȱgovernmentȱadoptedȱaȱformalȱbalancedȱbudgetȱrule,ȱduringȱtimesȱthat GDPȱwasȱfallingȱitȱwouldȱhaveȱto A) increaseȱtaxȱratesȱand/orȱincreaseȱspendingȱwhichȱwouldȱdestabilizeȱtheȱeconomy. B) decreaseȱinterestȱpaymentsȱonȱtheȱdebt. C) increaseȱtaxȱratesȱand/orȱdecreaseȱspendingȱwhichȱwouldȱdestabilizeȱtheȱeconomy. D) decreaseȱtaxȱratesȱand/orȱincreaseȱspendingȱwhichȱwouldȱdestabilizeȱtheȱeconomy. E) decreaseȱspendingȱandȱtransferȱpaymentsȱwhileȱholdingȱtaxȱratesȱconstant.
80)
81) Supposeȱthatȱaȱcountryȇsȱprivateȱsavingȱisȱ$4ȱmillion,ȱitsȱinvestmentȱisȱ$10ȱmillion,ȱgovernment purchasesȱareȱ$6ȱmillion,ȱandȱnetȱtaxȱrevenuesȱareȱ$15ȱmillionȱinȱaȱgivenȱyear.ȱTheȱcurrentȱaccount balanceȱforȱthisȱcountryȱisȱa A) surplusȱofȱ$9ȱmillion. B) surplusȱofȱ$15ȱmillion. C) deficitȱofȱ$9ȱmillion. D) surplusȱofȱ$3ȱmillion. E) deficitȱofȱ$6ȱmillion.
81)
17
ȱ100ȱRandomȱpractice,ȱMacoreconomics 82) SupposeȱCanadaȇsȱexchangeȱrateȱwithȱtheȱU.S.ȱdollarȱfallsȱfromȱ1.21ȱtoȱ1.13.ȱThisȱfallȱindicatesȱa(n) ________ȱofȱtheȱCanadianȱdollar,ȱwhichȱmeansȱitȱtakesȱ________ȱCanadianȱdollarsȱtoȱpurchaseȱone U.S.ȱdollar. A) depreciation;ȱmore B) depreciation;ȱfewer C) appreciation;ȱmore D) appreciation;ȱfewer
82)
83) TransferȱpaymentsȱareȱexcludedȱfromȱtheȱgovernmentȱcomponentȱinȱtheȱcalculationȱofȱGDP because A) theyȱareȱsmallȱenoughȱtoȱignoreȱwhenȱcomputingȱtheȱnationalȱaccounts. B) theyȱareȱnotȱcountedȱasȱincomeȱbyȱanyȱeconomicȱagent. C) itȱisȱdifficultȱtoȱassessȱtheȱmarketȱvalueȱofȱaȱtransferȱpayment. D) theyȱdoȱnotȱgenerateȱadditionalȱincomeȱinȱtheȱeconomy. E) theyȱdoȱnotȱrepresentȱtheȱpurchaseȱofȱaȱgoodȱorȱaȱservice.
83)
84) Aggregateȱdesiredȱconsumptionȱdividedȱbyȱaggregateȱdisposableȱincomeȱisȱcalledȱthe A) totalȱpropensityȱtoȱsave. B) averageȱpropensityȱtoȱconsume. C) averageȱpropensityȱtoȱsave. D) marginalȱpropensityȱtoȱsave. E) averageȱpropensityȱtoȱspend.
84)
85) Considerȱtheȱfollowingȱnewsȱheadline:ȱȈFinanceȱministerȱannouncesȱthatȱtheȱfederalȱincome -tax rateȱwillȱriseȱbyȱthreeȱpercentageȱpoints.ȈȱAssumingȱthatȱaggregateȱoutputȱisȱdemand-determined, whatȱwillȱbeȱtheȱeffectȱofȱthisȱaction,ȱallȱotherȱthingsȱequal,ȱonȱtheȱAEȱfunctionȱandȱequilibrium nationalȱincome? A) theȱAEȱfunctionȱwillȱrotateȱupwardȱ(becomeȱsteeper)ȱandȱequilibriumȱnationalȱincomeȱwill rise. B) thereȱwillȱbeȱnoȱchangeȱinȱtheȱAEȱfunctionȱorȱinȱequilibriumȱnationalȱincome. C) theȱAEȱfunctionȱwillȱshiftȱdownȱparallelȱtoȱitselfȱandȱequilibriumȱnationalȱincomeȱwillȱfall. D) theȱAEȱfunctionȱwillȱshiftȱupȱparallelȱtoȱitselfȱandȱequilibriumȱnationalȱincomeȱwillȱrise. E) theȱAEȱfunctionȱwillȱrotateȱdownwardȱ(becomeȱflatter)ȱandȱnationalȱincomeȱwillȱfall.
