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midterm_solution_1010T - YORK UNIVERSITY FACULTY OF LIBERAL...

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Unformatted text preview: YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES DEPARTMENT OF ECONOMICS ECONOMICS 1010 3.0T INTRODUCTION TO MACROECONOMICS TEST 1 February 11 2010 l"‘ J bflm RAM Course Director: John Paschakis .P‘ NSW g. 1 GK} TOTAL WORTH: 40% STUDENT NAME: STUDENT NUMBER: INSTRUCTIONS: 1) This examination consists of fifty (50) 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: 80 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 final value of all goods produced in a country in a given time period. B) the market value of all goods and services produced in a country during a given time period. 0 C) the market value of all the final goods and services produced in a country during 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 intermediate goods and services produced in a country during a given time period. 2) The circular flow model is used to 2) A) show how nominal GDP is distinct from real GDP. B) explain how the prices of factors are determined. \ C) show the effects of inflation in a simple economy. D) show the real flows and money flows between different sectors of the economy. E) show the stocks of various sectors of the economy. 3) For the aggregate economy, income equals 3) A) expenditure, but these are not generally equal to GDP. ) B) GDP, but expenditure is generally less than these. C) expenditure equals GDP. D) expenditure equals GDP only if there is no government or foreign sectors. E) expenditure equals GDP only if there is no depreciation. 4) Which one of the following would not be counted as part of this year's GDP? 4) A) The lumber you purchase when building bookshelves for your room. . B) The government bond you buy for your newbom niece. C) The purchase of a new personal computer that was produced in the current year. D) The purchase of wheat that was produced in the current year by a Saskatchewan farmer. E) The purchase of a house that was produced in the current year. 5) The largest component of GDP using the expenditure approach is 5) A) investment. B) consumption expenditure. C) exports. D) government expenditure. E) imports. 6) Which one of the following is not a component of the income approach to GDP? 6) A) Net exports. B) Wages, salaries, and supplementary labour income. C) Corporate profits. D) Farmers' income. E) Income of non—fann unincorporated businesses. 7) A south sea island produces only coconuts. 7) In 2005, the price of a coconut is $2.00 and the quantity produced is 400. In 2008, the price of a coconut is $1.50 and the quantity produced is 350. 2005 is the reference base year. Real GDP in 2008 in terms of base-year prices is A) $600. B) $525. C) $800. D) $700. E) $750. 1 x '3 S e “—1 Jet “+00 8) The business cycle is defined as the 8) A) regular growth rate of the real GDP. B) regular fluctuations of real GDP below potential GDP. C) irregular fluctuations of prices around real GDP. D) irregular fluctuations of real GDP around potential GDP. E) periodic and regular up—and-down movement of total production. 9) Given that pollution is a by—product of some production processes, 9) A) GDP accountants adjust GDP downward. B) GDP accountants adjust GDP upward. 9 C) GDP accountants do not adjust GDP unless pollution is a serious problem. D) GDP tends to overstate economic Well—being. E) GDP tends to understate economic well-being. 10) Which of the following statements by politicians is talking about the business cycle? 10) A) "Canadian unemployment is falling due to the upturn in the economy." B) "Crime rates increase every spring as the school year ends.“ C) "An average of 220,000 new jobs are created each year in Canada." D) "More capital investment will create more jobs." E) "Business always rises just before Christmas." 11) Which one of the following people would be counted as unemployed in Canada? 11) A) a part-time worker who repeatedly expresses a desire to become a full-time worker B) a person who has been seeking a job for the last six months, but recently gave up looking . because he was discouraged by his job prospects Q C) a person who will be starting a new job in 6 months D) a person who expects to be laid off by the end of the month before next month's survey can be completed E) a person who has been laid off for 10 weeks and is not looking for a job because he is waiting to be called back to his old job 12) In a country with a working—age population of 22 million, 16 million are employed, 2 million are 12) unemployed, and 1 million of the employed are working part-time, half of whom wish to work full-time. The involuntary part-time rate is A) 6.3 percent. .—-' ‘99 (O B) 12.5 percent. Ww a’_-,.KV \— Y K / B O C) 2.8 percent. D) 5 percent. ’ I 8 ’ QWW ( kg E) none of the above. 13) In a country with a working-age population of 30 million, 18 million are employed, 2 million are 13) unemployed, and 2 million of the employed are working part—time, half of whom wish to work full- time. The unemployment rate is A) 10 percent. . O B) 9.1 percent. } X r O O : r 6/ C) 14.3 percent. '3 D) 11.1 percent. ,2. O E) none of the above. 