ECON1010-AnswerKeyVersionB

ECON1010-AnswerKeyVersionB - YORK UNIVERSITY FACULTY OF...

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Unformatted text preview: YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES DEPARTMENT OF ECONOMICS ECONOMICS 1010 3.0B INTRODUCTION TO MACROECONOMI I October 18,2010 R§\ § N Course Director: John Paschakis TOTAL WORTH: 40% STUDENT NAME: STUDENT NUMBER: INSTRUCTIONS: 1) This examination consists of eighty (80) multiple choice questions. There is only one correct answer. No penalty for wrong answers. 2) Please answer all questions by marking the appropriate spaces on the computerized answer sheet. Use HB pencil only. 3) Time allowed: 150 minutes. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Gross domestic product is 1) A) the market value of all the intermediate goods and services produced in a country during a given time period. B) the market value of all goods and services produced in a country during a given time period. C) the final value of all goods produced in a country in a given time period. D) the average value of output produced in a country in a given time period. E) the market value of all the final goods and services produced in a country during a given time period. 2) In calculating GDP, all of the following are excluded except 2) A) purchases of stocks and bonds. B) the value of used goods. C) the value of all homes built in the year in question. D) the value of intermediate goods. E) subsidies from the government. 3) Suppose the economy of Econoworld produces only two goods, kayaks and birdseed. In one year 3) 20 kayaks are produced and sold for $1,000 each and 10 bags of birdseed are produced and sold for $30 each. The value of nominal GDP for this year is A) $23,000. B) $20,000. C) $300. D) $20,300. E) 20 kayaks plus 10 bags of birdseed. 4) The largest component of GDP using the expenditure approach is 4) A) government expenditure. B) consumption expenditure. C) imports. D) exports. E) investment. 5) Which one of the following would be included in the calculation of GDP by the expenditure 5) approach? A) the purchase of an original eighteenth century work of art B) the income you pay to your gardener C) the value of your brother's services when he mows the lawn for the family D) the cost of adding a new kitchen to your house E) the purchase of 20 shares of a new issue of IBM stock 6) The largest component of GDP from the income approach is 6) A) farmers' income. B) interest and miscellaneous investment income. C) wages, salaries, and supplementary labour income. D) corporate profits. E) income of non—farm unincorporated businesses. 7) To derive net domestic income at market prices from gross domestic product, we 7) A) subtract the statistical discrepancy from GDP. B) subtract depreciation from GDP. C) subtract gross investment from GDP. D) add depreciation to GDP. E) add the statistical discrepancy to GDP. 8) Real GDP will increase only if the 8) A) unemployment rate rises. B) employment rate rises. C) quantity of goods and services produced increases. D) average level of prices rises. E) employment rate falls. 9) Nominal GDP will increase 9) A) only if both the average level of prices rises and the quantity of goods and services produced increases. B) only if the average level of prices rises. C) if either the average level of prices rises or the quantity of goods and services produced increases. D) only if the quantity of goods and services produced increases. B) only if the unemployment rate rises. 10) Since non—market exchanges are excluded from measures of GDP, the GDP measure tends to 10) A) overestimate the total production of an economy. B) place too much value on market transactions. C) be of little use to anyone but market economists. D) be of little significance in determining the total production of an economy. E) underestimate the total production of an economy. 11) In any year, real GDP 11) A) might be greater or less than potential GDP. B) will always be greater than potential GDP because of the tendency of nations to incur inflation. C) must always be less than potential GDP. D) always equals potential GDP. E) increases if potential GDP increases, and decreases if potential GDP decreases. 12) The business cycle is defined as the 12) A) irregular fluctuations of real GDP around potential GDP. B) regular growth rate of the real GDP. C) regular fluctuations of real GDP below potential GDP. D) irregular fluctuations of prices around real GDP. E) periodic and regular up—and-down movement of total production. B-2 13) A recession is a period with A) a slowdown in real GDP growth but not necessarily negative real GDP growth. B) positive growth rate in real GDP that lasts at least one quarter. C) positive growth rate in real GDP that lasts at least two quarters. D) negative growth rate in real GDP that lasts at least two quarters. E) negative growth rate in real GDP that lasts at least one quarter. 14) Given that pollution is a by-product of some production processes, A) GDP tends to understate economic well—being. B) GDP accountants do not adjust GDP unless pollution is a serious problem. C) GDP tends to overstate economic well—being. D) GDP accountants adjust GDP upward. E) GDP accountants adjust GDP downward. 