Select one best possible answer of the multiple choice questions.

Most economists agree that the immediate cause of the large majority of cyclical changes in the levels of real output and employment is unexpected changes in:

• the level of the trade deficit
• the level of total spending
• the level of unemployment
• the level of poverty

Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate?

• 10 percent
• 20 percent
• 25 percent
• 15 percent

Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment.

a. Tim just graduated and is looking for a job:

(Click to select)

Structural unemployment

Frictional unemployment

Cyclical unemployment

b. A recession causes a local factory to lay off 30 workers:

(Click to select)

Frictional unemployment

Cyclical unemployment

Structural unemployment

c. Thousands of bus and truck drivers permanently lose their jobs when driverless, computer-driven vehicles make human drivers redundant:

(Click to select)

Structural unemployment

Cyclical unemployment

Frictional unemployment

d. Hundreds of Toronto legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India:

(Click to select)

Structural unemployment

Cyclical unemployment

Frictional unemployment

The unemployment rate that is consistent with full employment is known as __________________

• the unnatural rate of unemployment
• the status quo rate of unemployment
• the natural rate of unemployment
• cyclical unemployment
• Okun's rate of unemployment.

A country's current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent. About how large is this economy's negative GDP gap?

• 3 percentage points
• 1 percentage points
• 6 percentage points
• 10 percentage points

Cost-push inflation occurs when there is ________________.

• an increase in per-unit production costs
• excess inventory
• a trade deficit
• excess demand for goods and service

Jimmer's nominal income will go up by 10 percent next year. Inflation is expected to be 2 percent next year. By approximately how much will Jimmer's real income change next year?

• 10 percent
• 12 percent
• 8 percent
• 2 percent

Kaitlin has $10,000 of savings that she may deposit with her local bank. She wants to earn a real rate of return of at least 4 percent and is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank?

• 6 percent
• 4 percent
• 5 percent
• 7 percent

a.In sequential order, the four phases of the business cycle are

• expansion, recession, peak, and trough.
• peak, recession, trough, and expansion.
• recession, trough, peak, and expansion.
• trough, peak, expansion, and recession.

b.The length of a complete cycle

• has lengthened and then shortened in the past 25 years.
• varies greatly in duration and intensity but historically, in Canada, tends to vary from about 2 to 3 years to as long as 15 or 20 years.
• varies greatly in duration and intensity but historically, in Canada, tends to vary from about 1 to 2 years to about 5 years.
• is generally about 3 years.

c.Seasonal variations and long-run trends complicate the measurement of the business cycle because

• it is difficult to treat all the variations the same when the causes differ.
• long-term trends have only recently been measured.
• the seasons vary so the changes are not consistent.
• normal seasonal variation does not signal boom or recession.

d.The business cycle affects output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing nondurables because capital goods and durable goods

• are expensive and require regular payments.
• last and these purchases cannot be postponed.
• last and these purchases can be postponed.
• do not last and these purchases cannot be postponed.

a.A financial crisis can lead to a recession because it can cause

• investment and income to fall, lowering saving and increasing the money supply.
• investment and saving to fall, increasing spending and ultimately employment.
• wealth and income to fall, reducing spending and ultimately reducing employment.
• wealth and saving to fall, lowering investment and increasing the money supply.

b.A major new invention can lead to an expansion if there are

• decreases in wealth but increases in consumption and unemployment.
• increases in investment, consumption, output, and employment.
• increases in saving, the money supply, and employment.
• decreases in saving but increases in consumption and unemployment.

a.How is the labour force defined and who measures it?

• Statistics Canada measures the labour force as people 18 years of age or older who are actively seeking employment.
• The Canadian Bureau of Labour Statistics (BLS) measures the labour force as people 15 years of age or older who are actively seeking employment.
• Statistics Canada measures the labour force as people 15 years of age or older who are actively seeking employment.
• The Canadian Labour Commission (CLC) measures the labour force as people 18 years of age or older who are actively seeking employment.

b.The unemployment rate is the

• ratio of the number of working adults divided by all adults.
• number of adults divided by the labour force.
• proportion of the adult population looking for work.
• number of unemployed persons divided by the labour force.

c.If the unemployment rate increases, the size of the labour force

• must decrease.
• will not change.
• could increase or decrease.
• must increase.

d.A positive unemployment rateone more than zero percentis fully compatible with full employment because at full employment,

