3) If the Canadian dollar exchange rate increases, the 3) A) internal value of the dollar falls.

Transcription

1 Forty questions were automatically and randomly chosen by the computer from Chapters 19 through 2 6 of the Textʹs test bank - the instructor has not seen the questions chosen. Name: Random Q. Practice MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose the Bank of Montreal wants a four percent real rate of return 1) on all its loans, and anticipates an annual inflation rate of six percent. It should therefore lend its money at a nominal interest rate of A) ten percent. B) nine percent. C) five percent. D) four percent. E) one percent. 2) Real national income 2) A) refers to national wealth but is not an indicator of current production. B) changes only when the underlying quantities change. C) always equals nominal national income. D) changes by the same amount and in the same direction as does nominal national income. E) refers to national income with no adjustment for changes in prices. 3) If the Canadian dollar exchange rate increases, the 3) A) internal value of the dollar falls. B) Canadian dollar depreciates relative to foreign currencies. C) internal value of the dollar rises. D) Canadian dollar appreciates relative to foreign currencies. E) external value remains unaffected. 4) If a countryʹs labour force is 15 million people, and 1.35 million of those are unemployed, the countryʹs unemployment rate is A) 2.5 percent. B) 3.3 percent. C) 4.5 percent. D) 6.7 percent. E) 9.0 percent. 4) The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. Year Actual Output Potential Output Unemployment Rate (billions of $) (billions of $) (% of labour force)

2 -1 5) Refer to Table In which years are the factors of production in this economy being utilized at a normal rate? A) 2004, 2008 B) 2002, 2003, 2007 C) 2005, 2006 D) all years E) none of the years 5) 6) The change in the countryʹs capital stock during a year is equal to 6) A) net investment. B) net change in inventories plus capital consumption allowance. C) capital consumption allowance. D) gross investment. E) gross fixed investment. 7) To calculate the change in the value of inventories for the investment component of GDP, one should use their A) market value at the time they were produced. B) cost of production at the time they were produced. C) value at the time the goods are sold and removed from inventory. D) cost of production minus the costs of labour and capital. E) current market value. 8) One major reason that GDP is an inaccurate measure of the true level of economic activity is that A) it is statistically very inaccurate. B) it cannot be adjusted for changes in prices. C) it does not include non-market activities. D) people frequently buy things they do not want. E) all of the above 7) 8) 9) Which of the following is included in the current calculations of GDP? 9) A) Pizza purchased by college students for dinner B) Volunteer work undertaken by Mary Smith C) The purchase of a second hand automobile D) The purchase of a 1939 painting E) Welfare payments 10) The aggregate consumption function is based on a number of assumptions. Given these assumptions, which of the following statements is true? A) The MPC is greater than zero and less than one, and the APC falls as income rises. B) Below a certain level of income, APC > 1 and MPC < 0. C) The MPC and APC are always less than unity. D) As income rises, the MPC falls and the APC rises. E) The APC is greater than zero and less than one, and the MPC falls as income rises. 10) Consider the following information describing a closed economy with no government and where aggregate

3 output is demand determined: TABLE ) Refer to Table At the equilibrium level of national income, desired saving will be A) zero. B) $ 40. C) $ 70. D) $200. E) $ ) FIGURE ) Refer to Figure Assuming AE0 to be the prevailing aggregate expenditure function, the distance 0A is a measure of A) desired investment. B) autonomous desired expenditures. C) induced expenditures. D) desired saving. E) aggregate expenditure at equilibrium national income. 13) Consider an aggregate consumption function in a simple macro model with government and taxes. Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10 percent of national income, the marginal propensity to consume out of national income is. A) 0.09 B) 0.72 C) 0.81 D) 0.90 E) ) 13) The table below shows national income and imports. The level of exports is fixed at $300. All figures (in