14) In a recession, typically 14) A) unemployment rises. B) the employment-to-population ratio decreases. C) the employment—to—poPulation rate rises. E D) the labour force participation rate rises. E) both A and B are correct. 15) Unemployment caused by permanently decreased demand for horse-drawn carriages is an 15) example of A) cyclical unemployment. B) seasonal unemployment. C) frictional unemployment. D) structural unemployment. E) discouraged unemployment. 16) Complete the following sentence. Full employment 16) A) occurs when all unemployment is cyclical and structural. B) occurs when all unemployment is frictional and discouraged. Q C) occurs when there is zero unemployment. D) occurs when there is zero frictional unemployment. E) occurs when there is zero cyclical unemployment. 17) When the unemployment rate is less than the natural unemployment rate, real GDP is 17) than potential GDP and the output gap is A) greater; positive B) smaller; positive C) greater; negative D) smaller; negative E) greater; equal to zero 18) If the CPI was 228 at the end of 2007 and 236 at the end of 2008, what was the inflation rate in 2008? 18) A) 8 percent ‘ J _ B) 236 percent T) a 3/5 {6" 7— L? 0 O C) 3.5 percent ’— X f O l D) 3.4 percent 2 2. g E) 4 percent i X) cf) ”7,1? :3r§Z l l 19) The Consumer Price Index measures inflation by using 19) A) all goods and services that are produced using a current-year basket. B) all goods and services that are produced using a base—year basket. v C) only consumption goods and services purchased using a current-year basket. / D) only consumption goods and services purchased using a base— year basket. E) A and D. 20) Commodity substitution bias in the CPI refers to the fact that the CPI 20) A) takes into account the substitution of goods by consumers when relative prices change. B) takes no account of the substitution of goods by consumers when relative prices change. C) substitutes quality changes whenever they occur without taking account of the cost of the quality changes. D) substitutes relative prices for absolute prices of goods. E) accounts for improved quality in price rises. / 21) During 2009, the country of Economia had real GDP of $115 billion and the population was 0.9 21) SC billion. In 2008, real GDP was $105 billion and the population was 0.85 billion. In 2009, real GDP per person was . Ill — ' A) $124. B) $135. C) $117. D) $12,773. E) $123. M5, t1$ Qh 22) Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person is 22) 10 percent a year, how long will it take the country's real GDP per person to double? E A) 0.7 years B) 1 year C) 10 years D) 49 years E) 7 years “+0 ; 3L-tbat0 / T?— Use thefigure below to answer the following question. Real GDP [billions of 2002 dollars] Labour (biliions 0% hours per year) Figure 22.3.1 23) Refer to Figure 22.3.1. The country of Kemper is on its aggregate production function at point Win 23) the above figure. If the population increases with no change in capital or technology, the economy will A) move to point such as Y. -- B) remain at point W. O C) move to point such as X. D) move to point such as Z. E) either remain at point W or move to point X. 24) If the real wage rate is $10.00 an hour and the price leve is 60, the money wage rate is 24) A) $16.75 an hour. I'" \ \ 9—1) B) $18.50 an hour. W , v; Q C) $10.00 an h ur. V . C; Q6 0 D) $6.00 an heir. _ r1 wmm H ‘45 Kl ° ° 7 E)$16.67anhour. \P “ T Ml IQ: regaifig l 6—0 25) When the population increases with no change in labour productivity, employment and 25) potential GDP A) decreases; decreases B) increases; increases C) decreases; increases D) increases; decreases E) increases; does not change employment , and 26) 26) If the population increases, then potential GDP potential GDP per hour of labour. A) increases; increases; decreases pg B) increases; decreases; decreases C) decreases; increases; increases \ \ D) decreases; decreases; decreases E) increases; increases; increases 27) If new capital increases labour productivity, the supply of labour and the demand for 27) labour . A) stays the same; increases B) increases; increases C) increases; decreases D) decreases; stays the same E) increases; stays the same 28) 28) Labour productivity grows as A) consumption expenditure increases. B) depreciation increases. 6 C) physical capital grows. D) human capital grows. E) both C and D are correct. 29) Growth accounting measures the contribution to labour productivity of 29) A) new technologies. B) the accumulation of physical capital. 9 C) the accumulation of human capital. D) all of the above. E) none of the above. 30) Which of the following is not a source of economic growth? 