GDP, Inflation and Employment Practice Test 32 Marks

Transcription

1 GDP, Inflation and Employment Practice Test 32 Marks Multiple Choice (Knowledge / Thinking / Application) (10 marks) 1. The following formula would be used to calculate GDP using the expenditure approach: a) W + Pr + i + R + O + Tib + D b) C + I + G - (X+M) c) W + Pr + i + R + O + (Tib D) d) C + I + G + (X- M) 2. The following is a type of unemployment that is not part of the natural rate of unemployment: a) cyclical; b) seasonal; c) frictional; d) structural; e) b and d. 3. Canada s GDP would accurately describe: a) the total value of goods/services produced within Canada s borders, over a one- year period; b) the value of all products produced within Canada by Canadians; c) the total value of goods/services produced anywhere in the world by Canadians, over a one- year period; d) a and b; 4. The following describes all of the people who are working or attempting to get a job compared to the total population: a) unemployment rate; b) employment rate; c) labour force; d) participation rate; e) c and d. 5. Aggregate demand slopes down and to the right for the following reasons: a) the population effect; b) the interest rate effect; c) the substitution effect; d) the trade effect; e) b and d. 1

2 6. Country X only produces bananas. Last year Country X charged $1.00 a kilogram for bananas, whereas this year it charged $1.10 a kilogram. Last year Country X sold 1000 kilograms of bananas, whereas this year it sold 950 kilograms of bananas. If last year is our base year for measuring inflation, then this year s real GDP is: a) $950.00; b) $1,000.00; c) $1,045.00; d) $1,100.00; 7. The CPI by the end of December 2009 is 270.5, while the CPI by the end of December 2008 was The rate of inflation over 2008 is: a) 2.3% b) 3.8% c) 4.43% d) 4.63% 8. The population is 200,000 people, the labour force is 175,000 people, and there are 125,000 people actually working. The unemployment rate is: a) 16.67% b) 28.6% c) 62.5% d) 71.4% 9. The population is 200,000 people, the labour force is 175,000 people, and there are 125,000 people actually working. The participation rate is: a) 87.5% b) 75.0 % c) 71.4% d) 62.5% 10. The GDP in 2009 is $275,000.00, while the GDP in 2008 was $262, The rate of inflation over the past year was 3.5%. If we use 2008 as the base year, then the real GDP for 2009 is: a) $209, b) $262, c) $265, d) $275,

3 Section B: Graphing and Analysis (Knowledge / Application / Communication) (22 marks) 1. i) Illustrate a Phillip's Curve in the graph below. (5 marks) ii) Describe the relationship the Phillips curve illustrates. What explains this relationship? (4 marks) 3

4 2. i) In the graph below, illustrate both an aggregate demand and an aggregate supply curve, and show the initial equilibrium. (5 marks) ii) Illustrate the effect that a decrease in government spending would have on these curves. (2 marks) iii) Illustrate the effect that an improvement in technology would have on these curves. (2 marks) iv) Can we know for sure whether these two events will cause an overall increase or decrease to GDP? (4 marks) 4

5 Multiple Choice (Knowledge / Thinking / Application) (23 marks) 1. The following formula would be used to calculate GDP using the expenditure approach: a) W + Pr + i + R + O + Tib + D b) C + I + G - (X+M) c) W + Pr + i + R + O + (Tib D) *d) C + I + G + (X- M) 2. The following is a type of unemployment that is not part of the natural rate of unemployment: *a) cyclical; b) seasonal; c) frictional; d) structural; e) b and d. 3. Canada s GDP would accurately describe: *a) the total value of goods/services produced within Canada s borders, over a one- year period; b) the value of all products produced within Canada by Canadians; c) the total value of goods/services produced anywhere in the world by Canadians, over a one- year period; d) a and b; 4. The following describes all of the people who are working or attempting to get a job compared to the total population: a) unemployment rate; b) employment rate; c) labour force; *d) participation rate; e) c and d. 5. Aggregate demand slopes down and to the right for the following reasons: a) the population effect; b) the interest rate effect; c) the substitution effect; d) the trade effect; * e) b and d. 5

6 6. Country X only produces bananas. Last year Country X charged $1.00 a kilogram for bananas, whereas this year it charged $1.10 a kilogram. Last year Country X sold 1000 kilograms of bananas, whereas this year it sold 950 kilograms of bananas. If last year is our base year for measuring inflation, then this year s real GDP is: *a) $950.00; b) $1,000.00; c) $1,045.00; d) $1,100.00; 7. The CPI by the end of December 2009 is 270.5, while the CPI by the end of December 2008 was The rate of inflation over 2008 is: a) 2.3% *b) 3.8% c) 4.43% d) 4.63% 8. The population is 200,000 people, the labour force is 175,000 people, and there are 125,000 people actually working. The unemployment rate is: a) 16.67% *b) 28.6% c) 62.5% d) 71.4% 9. The population is 200,000 people, the labour force is 175,000 people, and there are 125,000 people actually working. The participation rate is: *a) 87.5% b) 75.0 % c) 71.4% d) 62.5% 10. The GDP in 2009 is $275,000.00, while the GDP in 2008 was $262, The rate of inflation over the past year was 3.5%. If we use 2008 as the base year, then the real GDP for 2009 is: a) $209, b) $262, *c) $265, d) $275,

7 Section B: Graphing and Analysis (Knowledge / Application / Communication) (22 marks) 1. Illustrate a Phillip's Curve in the graph below. (5 marks) Price Level P PC UR* Unemployment Rate ii) Describe the relationship the Phillips curve illustrates. What explains this relationship? (4 marks) The Phillips curve illustrates the negative relationship between unemployment and inflation. When unemployment is low, inflation tends to be high, and vice versa. This is because low unemployment is associated with economic prosperity. Times of economic prosperity will see high productivity, high spending, and, ergo, higher inflation. 7

8 2. i) In the graph below, illustrate both an aggregate demand and an aggregate supply curve, and show the initial equilibrium. (5 marks) ii) Illustrate the effect that a decrease in government spending would have on these curves. (2 marks) iii) Illustrate the effect that an improvement in technology would have on these curves. (2 marks) Price Level AS AS 2 P PL 2 AD AD 2 Y Y 2 Real GDP iv) Can we know for sure whether these two events will cause an overall increase or decrease to GDP? (4 marks) No, we cannot know for sure whether these two events will cause an overall increase or decrease to GDP because we cannot know how far each event will shift the curves. Given that each event has an opposing effect on GDP, we cannot know which event will have the greater overall impact on GDP. If both events moved GDP in the same direction, then we could know for sure whether GDP would increase or decrease. 8