4 table and questions) are in millions of dollars. Income (Y) Imports (IM) Net Exports (NX) a b c d TABLE ) Refer to Table What are the correct values for the level of net exports (a, b, c, and d) at each level of national income? A) a = $150, b = $250, c = $350, d = $450 B) a = $300, b = $300, c = $300, d = $300 C) a = -$150, b = -$50, c = $50, d = $150 D) a = $150, b = $50, c = -$50, d = -$150 E) not enough data to determine. 14) 15) Refer to Table What is the marginal propensity to import? 15) A) 0.01 B) 0.10 C) 1.0 D) 10.0 E) not enough data to determine. 16) Other things being equal, when the price level rises, the real value of money holdings ; when the price level falls, the real value of money holdings. A) falls; rises B) is not affected; rises C) falls; is not affected D) rises; falls E) is not affected; falls 16)

5 FIGURE ) Refer to Figure Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 4, then what is the value of the multiplier? A) 2.8 B) 3.2 C) 1.2 D) 1.4 E) 4 18) In a macro model with a constant price level, an increase in government purchases will cause the AE curve to shift A) downward and the AD curve to shift to the right. B) upward and the AD curve to shift to the left. C) downward and a movement to the right along the AD curve. D) upward and the AD curve to shift to the right. E) downward and the AD curve to shift to the left. 17) 18) The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short-run equilibrium at point A. FIGURE ) Consider Figure The government could close the existing output gap by A) decreasing the net tax rate. B) increasing government purchases. C) implementing an expansionary fiscal policy. D) decreasing government transfer payments. E) increasing the net tax rate. 19) 20) The ʺadjustment asymmetryʺ in aggregate supply refers to the 20) A) different relative sizes of inflationary versus recessionary gaps. B) economyʹs path toward potential output. C) difference between actual and potential output. D) changing slope of the AS curve. E) different speeds at which the economy adjusts to positive and negative output gaps.

6 21) Which of the following statements describes a possible self-fulfilling prophesy in the short run involving householdsʹ behaviour? A) A belief of an impending recession leads households to decrease their desired saving. B) A belief of an impending recession leads households to increase their desired saving. C) A belief of an impending recession leads households to increase their registration in post-secondary institutions to reduce their risk of being unemployed. D) A belief of an impending recession leads households to increase their desired consumption. E) none of the above. 22) A low factor-utilization rate describes in factor markets, which causes factor prices to and shifts the aggregate supply curve to the. A) excess demand; rise; right B) excess supply; rise; right C) excess supply; fall; right D) excess demand; fall; right E) excess supply; fall; left 23) If per capita GDP in a richer country grows at a faster annual rate than in a poorer country, A) the gap between their standards of living will widen over time. B) whether the gap in living standards widens or closes over time depends on the absolute size of the relative growth rates. C) the gap between their standards of living will close over time as long as the rate of population growth is higher in the poorer country. D) the gap between their standards of living will close over time. E) the difference in their living standards will not change over time. 24) Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5 percent each, and the production function displays constant returns to scale, then total output will increase by percent. A) less than 5 B) more than 5 C) 5 D) 0 E) Not enough information to determine. 25) If the Consumer Price Index changes from 120 in year one to 150 in year two, the rate of inflation in the intervening year is A) 10 percent. B) 12.5 percent. C) 20 percent. D) 25 percent. E) 30 percent. 21) 22) 23) 24) 25) 26) During the 1970s, Canada experienced an unusual pattern of interest rate s.

7 During this period 26) A) the nominal interest rate was less than the real interest rate. B) the inflation rate exceeded the nominal interest rate, implying a negative real interest rate. C) the nominal and real interest rates were equal to each other. D) the inflation rate was negative, implying a real interest rate that was higher than the nominal interest rate. E) the inflation rate was negative, implying a nominal interest rate higher than the real interest rate. The table below shows the total output and prices for an economy that produces only two goods, potatoes and oil. Data is provided for the years 1998 and Quantities Produced Prices Potatoes Oil Potatoes Oil (kilograms) (barrels) ($/kilogram) ($/barrel) ) Refer to Table What is the real GDP for 1998 if 2008 is the base year? A) $ B) $6750 C) $ D) $7975 E) $ ) In a simple model of the economy with demand-determined output, the equilibrium level of national income is at an income A) where aggregate desired expenditure equals consumption. B) where saving equals consumption. C) to the left of the point where the AE curve intersects the 45-degree line. D) to the right of the point where the AE curve intersects the 45- degree line. E) where aggregate desired expenditure equals the value of total output. 29) Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is If the net tax rate is 0.1, then what is the marginal propensity to spend in this economy? A) 0.30 B) 0.40 C) 0.46 D) 0.50 E) ) 28) 29) 30) Macroeconomic equilibrium is described as the combination of 30) A) potential output and price level that is on both the AD curve and AS curve. B) all individual demand curves and potential GDP.

