Fri. April (PA115)

Transcription

1 It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question. After the time limit, go back over your work with a different colour or on a separate piece of paper and try to do the questions you are unsure of. Record your ideas in the margins to remind yourself of what you were thinking when you take it up at PASS. The purpose of this mock exam is to give you practice answering questions in a timed setting and to help you to gauge which aspects of the course content you know well and which are in need of further development and review. Use this mock exam as a learning tool in preparing for the actual exam. Please note: Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work. Often, there is not enough time to review the entire exam in the PASS workshop. Decide which questions you most want to review the Facilitator may ask students to vote on which questions they want to discuss in detail. Facilitators do not bring copies of the mock exam to the session. Please print out and complete the exam before you attend. Facilitators do not produce or distribute an answer key for mock exams. Facilitators help students to work together to compare and assess the answers they have. If you are not able to attend the PASS workshop, you can work alone or with others in the class. Good Luck writing the Mock Exam!! Dates and locations of mock exam take-up: Thurs. April 12:30pm (ME3380) Fri. April (PA115)

2 PART ONE: MULTIPLE CHOICE 1. An example of a government transfer is a(n): a. Expenditure on an interstate highway b. Bequest from a deceased relative c. Social Security payment d. Salary for a member of the armed forces 2. Which of the following is false? Gross Domestic Product: a. Is aggregate output b. Is the total production of final goods and services c. Grows during expansion d. Is the total production of all final and intermediate goods and services 3. Which of the following is not in GDP a. Income from Social Security b. Income from wages c. Income from interest on bank savings account d. Income from rent on property owned by landlords 4. Eden is offered a job in Toronto where the CPI is 120 and a job in London where the CPI is 150. Eden s job offer in Toronto is for $ Which of the following salaries would the London job have to pay so that both jobs would have the same purchasing power? a. $ b. $ c. $ d. $ Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is What is the consumer price index for 2011? a. 75 b. 200 c. 80 d. 125 Year Peaches Pecans 2010 $14 per bushel $9 per bushel 2011 $12 per bushel $14 per bushel

3 6. You are a university student and not working or looking for work. You are: a. Unemployed b. In the labour force but not employed c. Not part of the labour force d. Not described by any of the above 7. Gas becomes too expensive so consumers decide to buy more bikes and fewer cars. As a result, bike companies expand production while car companies lay-off workers. This is an example of: a. Structural unemployment created by efficiency wages b. Cyclical unemployment created by a recession c. Frictional unemployment created by a sectoral shift in demand d. None of the above 8. An increase in the number of discouraged workers in the economy tends to: a. Raise the official unemployment rate b. Lower the official unemployment rate c. Lower the number of people who are frictionally unemployed d. Increase the number of people who are structurally unemployed 9. An example of human capital is: a. The money a person has b. The job skills a person has c. The capital good or machines a person owns d. The stocks and bonds in an individual s portfolio 10. Suppose that in a closed economy GDP is equal to , taxes are equal to 2 500, consumption equals 6 500, and government expenditures equal What are private saving, public saving, and national saving? a. 1500, 1000, 500 b. 1000, 500, 1500 c. 500, 1500, 1000 d. None of the above are correct

4 11. The source of the supply of loanable funds: a. is saving and the source of demand for loanable funds is investment b. is investment and the source of demand for loanable funds is saving c. and the demand for loanable funds is saving d. the demand for loanable funds is investment 12. What are the effects of an increase in the supply of loanable funds? a. NCO and the real exchange rate both increase b. NCO and the real exchange rate both decrease c. NCO increases and the real exchange rate decreases d. NCO decreases and the real exchange rate increases 13. The interest rate is 5% in the market for loanable funds. Investors wish to borrow $100 million and savers wish to save $125 million at this interest rate. We would expect: a. The interest rate to fall, as there is a shortage of loanable funds b. The interest rate to rise, as there is a surplus of loanable funds c. The interest rate to rise, as there is a shortage of loanable funds d. The interest rate to fall, as there is a surplus of loanable 14. The short-run aggregate supply curve slopes upward because of: a. Wage and price stickiness b. Wage and price flexibility c. Increasing technology d. A reduction in resource availability at higher price levels 15. How can the bank of Canada alter the money supply? a. Open market operations b. Changing the bank and overnight rate c. Increasing government spending d. All of the above e. Both A and B 16. The reserve ratio is the: a. Proportion of cash and security reserves the bank holds b. Fraction of deposits that the bank is required to hold c. Loan to deposit ratio in the bank s balance sheet d. Money belonging to the banks largest depositors.

5 17. A country has $150M of net exports and $190M of saving. Net capital outflow is: a. $40M and domestic investment is $190M b. $40M and domestic investment is $150M c. $150M and domestic investment is $40M d. $190M and domestic investment is $150M 18. If the AD curve shifts to the right, in the short run there will be: a. An increase in aggregate output and an increase in price level b. An increase in aggregate output and a decrease in price level c. A decrease in aggregate output and an decrease in price level d. A decrease in aggregate output and an increase in price level 19. If the short-run Phillips curve were stable, which of the following would be unusual? a. An increase in inflation and an increase in output b. A decrease in inflation and an increase in unemployment c. An increase in both inflation and unemployment d. An increase in output and a decrease in unemployment 20. The effects of an increase in the price level that is greater than expected are shown by a. Shifting the short-run aggregate supply curve right b. Shifting the short-run aggregate supply curve left c. Moving to the right along a given aggregate supply curve d. Moving to the left along a given aggregate supply curve

6 PART TWO: SHORT ANSWER 1. According to the quantity theory of money, what is the effect of an increase in the quantity of money? (Hint: it relates to value and price level) Explain, and be sure in include a graph in your answer. 2. Draw a diagram showing the long run aggregate supply curve and the short run aggregate supply curve a) What are the three theories of the SRAS curve? b) What happens to price level in the short run and the long run with a decrease in AD? 3. Answer the following questions using graphs to explain your answer a) According to the Loanable funds theory, what might cause an increase in the interest rate? b) According to the liquidity preference theory, what might cause an increase in the interest rate? 4. If the Bank of Canada wanted to increase the money supply, explain how in could do this and explain the role of commercial banks in the process 5. Show the impact of the following on the short run and long run Phillips curve. Explain and draw the curves. a) The price of imported oil increases b) Expected inflation decreases

7 PART THREE: LONG ANSWER 1. Draw a diagram showing the Aggregate Demand curve, Long Run Aggregate Supply curve, and Short Run Aggregate Supply curve. a. Explain one theory why the SRAS curve has a different slope to the LRAS curve. b. Use this diagram to explain why governments might wish to use monetary and/or fiscal policy for macroeconomic stabilization. c. Explain some of the difficulties of using monetary and/or fiscal policy for macroeconomic stabilization. 2. Analyze the changes that will arise from expansionary monetary policy in an open economy with flexible exchange rates. Look at the changes in: a. Real interest rate b. Real exchange rate c. Aggregate demand d. Inflation and Unemployment (long run and short run) 3. Look at the relationship between the prices of goods in Canada and the US a. Do not assume Purchasing Power Parity. Find the real exchange rate of apples, if the nominal interest rate is $0.69USD/CAD, the price of apples in the US is $2.00.each, and the price in Canada is $3.00/ea. b. Assume that Purchasing Power Parity applies. Assuming the nominal interest rate has not changed and the price of American bananas is $1.50, what is the price of Canadian bananas in Canadian dollars? c. Assume that the Canadian dollar becomes more valuable in relation to the American dollar. Will Canada export more or less to the US? Explain using a graph.