85)
86) AȱleftwardȱshiftȱinȱtheȱeconomyȇsȱASȱcurveȱimpliesȱthat A) atȱanyȱgivenȱpriceȱlevel,ȱaȱlowerȱlevelȱofȱoutputȱwillȱbeȱsupplied. B) thereȱisȱaȱdemandȱshock. C) thereȱisȱaȱdecreaseȱinȱaggregateȱsupply. D) atȱanyȱgivenȱpriceȱlevel,ȱaȱhigherȱlevelȱofȱoutputȱwillȱbeȱsupplied. E) bothȱAȱandȱCȱareȱcorrect.
86)
87) AȱcommonȱassumptionȱamongȱmacroeconomistsȱisȱthatȱwhenȱrealȱGDPȱisȱlessȱthanȱpotential output,ȱfactorȱpricesȱadjustȱandȱthe A) ASȱcurveȱshiftsȱtoȱtheȱleftȱfairlyȱrapidly. B) ASȱcurveȱshiftsȱtoȱtheȱrightȱveryȱrapidly. C) ADȱcurveȱshiftsȱtoȱtheȱleftȱrapidly. D) ASȱcurveȱshiftsȱtoȱtheȱrightȱonlyȱveryȱslowly. E) noneȱofȱtheȱaboveȱ--ȱtheȱASȱcurveȱremainsȱunchanged.
87)
18
ȱ100ȱRandomȱpractice,ȱMacoreconomics 88) GDPȱcanȱbeȱrepresentedȱbyȱtheȱequation:ȱGDPȱ= Fȱxȱ(Fe/F)ȱxȱ(GDP/Fe).ȱThisȱequationȱtellsȱusȱthat realȱaggregateȱoutputȱcanȱbeȱexpressedȱasȱfactor A) supplyȱtimesȱequilibriumȱfactorȱpriceȱtimesȱfactorȱproductivity. B) utilizationȱtimesȱequilibriumȱfactorȱpriceȱtimesȱfactorȱproductivity. C) supplyȱtimesȱtheȱequilibriumȱfactorȱpriceȱtimesȱȱGDPȱperȱcapita. D) supplyȱtimesȱtheȱfactor-utilizationȱrateȱtimesȱfactorȱproductivity. E) priceȱtimesȱtheȱutilizationȱrateȱtimesȱGDPȱperȱcapita.
88)
89) InȱNeoclassicalȱgrowthȱtheory,ȱaverageȱmaterialȱlivingȱstandardsȱinȱanȱeconomyȱcouldȱfallȱwhen A) additionalȱunitsȱofȱcapitalȱareȱaddedȱtoȱtheȱotherȱfactors. B) thereȱisȱaȱdeclineȱinȱtheȱpopulation. C) thereȱisȱequalȱpercentageȱgrowthȱinȱcapitalȱandȱlabourȱinputs. D) technologyȱimproves. E) additionalȱunitsȱofȱlabourȱareȱaddedȱtoȱtheȱotherȱfactors.
89)
90) Supposeȱthatȱtheȱcashȱdrainȱinȱtheȱbankingȱsystemȱincreasesȱduringȱholidayȱperiods.ȱAsȱaȱresult, A) theȱcapacityȱofȱtheȱbankingȱtoȱcreateȱdepositȱmoneyȱisȱincreasedȱduringȱholidayȱperiods. B) theȱcapacityȱofȱtheȱbankingȱsystemȱtoȱcreateȱdepositȱmoneyȱisȱdampenedȱduringȱholiday periods. C) theȱmoneyȱsupplyȱwillȱautomaticallyȱincrease. D) commercialȱbanksȱdecreaseȱtheirȱtargetȱreserveȱratios. E) changesȱinȱreservesȱwillȱresultȱinȱnoȱchangeȱinȱdepositsȱduringȱholidayȱperiods.