15) Which of the following statements by politicians is talking about the business cycle? A) "An average of 220,000 new jobs are created each year in Canada." B) "Business always rises just before Christmas." C) "Crime rates increase every spring as the school year ends." D) "Canadian unemployment is falling due to the upturn in the economy." E) "More capital investment will create more jobs." 16) Which one of the following people would be counted as unemployed in Canada? A) Christos has been laid off from his job a month ago, and has not been looking for a new job as he is waiting for a severance package from his former employer. B) Benoit who was laid off when his firm closed down 2 months ago and has not been looking for work as he is going back to school. C) Veena is not working, but she is looking for a full—time job. D) Kathy has stopped looking for Work since she was unable to find a suitable job during a one—month search. E) Sharon is a college student with a job. 17) The unemployment rate is defined as the number of A) unemployed people divided by the number of employed people. B) unemployed people divided by the sum of the people employed and the people unemployed. C) unemployed people divided by the number of people in the country. D) unemployed people divided by the number of people in the country who are employed. E) employed people divided by the number of people in the country. 18) The labour force participation rate is \ A) the percentage of the labour force who are unemployed or employed. B) the percentage of the working—age population who are unemployed or employed. C) the percentage of the labour force who are employed. D) the percentage of the working-age population who are employed. E) none of the above. 19) In a recession, typically A) unemployment rises. B) the employment-to—population ratio decreases. C) the labour force participation rate rises. D) the employment-to-population rate rises. E) both A and B are correct. 3-3 13) 14) 15) 16) 17) 18) 19) 20) In a country with a working—age population of 30 million, 18 million are employed, 2 million are 20) unemployed, and 2 million of the employed are working part-time, half of whom wish to work full—time. If 1 million of those unemployed are cyclically unemployed, what is the natural unemployment rate? A) 11.1 percent B) 5 percent C) 6.7 percent D) 5.6 percent E) none of the above 21) If the economy is at full employment, then 21) A) the entire population is employed. B) the unemployment rate is less than 3 percent. C) the only unemployment is frictional unemployment plus discouraged workers. D) the entire labour force is employed. E) all unemployment arises from normal frictions and structural change. 22) The natural unemployment rate is 22) A) the same as the cyclical unemployment rate. B) the rate at which cyclical unemployment is equal to 0 percent. C) the rate at which cyclical unemployment is equal to 6 percent. D) equal to 0 percent. E) none of the above. 23) In a dynamic economy under ideal conditions, the unemployment rate 23) A) should be zero. B) increases as the price level rises. C) averages 6 percent. D) is greater than zero percent due to natural unemployment. E) decreases as the price level falls. 24) Michael lost his job as a night security guard because he kept falling asleep at the job. Now he is 24) looking for a new job. Michael is A) cyclically unemployed. B) frictionally unemployed. C) structurally unemployed. D) not unemployed. E) none of the above. 25) Rochelle lost her job as a salesperson when sales fell off during the recession. Now she is looking 25) for a new job. Rochelle is A) cyclically unemployed. B) structurally unemployed. C) frictionally unemployed. D) not unemployed. E) none of the above. 26) Henelyn lost her job as a factory worker when she was replaced by a robotic machine. Now she is looking for a new job. Henelyn is A) frictionally unemployed. B) cyclically unemployed. C) structurally unemployed. D) not unemployed. E) none of the above. 27) If the number of discouraged workers decreases because many of them start to look for work, everything else remaining the same, then the A) unemployment rate will increase. B) employment-to-population ratio will decrease. C) labour force participation rate will increase. D) labour force participation rate will decrease. E) both A and C. 28) Suppose that the unemployment rate equals 4.5 percent and that the natural unemployment rate is 5.5 percent. We can conclude that A) potential GDP equals real GDP. B) real GDP is greater than nominal GDP. C) we have mismeasured the natural unemployment rate. D) potential GDP is less than real GDP. E) potential GDP is greater than real GDP. - 29) If the CPI was 128 at the end of 2007 and 136 and the end of 2008, what was the inflation rate in 2008? A) 8 percent B) 4.2 percent C) 9.4 percent D) 5.9 percent E) 6.25 percent 30) The consumer price index is a measure of A) the commodity prices paid by urban consumers for a fixed basket of consumer goods and services. B) the average of the prices paid by rural consumers for a fixed basket of consumer goods and services. C) the average of the prices paid by urban consumers for a fixed basket of consumer goods and serv1ces. D) the lowest prices paid by urban consumers for a fixed basket of consumer goods and services. E) the consumer prices paid by average households for a fixed basket of goods and services. 