• there is usually some unemployment due to the business cycle.
• unemployment includes seasonal unemployment, which is usually positive because people are transitioning to new jobs.
• the economy is producing at capacity.
• unemployment includes frictional unemployment, which is always positive because people are transitioning to new jobs.

a(1).The Consumer Price Index

• measures the prices of the basket of goods and services preferred by the typical consumer each month. The market value of the basket of goods is compared to the market value of that basket in the previous month.
• measures the prices of a fixed market basket of goods and services that is bought by a typical consumer. The market value of the basket of goods is compared to the market value of that basket in a base year.
• measures the prices of the basket of goods and services preferred by the typical consumer each year. The market value of the basket of goods is compared to the market value of that basket in the previous year.
• measures the prices of a fixed market basket of goods and services that is bought by a consumer selected by the government. The market value of the basket of goods is compared to the market value of that basket in a base year.

a(2).In Canada the CPI is constructed by

• personnel at Statistics Canada who collect price quotes from selected retail outlets on a monthly basis.
• personnel at the Department of Finance who collect price quotes from selected retail outlets on a monthly basis.
• personnel at Statistics Canada who collect price quotes from selected retail outlets on a yearly basis.
• personnel at the Department of Finance who collect price quotes from selected retail outlets on a yearly basis.

b.To calculate the rate of inflation from one year to the next (i.e. from year 1 to year 2)

• subtract the first year CPI from the second year and then divide the result by the first year CPI. I.e. [(Year 2 CPI) - (Year 1 CPI)]/(Year 1 CPI)
• subtract the first year CPI from the second year and then divide the result by the second year CPI. I.e. [(Year 2 CPI) - (Year 1 CPI)]/(Year 2 CPI)
• add the first year CPI to the second year and then divide the result by the average of both years CPI. I.e. [(Year 1 CPI) + (Year 2 CPI)]/Average(Year1 CPI, Year 2 CPI)
• add the first year CPI to the second year and then divide the result by the number of years involved. I.e. [(Year 1 CPI) + (Year 2 CPI)]/2

c.Inflation

• causes nominal interest rates to fall.
• reduces the purchasing power of the dollar.
• increases the purchasing power of the dollar.
• makes saving more attractive.

d.The nominal interest rate

• plus the inflation rate is the real interest rate.
• plus the real interest rate is the inflation rate.
• minus the price is the inflation rate.
• minus the inflation rate is the real interest rate.

e.Which of the following statements is true?

• Deflation means that the inflation rate is falling, whereas with inflation, the inflation rate is rising.
• Disinflation means that the inflation rate is falling, whereas with inflation, overall prices are rising.
• Deflation means that the price level is falling, whereas with inflation, overall prices are rising.
• Deflation means that the price level is falling but at a slower rate than it had been previously, whereas with inflation, the inflation rate is rising but at a lower rate than it had been previously.

a.Demand-pull inflation occurs when

• there is a negative price gap.
• there is a negative GDP gap.
• there are increases in per-unit costs of production.
• prices rise because of an increase in aggregate spending not fully matched by an increase in aggregate output.

b.A negative GDP gap is associated with

• cost-push inflation.
• demand-pull inflation.
• unanticipated inflation.
• core inflation.

c.A positive GDP gap is associated with

• unanticipated inflation.
• core inflation.
• demand-pull inflation.
• cost-push inflation.

d.What items are excluded to calculate core inflation?

• Food and gas.
• Durable goods.
• Commodities.
• Only non-renewable energy.

e.Why do policymakers exclude these items and calculate core inflation?

• Policymakers strip out volatile prices to find the underlying change in the CPI.
• Policymakers think consumers value the items included in core inflation more than those excluded from it.
• Policymakers value the items included in core inflation more than those excluded from it.
• Prices of the excluded items cannot be collected to be included in the calculation.

Of the possible effects of hyperinflation, the following is not one of the main direct causes of a severe decline in total output:

• everyone spends more of the local currency, as it depreciates in value, for the same goods or services.
• everyone spends less time working at their job to produce output and more time speculating about which goods might go up fastest in price, or transferring goods already in existence.
• everyone decides to convert their savings into nonproductive wealth such as jewelry rather than invest in capital equipment to produce more goods.
• everyone wants to be paid in barter and they stop accepting domestic money for payment, as a result money ceases to work as a medium of exchange in order to purchase newly produced goods.