90)
19
ȱ100ȱRandomȱpractice,ȱMacoreconomics
FIGUREȱ28-2 91) ReferȱtoȱFigureȱ28-2.ȱIfȱtheȱinterestȱrateȱisȱi1 ,ȱtheȱsubsequentȱadjustmentȱinȱtheȱmoneyȱmarketȱisȱas
91)
follows: A) theȱinterestȱrateȱwillȱremainȱatȱi1ȱbecauseȱtheȱmoneyȱmarketȱisȱinȱequilibriumȱatȱthisȱinterest rate. B) excessȱsupplyȱofȱmoneyȱleadsȱtoȱtheȱpurchaseȱofȱbonds,ȱwhichȱinȱturnȱcausesȱtheȱinterestȱrate toȱfall. C) excessȱdemandȱforȱmoneyȱleadsȱtoȱaȱpurchaseȱofȱbonds,ȱwhichȱinȱturnȱcausesȱtheȱinterestȱrate toȱrise. D) theȱM s ȱcurveȱwillȱshiftȱtoȱtheȱleftȱsoȱasȱtoȱmaintainȱtheȱinterestȱrateȱatȱi2 . E) excessȱdemandȱforȱmoneyȱleadsȱtoȱaȱsaleȱofȱbonds,ȱwhichȱinȱturnȱcausesȱtheȱinterestȱrateȱto rise. 92) SupposeȱCanadianȱrealȱGDPȱisȱequalȱtoȱpotentialȱGDP.ȱȱAnȱappreciationȱofȱtheȱCanadianȱdollar thenȱimpliesȱthatȱtheȱBankȱofȱCanadaȱshouldȱengageȱin A) anȱincreaseȱinȱinflationȱbecauseȱofȱtheȱhigherȱcostȱofȱimports. B) noȱchangeȱinȱmonetaryȱpolicyȱbecauseȱtheȱexchangeȱrateȱisȱalwaysȱallowedȱtoȱfloatȱfreely. C) eitherȱaȱcontractionaryȱorȱanȱexpansionaryȱpolicy,ȱdependingȱonȱtheȱcauseȱofȱthe appreciation. D) aȱtighteningȱofȱmonetaryȱpolicyȱbecauseȱofȱtheȱexcessȱdemandȱforȱCanadianȱproductsȱthatȱis creatingȱtheȱappreciation. E) aȱlooseningȱofȱmonetaryȱpolicyȱbecauseȱofȱtheȱexcessȱdemandȱforȱCanadianȱproductsȱthatȱis creatingȱtheȱappreciation.
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92)
ȱ100ȱRandomȱpractice,ȱMacoreconomics 93) ȱConsiderȱanȱeconomyȱthatȱisȱinȱtheȱprocessȱofȱaȱdisinflation.ȱȱIfȱtheȱsacrificeȱratioȱisȱ3,ȱthen A) theȱcumulativeȱlossȱofȱoutputȱinȱtheȱeconomyȱwillȱreachȱaȱtotalȱofȱ3ȱpercent. B) unemploymentȱincreasesȱbyȱ3ȱpercentȱduringȱtheȱperiodȱofȱdisinflation C) unemploymentȱincreasesȱbyȱ3ȱpercentȱforȱeveryȱoneȱpercentȱreductionȱinȱinflation. D) itȱcostsȱ3ȱpercentȱofȱGDPȱtoȱreduceȱinflationȱbyȱoneȱpercentageȱpoint. E) theȱcostsȱofȱdisinflationȱareȱ3ȱtimesȱtheȱbenefitsȱofȱdisinflation.
93)
94) DoȱweȱgetȱaȱusefulȱandȱmeaningfulȱstatisticȱbyȱdividingȱtheȱnationalȱdebtȱbyȱtheȱGDP? A) Noȱ--ȱweȱareȱessentiallyȱȈdividingȱapplesȱbyȱorangesȈ,ȱwhichȱisȱunhelpful. B) Noȱ--ȱdividingȱaȱstockȱbyȱaȱflowȱcanȱneverȱbeȱsensible. C) Yesȱ--ȱweȱcanȱseeȱtheȱburdenȱofȱtheȱdebtȱmoreȱclearlyȱthanȱusingȱtheȱnationalȱdebtȱfigure alone. D) Yesȱ--ȱweȱcanȱthenȱseeȱhowȱmuchȱofȱtheȱnationalȱdebtȱisȱowedȱbyȱeachȱindividualȱcitizen. E) Noȱ--ȱtheȱGDPȱisȱnotȱaȱmeaningfulȱmeasureȱofȱtheȱwell-beingȱofȱtheȱeconomy.
