It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 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: Tuesday April 10 th 4-6pm (LA C164) & Wednesday April 11 th 12-2pm (SA 415)
PART I : MULTILPLE CHOICE 1. A French company opens a cheese company in Ottawa. Here are the profits from this cheese company included? a. In both Canadian and French GNP b. In both Canadian and French GDP c. In Canadian GNP and French GDP d. In Canadian GDP and French GNP 2. If a Canadian citizen buys a television made in Korea made by a Korean firm, what is the impact on net exports and GDP? a. Canadian net exports and Canadian GDP decrease b. Canadian net exports are unaffected, but Canadian GDP decreases c. Canadian net exports and Canadian GDP are unaffected d. Canadian net exports decrease, but Canadian GDP is unaffected 3. How is a college student who is not working or looking for a job counted? a. As neither employed nor part of the labour force b. As unemployed and in the labour force c. As unemployed, but not in the labour force d. As employed and in the labour force 4. Which of the following best defines a transfer payment a. Government spending on imported goods b. Money that Canadian citizens working abroad send back to their families in Canada c. Payments to governments, other than taxes d. A form of government spending that is not made in exchange for a currently produced good or service
5. According the purchasing-power parity theory, if the same fast-food hamburger costs $2.50 in Canada and 10 French Francs, what should the exchange rate be? a. ¼ Francs per dollar b. 1 Franc per dollar c. 4 Francs per dollar d. 25 Francs per dollar 6. Suppose that Nova Scotia produces cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2006, the base ear, the price of cheese was $10 per unit, and the price of fish was $75 per unit. What can we conclude? a. Nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5 b. Nominal GDP is $500, real GDP is $800, and the GDP deflator is 160 c. Nominal GDP is $800, real GDP is $500, and the GDP deflator is 160 d. Nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5 7. In a closed economy, what does (T-G) represent? a. National saving b. Investment c. Public saving d. Private saving 8. Suppose that Parliament were to institute an investment tax credit. Which of the following would most likely happen in the market for loanable funds? a. The demand for loanable funds would shift left b. The supply of loanable funds would shift left c. The demand for loanable funds would shift right d. The supply of loanable funds would shift right 9. If a country went from a government budget deficit to a surplus, which of the following best predicts the consequences?
a. National savings would increase, shifting the supply of loanable funds right b. National savings would increase, shifting the supply of loanable funds left c. National savings would decrease, shifting the demand for loanable funds right d. National savings would decrease, shifting the demand for loanable funds left 10. Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase? a. The crowding-out effect b. The multiplier effect c. The wealth effect d. The interest-rate effect 11. How could the Bank of Canada increase the money supply? a. Sell government bonds b. Decrease the overnight rate c. Increase the reserve requirement d. Increase the overnight rate 12. Based on the quantity equation, if M = 125, V=4, and Y=200, what is P? a. 0.5 b. 1 c. 1.5 d. 2.5 13. If the economy is initially in long-run equilibrium, which of the following best describes the effects of a shift in aggregate demand? a. Prices and output are affected in both the short and long run b. Prices and output are affected only in the short run c. Prices are affected in the long run and short run, but output only in the short run
d. Prices are affected in the long and short run, but output only in the long run 14. When a country s central bank decreases the money supply, which of the following best predicts the consequences? a. Its price level rises, and its currency appreciates relative to other currencies in the world b. Its price level falls, and its currency appreciates relative to other currencies in the world c. Its price level rises, and its currency depreciates relative to other currencies in the world d. Its price level falls, and its currency depreciates relative to other currencies in the world 15. Which of the following would cause the price level to rise and output to fall in the short run? a. An increase in the money supply b. A decrease in the money supply c. An adverse supply shock d. A favorable supply shock 16. When aggregate demand is high, how are unemployment, wages, and prices affected? a. Unemployment is low, so there is upward pressure on wages and prices b. Unemployment is low, so there is downward pressure on wages and prices c. Unemployment is high, so there is upward pressure on wages and prices d. Unemployment is high, so there is downward pressure on wages and prices 17. Suppose the economy goes into recession. Which of the following is a list of things policymakers could do to try to end the recession? a. Increase the money supply, increase taxes, and increase government spending b. Increase the money supply, increase taxes, and decrease government spending
c. Increase the money supply, decrease taxes, and increase government spending d. Decrease the money supply, increase taxes, and decrease government spending 18. If a central bank wanted to increase the money supply, which of the following would it most likely do? a. It would make open-market purchases and lower the overnight rate b. It would make open-market sales and lower the overnight rate c. It would make open-market purchases and raise the overnight rate d. It would make open-market sales and raise the overnight rate 19. According to the Liquidity Preference Theory, what are the effects of a decrease in the price level? a. People hold less money, so they sell bonds, and the interest rate rises b. People hold less money, so they buy bonds, and the interest rate falls c. People hold more money, so they buy bonds, and the interest rate rises d. People hold more money so they sell bonds, and the interest rate falls 20. Economists agree on all of the following statements EXCEPT which one? a. Increases in the money supply shift aggregate demand to the right b. In the long run increases in the money supply increase prices, but not output c. Recessions are associated with decreases in consumption, investment, and employment d. Government should use fiscal policy to try and stabilize the economy
PART II: SHORT ANSWER 1. a. According the loanable funds theory, what might cause an increase in the rate of interest? b. According to the Liquidity Preference theory, what might cause an increase in the rate of interest? c. Which theory works best in the short run, and which theory works best in the long run? Explain. 2. According to Purchasing Power Parity (PPP) a. If a dozen eggs costs $2.50 in Canada, and 10 shillings in Kenya, what would be the exchange rate between the Kenyan shilling and the Canadian dollar (ow many Kenyan shillings would you get for one Canadian dollar?) b. What is the mechanism that would tend to make PPP approximately true for some goods? c. What could prevent PPP being exactly true for some other goods? 3. Suppose that Canadians decide to save a bigger proportion of their incomes. If Canada is a small open economy, use 2 diagrams to show how this will affect: Canadian investment; Net capital Outflow; the real exchange rate; and net exports. 4. Explain the difference between these two theories of unemployment: Search Theory; Efficiency Wage Theory. 5. a. Draw a diagram showing the Long Run Phillips Curve and Short Run Phillips Curve. b. What happens on your diagram if the actual inflation rate increases to 10% but the expected inflation rate stays at 2%? c. What happens on your diagram if the natural rate of unemployment increases?
PART III: LONG ANSWER 1. Use the AD/AS model, for a small open economy, to explain the effects of an increase in the money supply. Use a diagram or diagrams as part of your answer. Explain how and why it will affect net exports, the real exchange rate, and the price level. Explain both the short run effects and the long run effects. 2. Canada is a small open economy. Explain, with the aid of diagrams, the effects of an expansionary policy on aggregate demand, real interest rate, the exchange rate, and inflation + unemployment a. First, assuming flexible exchange rates b. Second, assuming fixed exchange rates 3. Draw a diagram showing the AD, LRAS, and SRAS curves. a. Explain one theory why the SRAS curve has a different slope than 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.