8 C) all individual demand curves and all individual supply curves. D) real GDP and price level that is on both the AD curve and 45- degree line. E) real GDP and price level that is on both the AD curve and AS curve. FIGURE ) Refer to Figure If the economy is currently in a short-run equilibrium at Y0, the economy is experiencing A) an inflationary output gap. B) potential output growth. C) a long-run equilibrium. D) a labour shortage. E) a recessionary output gap. 32) Consider an economy in long-run equilibrium where factor supply is 2.5 million units, the factor utilization rate is 0.85 and a simple measure of productivity (GDP per factor employed) is $200. Now suppose that, other things being equal, the productivity measure rises to $210. The effect of this change will be A) an increase in this economyʹs potential output, and an adjustment back to its original level after factor prices have adjusted. B) an inflationary gap caused by simultaneous rightward shifts of the aggregate demand and aggregate supply curves. C) an increase in this economyʹs potential output in the long run. D) a rightward shift of the aggregate supply curve, and an adjustment back to Y*. E) a rightward shift of the aggregate demand curve due to the increased wealth of the private sector. 31) 32) The diagram below show the market for loanable funds assuming that national income is constant at Y*.

9 FIGURE ) Refer to Figure Suppose national saving is reflected by NS0 and investment demand is reflected by I0 D. If the real interest rate is i4, there is, which will drive the real interest rate up to i*. A) an excess supply of loanable funds B) an excess demand for public saving C) an excess demand for loanable funds D) an excess supply of financial capital E) an excess supply of saving 33) 34) Probably the most commonly used measure of national income is 34) A) dollar value of potential output. B) gross national product. C) constant dollar national income. D) gross domestic product. E) current dollar national income. 35) The term ʺfixed investmentʺ refers to 35) A) the existing capital stock. B) investment in plant and equipment. C) investment in stocks and bonds. D) total investment minus depreciation. E) none of the above. 36) Undesired or unplanned inventory accumulation is likely to occur when 36) A) consumption exceeds investment. B) autonomous expenditure exceeds induced expenditure. C) investment exceeds consumption. D) desired aggregate expenditure exceeds actual aggregate expenditure. E) actual aggregate expenditure exceeds desired aggregate expenditure. 37) A parallel upward shift in the net export (NX) function can be caused by 37)

10 A) a decrease in foreign prices relative to domestic prices. B) an increase in domestic prices relative to foreign prices. C) an increase in foreign national income. D) a decrease in the Canadian-dollar price of foreign currency. E) an increase in domestic national income. FIGURE ) Refer to Figure Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then how much was the increase in government purchases? A) 40 B) 30 C) 50 D) not enough information to know E) 12 39) Consider the AD/AS model. Since output in the long run is determined by Y*, the only role of the AD curve is to determine the price level. This is true because the A) Y* is independent of the price level. B) AS curve is upward sloping. C) aggregate demand curve is horizontal. D) aggregate demand curve is vertical. E) Y* depends on the price level. 40) Suppose GDP in an economy is $ , the unemployment rate is 10 percent and there are 8000 people in the labour force. Calculate the GDP per worker for this economy. A) $10 B) $14.40 C) $18 D) $20 E) $80 38) 39) 40)

11 1) A 2) B 3) B 4) E 5) A 6) A 7) E 8) C 9) A 10) A 11) B 12) B 13) C 14) D 15) B 16) A 17) C 18) D 19) E 20) E 21) B 22) C 23) A 24) C 25) D 26) B 27) E 28) E 29) B 30) E 31) E 32) C 33) C 34) D 35) B 36) E 37) C 38) A 39) A 40) D