Name: Grade 11 Economics Unit #4: Macroeconomics Practice Test and Answer Key Note: Section A of the actual test will contain multiple-choice questions. You can practice this type of question within the Mastery Learning Lab. Section B: Graph Analyses (Knowledge / Application / Communication) (6 Marks) 1. The graph below illustrates the FOREX (foreign exchange) market. Use the information provided in the graph to answer the questions that follow. i) Which currency is being depicted within this market graph: the Peso or the Euro? How can you tell? (2 marks) ii) Describe, in basic terms, what is happening to the currency illustrated in this graph. (2 marks) iii) Outline one event that could explain the increase in supply that we see depicted within this graph? (2 marks) Page 1
Section C: Written Response (Knowledge / Communication) Answer any two of the following questions. (2 x 4 marks = 8 marks) 1. Outline three general reasons why foreign parties might need to purchase a given country s currency? (4 marks) 2. Outline the four stages of the business cycle. (4 marks) 3. Outline and briefly explain three basic causes of inflation. (4 marks) 4. Outline and briefly explain the four types of unemployment. (4 marks) Page 2
Section D: Written Response (Thinking / Communication) Answer any ONE of the following questions. (4 marks) 1. Explain why imports are deducted when calculating Gross Domestic Product (GDP) using the expenditure approach. (4 marks) 2. Explain what is meant by natural forms of unemployment. How are these different from other forms of unemployment? (4 marks) 3. Explain the difference between being employed, precariously employed, and unemployed. Is there any other option besides these three categories that could possibly be used to describe an individual s employment status? (4 marks) Page 3
Section 3: Calculations and Analysis (Application / Thinking / Inquiry) (12 Marks) 1. 2010 is the base year. The total value of the basket of goods tracked in the Consumer Price Index for 2010 is $5,780.00. The total value of the basket of goods tracked in the Consumer Price Index for the years following the base year are: 2011 = $6,250.00; 2012 = $6,700.00; 2013 = $7,500.00. i) Calculate the CPI for 2012. (2 marks) ii) Calculate the rate of inflation for 2013. (4 marks) 2. It costs 0.47 Euros to buy 1 Peso. What is the value of the Euro (measured in Pesos)? (1 mark) What is the value of the Peso (measured in Euros)? (1 mark) Page 4
3. The total population of Xanadu is 30,000,000 people, the total labour force of Xanadu is 15,000,000, and the total number of employed individuals is 10,000,000. Calculate Xanadu s participation rate. (1 mark) Calculate Xanadu s unemployment rate. (1 mark) 4. The following figures have been calculated from Xanadu s national accounts in 2014. Account Total ($CDN Billion) consumer spending 500 government transfer payments 250 corporate investment 100 government spending 300 exports 150 imports 200 purchase of stocks 175 sale of government bonds 125 sale of corporate bonds 225 Calculate the value of the Gross Domestic Product (GDP) for 2014 using the expenditure approach. (2 marks) (Do the entire practice test first then look at the answer key! Answer key to follow.) Page 5
Answer Key Section B: Graph Analyses (Knowledge / Application / Communication) (5 Marks) 1. The graph below illustrates the FOREX (foreign exchange) market. Use the information provided in the graph to answer the questions that follow. i) Which currency is being depicted within this market graph: the Peso or the Euro? How can you tell? It s the Euro. I can tell because the Euro is the currency indicated on the x-axis. It is also the currency indicted as the denominator of the equation outlined within the y-axis. (2 marks) ii) Describe, in basic terms, what is happening to the currency illustrated in this graph. The supply of the Euro is increasing on the FOREX market. (2 marks) iii) Outline one event that could explain the increase in supply that we see depicted within this graph? For the supply of the Euro to increase on the FOREX market, we would need to see a lot of Euros attempting to purchase other currencies on the market. An event that could cause this to happen might be an increase in Europe s demand for foreign stocks and bonds. (2 marks) Page 6