31) The Consumer Price Index measures inflation by using A) all goods and services that are produced using a current-year basket. B) only consumption goods and services purchased using a current—year basket. C) only consumption goods and services purchased using a base-year basket. D) all goods and services that are produced using a base-year basket. E) A and D. B-5 26) 27) 28) 29) 30) 31) 32) The technique used to calculate the CPI implicitly assumes that consumers buy A) relatively less of goods with relative prices that are decreasing. B) the same relative quantities of goods as in a base year. C) goods and services whose quality improves at the rate of growth of real GDP. D) relatively more of goods with relative prices that are increasing. E) more computers and CD players and fewer black—and-white TVs. 33) Economic growth is A) a sustained expansion of production possibilities measured as the increase in real GDP over a given period. B) always accompanied by a rising price level. C) a sustained expansion of consumption expenditure over a given period. D) equal to real GDP per capita multiplied by 70. E) a sustained expansion of production possibilities measured as the increase in nominal GDP over a given period. 34) Slowdonia's current growth rate of real GDP per person is 1 percent a year. How long will it take to double real GDP per person? A) 35 years B) 10 years C) 70 years D) 100 years E) Real GDP per person will never double 35) Growthland's real GDP per capita was $112 billion in 2009 and $117 billion in 2010. What is the growth rate of Growthland‘s real GDP per capita? A) 5% B) 17% C) 4.5% D) 4.3% E) 12% 36) In which of the following decades did Canada experience the slowest economic growth? A) 19605 B) 19705 C) 19805 D) 19405 E) 19905 37) The decreasing slope of the aggregate production function reflects A) increasing aggregate demand. B) a decrease in potential GDP. C) diminishing returns. D) decreasing costs. E) rising unemployment. 38) If real GDP is $12,150 billion and aggregate labour hours are 270 billion, labour productivity equals A) $48 an hour. B) $650 an hour. C) $32.81 an hour. D) $45 an hour. E) $6.50 an hour. 32) 33) 34) 35) 36) 37) 38) 39) When labour productivity increases, the demand for labour curve and the supply of 39) labour curve . A) shifts rightward; shifts rightward B) shifts rightward; shifts leftward C) shifts leftward; does not shift D) shifts rightward; does not shift E) shifts leftward; shifts rightward 40) An increase in population results in 40) A) an upward shift in the production function. B) a movement along the production function. C) a leftward shift of the labour supply curve. D) a rightward shift of the labour demand curve. E) both B and D are correct. 41) If new capital increases labour productivity, the supply of labour __ and the demand for 41) lab0ur A) increases; increases B) decreases; stays the same C) stays the same; increases D) increases; stays the same E) increases; decreases 42) If capital per hour of labour decreases, real GDP per hour of labour 42) A) increases because the level of technology increases. B) increases for a given level of technology. C) decreases for a given level of technology. D) decreases because the level of technology decreases. E) none of the above. 43) An increase in education and training 43) A) increases labour productivity. B) is an increase in physical capital. C) increases the employment—to—population ratio. D) increases aggregate hours. E) decreases real GDP growth. 44) Human capital is the 44) A) technology used by humans to produce GDP. B) plant and equipment produced by humans and not by machines. C) machinery used by humans to produce GDP. D) skill and knowledge accumulated by humans. E) none of the above. 45) Which of the following is not a source of economic growth? 45) A) appropriate incentive system B) increasing stock market prices C) advances in technology D) better educated workers E) growing physical capital B-7 46) Which of the following was a cause of Canada's post-1973 growth slowdown? A) diminishing returns B) higher population pressures C) too rapid increases in technological change D) lower saving E) slowdowns in technological change 47) The Acme Stereo Company had a capital stock of $24 million at the beginning of the year. At the end of the year, the firm had a capital stock of $20 million. Thus its A) net investment was -$4 million for the year. B) net investment was some amount but we need more information to determine the amount. C) depreciation was $4 million. D) net investment was $4 million for the year. E) gross investment was zero. 48) Which of the following is false about saving? A) Saving is the source of funds used to finance investment. B) Income left after paying taxes can either be consumed or saved. C) Saving supplies funds in loan markets, bond markets, and stock markets. D) Saving adds to wealth. E) Saving equals wealth minus consumption expenditure. 