Question 1

1. When the inflation rate is zero, the

demand for loanable funds increases.

real interest rate equals the nominal interest rate.

supply of loanable funds decreases.

real interest rate is negative.

nominal interest rate is zero.

Question 2

1. Nominal GDP is $1,800 billion and real GDP is $1,600 billion. The GDP deflator is

1125.

8.88.

112.5.

11.25.

88.8.

Question 3

1. Gross domestic product is

the market value of all the final goods and services produced in a country during a given time period.

the market value of all the intermediate goods and services produced in a country during a given time period.

the market value of all goods and services produced in a country during a given time period.

the final value of all goods produced in a country in a given time period.

the average value of output produced in a country in a given time period.

Question 4

1. Use the information below to answer the following questions.
3. Fact 4.1.2
5. Classify each of the following items as a final good or an intermediate good, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services:
7. Item 1. A DVD bought by a household
8. Item 2. A new airplane bought by WestJet
9. Item 3. Aluminum sheets bought by Boeing
10. Item 4. A new limousine for the prime minister
13. Refer to Fact 4.1.2. Item 3 is ________ and item 4 is ________.

an intermediate good; a final good that is government expenditure

an intermediate good; a final good that is investment

a final good that is investment; a final good that is government expenditure

a final good that is investment; a final good that is investment

a final good that is investment; an intermediate good

Question 5

1. Suppose we observe a fall in the price of good Aand an increase in the quantity of good Abought and sold. Which one of the following is a likely explanation?

The supply ofAdecreased.

The law of supply is violated.

The supply ofAincreased.

The demand forAincreased.

The demand forAdecreased.

Question 6

1. Consider all the effects of fiscal policy. A cut in the income tax

shifts both theSASandLAScurves rightward but does not shift theADcurve.

shifts theADcurve rightward but does not shift either theLASorSAScurve.

shifts theSAScurve rightward but does not shift either theADorLAScurve.

shifts theAD,SAS, andLAScurves rightward.

shifts theLAScurve rightward but does not shift either theADorSAScurve.

Question 7

1. How is responsibility for monetary policy set forth in Canada?

The Prime Minister bears ultimate responsibility for monetary policy.

The Bank of Canada Act places responsibility for the conduct of monetary policy on the Bank's Governing Council.

The Bank of Canada administers monetary policy as directed by the Minister of Finance.

The Canadian Government administers monetary policy through the office of the Minister of Finance.

Both B and D