Section C: Written Response (Knowledge / Communication) Answer any two of the following questions. (2 x 4 marks = 8 marks) 1. Outline three general reasons why foreign parties might need to purchase a given country s currency? (4 marks) Foreign parties would need to purchase a country s currency if they wished to i) purchase that country s goods or services, ii) invest in that country s stock market, or iii) earn the interest rates offered within that country on deposits or bonds. 2. Outline the four stages of the business cycle. (4 marks) The four stages of the economic cycle are peak, decline, trough, and recovery. (Although there are many names for these different stages, such as boom and bust, expansion and recovery.) 3. Outline and briefly explain three basic causes of inflation. (4 marks) The three basic causes of inflation are i) Demand Pull (which occurs when demand exceeds supply), ii) Cost Push (which occurs when there is an increase in production costs, such as labour or energy), and iii) Structural (which is caused by a government's monetary policy (such as printing money or lowering interest rates). 4. Outline and briefly explain the four types of unemployment. (4 marks) The four types of unemployment are i) frictional (which arises from people leaving and entering the workforce), ii) structural (which arises from technological changes or management decisions, iii) seasonal (which arises from a decrease in jobs owing to a change in season), and cyclical (which arises from a downturn in the overall economic conditions). Page 7
Section D: Written Response (Thinking / Communication) Answer any ONE of the following questions. (4 marks) 1. Explain why imports are deducted when calculating Gross Domestic Product (GDP) using the expenditure approach. (4 marks) When adding up expenditures within an economy we could not help but add in expenditures on foreign imports (such as Korean automobiles under consumer spending). However, Korean automobiles were not made within Canada, and so would artificially inflate the impression of our domestic production. Thus, we need to deduct the value of all imports that came into the country for the period being examined. 2. Explain what is meant by natural forms of unemployment. How are these different from other forms of unemployment? (4 marks) Frictional, seasonal, and structural unemployment are all considered natural forms of unemployment because these forms of unemployment will always occur regardless of how well an economy may or may not be performing. 3. Explain the difference between being employed, precariously employed, and unemployed. Is there any other option besides these three categories that could possibly be used to describe an individual s employment status? (4 marks) Employed people are people who have a job or are self-employed. Precariously employed people have a job, but its wages are low, it is unstable and insecure, and it s hours are irregular and unpredictable. Unemployed people wish to have a job, but cannot find work at all. One other option that could describe an individual s employment status is not in workforce, which describes people who don't want a job (such as children, students, and retired people.) Page 8
Section 3: Calculations and Analysis (Application / Thinking / Inquiry) (32 Marks) 1. 2010 is the base year. The total value of the basket of goods tracked in the Consumer Price Index for 2010 is $5,780.00. The total value of the basket of goods tracked in the Consumer Price Index for the years following the base year are: 2011 = $6,250.00; 2012 = $6,700.00; 2013 = $7,500.00. i) Calculate the CPI for 2012. (2 marks) Answer: ii) Calculate the rate of inflation for 2013. (4 marks) 2. It costs 0.47 Euros to buy 1 Peso. Answer: What is the value of the Euro (measured in Pesos)? (1 mark) 1.00 / 0.47 = 2.13 Pesos Answer: 2.13 Pesos What is the value of the Peso (measured in Euros)? (1 mark) 0.47 / 1.00 = 0.47 Euros Answer: 0.47 Euros Page 9
3. The total population of Xanadu is 30,000,000 people, the total labour force of Xanadu is 15,000,000, and the total number of employed individuals is 10,000,000. Calculate Xanadu s participation rate. (1 mark) 15,000,000 / 30,000,000 = 50% Answer: 50% Calculate Xanadu s unemployment rate. (1 mark) Unemployment Rate = (15,000,000 10,000,000) / 15,000,000 = 5,000,000 / 15,000,000 = 33.3% Answer: 33.3% 4. The following figures have been calculated from Xanadu s national accounts in 2014. Account Total ($CDN Billion) consumer spending 500 government transfer payments 250 corporate investment 100 government spending 300 exports 150 imports 200 purchase of stocks 175 sale of government bonds 125 sale of corporate bonds 225 Calculate the value of the Gross Domestic Product (GDP) for 2014 using the expenditure approach. (2 marks) Aggregate Expenditure = C + I + G + (X-M) = 500 + 100 + 300 + (150-200) = 900 50 = $850 billion Answer: $850 billion Page 10