49) A firm's decision to invest in a project is based on the A) nominal interest rate and the expected profit. B) expected future income, wealth, and default risk. C) nominal interest rate and expected total revenue. D) real interest rate and expected total revenue. E) real interest rate and the expected profit. 50) As the interest rate increases, the quantity of loanable funds demanded A) real; decreases B) nominal; decreases C) real; increases D) nominal; increases E) None of the above. There is no relationship between interest rates and loanable funds. 51) If the real interest rate rises from 3 percent to 5 percent, A) the nominal interest rate falls. B) the demand for loanable funds curve shifts rightward. C) the supply of loanable funds curve shifts rightward. D) there is a movement down along the supply of loanable funds curve. B) there is a movement up along the demand for loanable funds curve. 3-8 46) 47) 48) 49) 50) 51) Refer to the figure below to answer the following questions. Real énlerest ioée [percent per yew] I { ~ _ 0E!" WJMWJWWWJWM ,Wiwiomwiwm . alum. 0 150 300 450 600 750 900 humble ltmés ébiiléons of 2002 dollars] Figure 23.2.3 52) In Figure 23.2.3, if the real interest rate is constant at 6 percent and expected profit falls, the 52) quantity of loanable funds demanded will be A) between $450 billion and $600 billion. - B) zero. C) $450 billion. D) greater than $600 billion. E) less than $450 billion. 53) Which of the following influences household saving? 53) I. The real interest rate. II. Disposable income. III. Expected future income. A) I and II. B) I only. C) I and 111. D) I, II, and III. E) None of the above. 54) Households will choose to save more if 54) A) expected future income decreases. B) current disposable income increases. C) current disposable income decreases. D) both A and B are correct. E) both A and C are correct. 55) An increase in will shift the supply of loanable funds curve . 55) A) default risk; rightward B) the real interest rate; rightward C) wealth; leftward D) expected future income; rightward E) disposable income; leftward B-9 56) A decrease in disposable income . A) has no effect on the supply of loanable funds curve B) shifts the supply of loanable funds curve leftward C) shifts the supply of loanable funds curve rightward D) creates a movement down along the supply of loanable funds curve E) creates a movement up along the supply of loanable funds curve 57) Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Choose the correct statement. A) The supply of loanable funds increases. B) There is neither a shortage nor surplus of loanable funds. C) There is a surplus of loanable funds. D) The demand for loanable funds decreases. E) There is a shortage of loanable funds. 58) Suppose the market for loanable funds is in equilibrium. If expected profit falls, the equilibrium real interest rate and the quantity of loanable funds A) rises; increases B) rises; decreases C) falls; increases or decreases but we don't know for sure D) falls; decreases E) falls; increases 59) Investment will be higher if A) government spending is higher. B) the government deficit is higher. C) net exports are higher. D) the real interest rate is higher. E) national saving is higher. 60) Southton has investment of $100, private saving of $90, net taxes of $25, government expenditure of $30, exports of $25 and imports of $10. What is national saving? A) $90 B) $85 C) $95 D) $100 E) $105 61) The tendency for a government budget deficit to decrease investment is called the A) deficit effect. B) crowding—out effect. C) Ricardo—Barre effect. D) capital investment effect. E) government dissaving effect. 62) A small country is a net foreign borrower. Its real interest rate without foreign borrowing is the world real interest rate. A) either higher than or equal to B) higher than C) not comparable to D) lower than B) equal to B-10 56) 57) 58) 59) 60) 61) 62) 63) A very small country is a net foreign borrower and its demand for loanable funds increases. As a 63) result, the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing A) increases; increases B) does not change; does not change C) does not change; increases D) increases; decreases E) increases; does not change 64) Money is 64) A) a means of payment. B) equivalent to barter. C) currency plus credit cards plus debit cards. D) the same as gold. E) currency plus coins. 65) The higher and more unpredictable the changes in a monetary unit, the 65) A) less likely contracts will be written to counterbalance the uncertainty of its value in the future. B) less likely it will be used as a store of value. C) more likely it will be used as a store of value. D) more confidence people will have in holding it for the future. E) more likely it will be used as a standard of deferred payment. 66) Which one of the following items is not included in the M1 definition of money? 66) A) Non—personal chequable deposits. B) Personal chequable deposits. C) Currency outside banks. D) Fixed term deposits. E) Neither B nor D are part of M1. 