Question 1

1. Use the table below to answer the following questions.

Table 5.2.1

This table shows the answers given by interviewees to the Labour Force Survey.

Person A

This person is looking for work and has been interviewed for three jobs over the past 2 weeks.

Person B

This person has been laid off but expects to be called back in a few weeks, just as soon as the economy improves.

Person C

This person has just graduated from university and will start a new job in 8 weeks. In the meantime, this person is surveying local drinking establishments.

Person D

This person was laid off last year when new equipment at the plant reduced the number of jobs. Since his layoff, this person has been constantly job searching.

Person E

This economics graduate is working two nights a week at the 7-11, but wants full-time work as an economist.

In Table 5.2.1, which person is frictionally unemployed?

A

B

C

E

A and E

Question 2

1. If the economy is in a recession and the federal government is running a deficit, then an expansion would

leave the deficit unchanged.

automatically balance the budget.

automatically increase the deficit.

automatically decrease the deficit.

increase the deficit only if the interest rate rises.

Question 3

1. Which of the following would be an example of a consumption expenditure?

spending on protection services for the prime minister

an increase in welfare payments to single mothers

the purchase of a new car by the IPSCO steel company

more spending by the government on children's programs

the purchase of a new car by the Singh household

Question 4

1. Complete the following sentence. Macroeconomics

is primarily concerned with the behaviour of the stock market.

is the only part of economics to deal with government decisions.

deals mainly with the economic behaviour of households.

is the study of the performance of the national economy and the global economy.

is primarily concerned with the operation of individual markets in the economy.

Question 5

1. Use the figure below to answer the following questions.

Figure 3.4.1

At priceP ₃in Figure 3.4.1,

equilibrium quantity isQ₅.

there is a shortage in the amount ofQ₅-Q₁.

there is a surplus in the amount ofQ₅-Q₁.

there is a tendency for the price to rise.

this market is in equilibrium.

Question 6

1. If the natural unemployment rate rises

the long-run Phillips curve shifts leftward and the short-run Phillips curve does not change.

the short-run Phillips curve shifts rightward and the long-run Phillips curve does not change.

the short-run and long-run Phillips curves both shift rightward.

the short-run and long-run Phillips curves both shift leftward.

the long-run Phillips curve shifts rightward and the short-run Phillips curve does not change.

Question 7

1. The structural deficit is the deficit

caused by the business cycle.

in a recession.

that would occur at the trough of the business cycle.

in an expansion.

that would occur at potential GDP.

Question 8

1. If the CPI was 128 at the end of 2016 and 136 and the end of 2017, what was the inflation rate in 2017?

4.2 percent

6.25 percent

9.4 percent

5.9 percent

8 percent

Question 9

1. Fiscal policy is

budgeting policy by aggregate households.

any attempt by the federal government or Bank of Canada to control inflation.

effective only when the federal government has a budget surplus.

the use of the federal budget to achieve macroeconomic objectives.

any policy by the Bank of Canada.

Question 10

1. What is the Taylor Rule?

The money supply should be regulated by setting the exchange rate equal to purchasing power parity with other countries.

The money supply should grow at a rate equal to the long-run real growth rate.

The monetary base should grow at a rate equal to the target inflation rate plus the long-term real GDP growth rate minus the medium-term velocity growth rate.

The overnight loan rate is set in response to the current inflation rate and to the current estimate of the output gap.

The monetary base is set in response to the current inflation rate and to the current estimate of the output gap.

Question 11

1. Which of the following statements about the monetarist view of the macroeconomy isincorrect?

All recessions result from inappropriate monetary policy.

Provided that the quantity of money is kept on a steady growth path, no active stabilization is needed to offset changes in aggregate demand.

Left alone, the economy rarely operates at full employment.

The money wage rate is sticky.

Taxes should be kept low to avoid disincentive effects that decrease potential GDP.

Question 12

1. If capital per worker increases, labour productivity

increases because the level of technology increases.

does not change unless technology advances at the same time.

decreases for a given level of technology.

decreases because the level of technology decreases.

increases for a given level of technology.

Question 13

1. If the nominal interest rate is 11%, the inflation rate is 4% and the tax rate is 25%, what is the real after-tax interest rate?

10 percent

8 percent

5.25 percent

-1.25 percent

4.25 percent

Question 14

1. To lower interest rates, the Bank of Canada can

raise the exchange rate.

buy government securities.

raise the bank rate.

decrease bank reserves.

increase the treasury bill rate.

Question 15

1. According to the law of diminishing returns, along the aggregate production function, an additional unit of

labour produces less output than the previous unit.

labour decreases output.

labour produces more output than the previous unit.

labour increases the real wage rate.

capital produces more output than an additional unit of labour.

Question 16

1. The objective of the Bank of Canada's monetary policy is

to keep the overnight loans rate below 2 percent a year and the unemployment rate at its natural rate.

to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long-term real GDP growth above 4 percent a year.

to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long-term interest rates below 4 percent a year.

to keep the labour force participation rate above 80 percent, the inflation rate below 2 percent a year, and the exchange rate fluctuating by less than 3 percent a year.

to control the quantity of money and interest rates to avoid inflation and when possible prevent excessive swings in real GDP growth and unemployment.

Question 17

1. The Laffer curve is the relationship between

the tax rate and the amount of tax revenue.

the tax rate and potential GDP.

government expenditure and potential GDP.

government outlays and revenues.

tax revenue and potential GDP.

Question 18

1. A technological improvement is represented by

a movement from a point inside the production possibilities frontier to a point on the production possibilities frontier.

a point inside the production possibilities frontier.

a movement along the production possibilities frontier.

a point outside the production possibilities frontier.

an outward shift of the production possibilities frontier.

Question 19

1. IndividualsAandBcan both produce good X. We say thatAhas a comparative advantage in the production of good Xif

Acan produceXusing newer technology thanB.

Ahas a lower opportunity cost of producingXthanB.

Acan produce less units ofXin a given time period thanB.

Ahas a higher opportunity cost of producing X than B.

Acan produce more units ofXin a given time period thanB.

Question 20

1. According to the real business cycle theory, what effects follow from a change in productivity?
2. I. Investment demand changes.
3. II. The demand for labour changes.
4. III. Government expenditure changes.

I

I and II

I and III

II and III

I, II and III

Question 21

1. Which of the following statements isFALSE?

Saving adds to wealth.

Saving is the source of funds used to finance investment.

Saving equals wealth minus consumption expenditure.

Income left after paying taxes can either be consumed or saved.

Saving supplies funds in loan markets, bond markets, and stock markets.