94)
95) WhenȱaȱgroceryȱimporterȱinȱSwedenȱbuysȱQuebecȱmapleȱsyrup,ȱthis A) appearsȱasȱaȱcreditȱitemȱonȱtheȱSwedishȱcurrentȱaccount. B) appearsȱasȱaȱdebitȱitemȱonȱtheȱCanadianȱcurrentȱaccount. C) appearsȱasȱaȱcreditȱitemȱonȱtheȱCanadianȱcurrentȱaccount. D) appearsȱasȱaȱdebitȱitemȱonȱtheȱSwedishȱcurrentȱaccount. E) bothȱCȱandȱD
95)
96) WhenȱmacroeconomistsȱuseȱtheȱtermȱȈrecessionȈȱtheyȱusuallyȱdefineȱitȱasȱaȱfallȱinȱrealȱGDPȱthat lastsȱforȱatȱleast A) oneȱyear. B) threeȱquarters. C) oneȱquarter. D) twoȱquarters. E) twoȱyears.
96)
97) AnȱexampleȱofȱanȱitemȱthatȱwouldȱbeȱexcludedȱfromȱaȱmeasureȱofȱGDPȱfromȱtheȱexpenditureȱside is A) theȱpurchaseȱofȱaȱtattooȱforȱMaryȱSmithȇsȱankle. B) theȱpurchaseȱofȱwindowsȱbyȱanȱautomobileȱassemblyȱplant. C) aȱnewȱtruckȱpurchasedȱbyȱaȱfurniture-deliveryȱcompany. D) governmentȱpensionȱpaymentsȱtoȱaȱretiredȱperson. E) fertilizerȱpurchasedȱbyȱFarmerȱJonesȱtoȱincreaseȱcropȱyields.
97)
Considerȱtheȱfollowingȱinformationȱdescribingȱaȱclosedȱeconomyȱwithȱnoȱgovernmentȱandȱwhereȱaggregateȱoutputȱisȱdemandȱdetermined: 1. 2. 3. 4.
theȱequilibriumȱconditionȱisȱYȱ=ȱCȱ+ȱI theȱmarginalȱpropensityȱtoȱsaveȱisȱ0.25 theȱautonomousȱpartȱofȱCȱisȱ$30 investmentȱisȱautonomousȱandȱisȱ$40
ȱ TABLEȱ21-1 98) ReferȱtoȱTableȱ21-1.ȱTheȱequilibriumȱlevelȱofȱnationalȱincomeȱwillȱbe A) $ȱȱ70. B) $ȱȱ93. C) $120. D) $160.
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98) E) $280.
ȱ100ȱRandomȱpractice,ȱMacoreconomics 99) Supposeȱthatȱrealȱnationalȱincomeȱ(Y)ȱisȱequalȱtoȱ800ȱandȱthatȱgovernmentȱpurchasesȱareȱequalȱto 200.ȱIfȱtheȱgovernmentȇsȱnetȱtaxȱrevenuesȱareȱequalȱtoȱtY,ȱwhereȱtȱisȱtheȱnetȱtaxȱrate,ȱthenȱwhatȱis theȱvalueȱofȱtȱnecessaryȱforȱtheȱgovernmentȱtoȱhaveȱaȱbalancedȱbudget? A) 20ȱpercent B) 25ȱpercent C) 30ȱpercent D) 35ȱpercent E) 40ȱpercent 100) TheȱaggregateȱsupplyȱcurveȱwillȱshiftȱasȱaȱresultȱofȱaȱchangeȱinȱanyȱofȱtheȱfollowingȱEXCEPT A) theȱpriceȱlevel. B) technology. C) labourȱproductivity. D) theȱwageȱrate. E) theȱcostȱofȱcapital.
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99)
100)
AnswerȱKey Testname:ȱRANDOMȱPRACTICEȱMACROȱ100
1) C 2) B 3) D 4) E 5) B 6) A 7) C 8) B 9) A 10) E 11) D 12) A 13) D 14) D 15) A 16) E 17) B 18) D 19) C 20) E 21) E 22) D 23) D 24) A 25) E 26) C 27) E 28) A 29) E 30) E 31) B 32) B 33) A 34) B 35) C 36) D 37) E 38) B 39) A 40) A 41) B 42) A 43) D 44) D 45) E 46) C 47) C 48) E 49) A 50) E
51) B 52) B 53) D 54) E 55) E 56) C 57) B 58) B 59) C 60) A 61) E 62) B 63) B 64) E 65) A 66) D 67) E 68) D 69) D 70) A 71) B 72) B 73) B 74) A 75) B 76) A 77) B 78) A 79) B 80) C 81) D 82) D 83) E 84) B 85) E 86) E 87) D 88) D 89) E 90) B 91) E 92) C 93) D 94) C 95) E 96) D 97) D 98) E 99) B 100) A 23