67) Which one of the following is not money? 67) A) A non—chequable deposit. B) A fixed term deposit. C) A chequable deposit. D) Canadian currency. E) A credit card. 68) Liquidity is 68) A) the ease with which an asset can be converted into a medium of exchange. B) net flow of gold into the Bank of Canada. C) the degree of certainty of the price of an asset. D) a high—risk asset. E) the same as currency. B-11 Use the information below to answer the following question. Fact 24.1.1 The information describes a hypothetical banking system. Assume that all banks are holding their desired reserves. Actual reserves in banking system Total chequable deposits $1,000 $5,500 Securities held by chartered banks Currency outside banks 69) Refer to Fact 24.1.1. The quantity of money as measured by M1 is equal to 69) A) $6,000. B) $1,500. C) $2,500. D) $7,000. E) $6,500. 70) A private firm that takes deposits from households and firms and makes loans to other households 70) and firms is A) a depository institution. B) an insurance company. C) a credit company. D) a stockbroker. E) a uSurer. 71) The Bank of Canada does not do which of the following? 71) A) Supervise chartered banks. B) Lend money to the public. C) Hold government of Canada securities. D) Act as a lender of last resort to banks. E) Issue bank notes. 72) The payments system refers to the system through which 72) A) bankruptcies are declared. B) individuals make payments to each other to settle transactions. C) the Bank of Canada makes settlements with chartered banks. D) bank notes are issued by the Bank of Canada. E) banks make payments to each other to settle transactions by their customers. 73) Suppose that a country has $50 billion in bank reserves, $100 billion in currency held by the public, 73) and $500 billion in bank deposits. The currency drain ratio is A) 18%. B) 20%. C) 30%. D) 10%. E) 50%. B-12 Use the information below to answer the following questions. Fact 24.3.1 The Bank of Speedy Creek has chosen the following initial balance sheet: Assets Liabilities Reserves $40 Deposits Loans E $500 $500 74) Refer to Fact 24.3.1. Based on the Bank of Speedy Creek's initial balance sheet, what is its desired 74) reserve ratio? A) 4 percent B) 40 percent C) 8 percent D) 12.5 percent E) 25 percent 75) Real money is equal to 75) A) nominal money divided by the price level. B) nominal money divided by nominal income. C) the price level divided by nominal money. D) nominal income divided by the price level. E) nominal income divided by the velocity of circulation. B-13 Use the figure below to answer the following questions. Irxeagest [are inleresl m‘e 5'15 {MS MD; M5; M0,, M5 e<<wmxza;w:\\ . $ Nu»; vN/rsWszM-WM . mu WN,»MN,MWM.MM 0 Real money 0 money [bélfinns of 22K)? dollars) ébilléms mi 9032 deficits; (a) (bl Interns! rate interest {(230 MS.) MS; MS ;‘«13___ MD MD ‘3 Real money '3‘ Real morey (béééions 0% 2032 dotlars] lbilléons of 2M2 dollc's} (c) (:1) Figure 24.4.1 76) Refer to Figure 24.4.1. Everything else remaining the same, which graph best shows an increase in 76) real GDP? A) (a) B) (b) C) (C) D) (d) E) (a) and (C) 77) The amount of real money people want to hold will increase if either the amount they are spending 77) increases or the A) interest rate decreases. B) price level decreases. C) price level increases. D) price of bond falls. E) interest rate increases. 78) Money market equilibrium occurs 78) A) when the level of real GDP is constant. B) only under a fixed exchange rate. C) when the quantity of real money supplied equals the quantity of real money demanded. D) when interest rates are constant. B) when bond prices are constant. B-14 79) International evidence shows us that 79) A) there is a general tendency for money growth and inflation to be inversely related, and the quantity theory is a poor predictor of inflation. B) money growth and inflation are always rising, and the quantity theory predicts inflation accurately. C) in the long run a 1 percent increase in the growth rate of money causes a 1 percent increase in inflation. D) there is a general tendency for money growth and inflation to be correlated and the quantity theory predicts inflation precisely. E) there is a general tendency for money growth and inflation to be correlated but the quantity theory does not predict inflation precisely. 80) On the average in Canada, the inflation rate and the money growth rate minus real GDP growth 80) rate A) are always rising. B) move in opposite directions. C) rise and fall together. D) are always equal. E) are not related. B-15 M Answer Key Testname: MIDTERMIOIOB-F 10 Answers :3: M ~ we FM :35; 8* NH 232;: arcame \010 3.05 232:: vat-sow 3 3-16 Q, Answer Key T estname: MIDTERMlOlOB-FlO 51) E 52) E 53) D 54) D 55) C 56) B 57) \ \ \Q §\K\ \\ \<\_\\\\ \K \K&\x§‘\\x&\_ nmn>>>nmmw>>>mow>>mwwmon B-17 ...
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This note was uploaded on 12/22/2010 for the course ECONOMICS Econ 1010 taught by Professor Paschakis during the Fall '09 term at York University.

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ECON1010-AnswerKeyVersionB - YORK UNIVERSITY FACULTY OF...

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