1) Employing an additional 1 billion hours of labor increases real GDP by $12 billion. Employing another 1 billion hours beyond the first 1 billion increases real GDP by $11 billion. Hence we can conclude from this information that as employment increases, real GDP

A) increases at an increasing rate.

B) decreases at an increasing rate.

C) decreases at a decreasing rate.

D) increases at a decreasing rate.

E) falls from $12 billion to $11 trillion as more workers are hired.

2) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produce 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. Based on this information, the Bubby Gum company should

A) keep Joanne because she creates a profit for the firm.

B) fire Joanne because she creates a loss for the firm.

C) decrease Joanne's wage rate because she is paid too much.

D) increase its demand for labor.

E) None of the above answers are correct because more information about Joanne's real wage is needed to decide what to do.

3) Which of the following statements is (are) true?

i.As the real wage rate increases, the household's income decreases, which influences people to work more hours.

ii.As the real wage rate increases, the quantity of labor demanded increases.

iii.As the real wage rate increases, the opportunity cost of not working increases.

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii, and iii

Exercise 2 (6 points)

In order to support the Canadian dollar, the Bank of Canada buys an amount of Euros from some major commercial Canadian banks (a type of operation the Bank of Canada rarely undertakes).

a. What is the immediate and the long-term impact of this operation on the money supply? Explain.

b. If the Bank of Canada does not wish that the currency swap influences the money supply, what does it have to do? Explain.