30) A) increasing stock market prices . B) better educated workers %- C) growing physical capital D) appropriate incentive system E) advances in technology 31) 31) At the beginning of the year, Tom's Tubes had a capital stock of 5 tube-inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's net investment for the year totaled A) 1 machine. X B) 2 machines. \ C) 3 machines. D) 6 machines. E) 5 machines 32) Suppose Canada spends more on foreign goods and services than foreigners spend on our goods 32) and services. Then A) Canada must borrow an amount equal to national saving. ‘ B) Canada must borrow an amount equal to imports minus exports. C) the rest of the world may or may not finance Canada's trade deficit. D) Canada must borrow an amount equal to consumption expenditure plus investment. E) none of the above. Refer to the table below to answer thefoliawing questions. Table 23.2.1 Item Millions of dollars Consumption expenditure 80 Government expenditure on goods and services 30 Net taxes 35 Investment 20 Imports 10 Exports 20 33) Refer to Table 23.2.1. Private saving is 33) A)-$l5million. 1 :— $_\_ (T_&) -i' CMKX — B) $40 million. C) $25 million. _ . < _- , C Q ‘3‘: O D)$20mil]ion. #53 — S "’r 3f 3%) "i l WWW- 5m 1 s + >-——I o g :73) H a {2M 34) During a recession, firms decrease their profit expectations. As a result, there is a shift of 34) the loanable funds curve. A) rightward; supply of - B) leftward; demand for x C) rightward; demand for D) rightward, supply of E) leftward; demand for loanable funds curve and supply of 35) As a result of a recession, the default risk increases. How does this change affect the loanable funds 35) market? Q‘ A) There is a movement up along the supply of loanable funds curve. B) There is a leftward shift of the supply of loanable funds curve. C) There is a movement down along the demand for loanable funds curve. D) There is a rightward shift of the supply of loanable funds curve. E) There is a movement down along the demand for loanable funds curve. Refer to the figure below to answer the following questions. Real intorest rate [porcem par your} in: Sig} U loanable tends ibillims of 2002 dollars] Figure 23.2.4 36) Refer to Figure 23.2.4. In Figure 23.2.4, the economy is at point A on the supply of loanable funds 36) curve SLFo. What happens if disposable income decreases? A) Nothing; the economy would remain at point A. B) There is a movement to a point such as B on the supply of loanable funds curve SLFo. C) The supply of loanable funds curve shifts rightward to a curve such as SLFZ. D) The supply of loanable funds curve shifts leftward to a curve such as SLF 1. E) None of the above. Refer to the figure below to answer the following questions. Real interest rein [percent per yew) 5ng DtF. z W...” o 0.5 1.0 Ls 2.0 2.5 3.0 Loamble funds [trillions of 2002 dollar-3) Figure 23.2.5 37) Refer to Figure 23.2.5. In Figure 23.2.5, the supply of loanable funds curve is SLR] and the demand for loanable funds curve is DLFo. An expansion that increases disposable income and expected profit A) shifts the supply of loanable funds curve rightward to curve ELI-"1 and does not shift the demand for loanable funds curve. B) shifts the supply of loanable funds curve rightward to curve SLF 1, and shifts the demand for loanable funds curve rightward to curve DLFl. C) shifts the demand for loanable funds curve rightward to curve DLF1 and does not shift the supply of loanable funds curve. D) has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. E) none of the above. 38) The crowding-out effect refers to A) government spending crowding out private spending. B) private saving crowding out government saving. ' C) a government deficit crowding out investment. D) private investment crowding out government saving. E) pn'vate saving crowding out net taxes. 39) In the market for loanable funds, a larger government surplus leads to A) a higher real interest rate, and increased investment. _. B) a higher real interest rate, and decreased investment. 0 C) a lower real interest rate, and increased investment. D) a lower real interest rate, and decreased investment. E) no effect on the real interest rate or investment. 37) 38) 39) 40) Loanable funds flow among countries because . 40) A) including differences in risk, the real interest rate is always higher in some countries than in others and this real interest rate differential will not change B) funds flow into the country with the highest nominal interest rate and out of the country in which the nominal interest rate is lowest C) it creates more stability for domestic businesses to have foreign investors D) funds flow into the country with the highest real interest rate and out of the country in which the real interest rate is lowest E) rational investors want diversified portfolios 41) Without money to act as a medium of exchange, 41) A) the standard of living in the economy would increase. B) barter exchange would allow for a much simpler yet increased standard of living. //_‘ C) the increased transaction costs associated with trading would prohibit some trades from taking place. D) independence in production would lead to a proliferation of new products. E) all exchanges that take place under a monetary system would still take place. 42) The official definitions of money can include all of the following except 42) A) currency outside banks. B) personal chequable deposits. C) non—chequable deposits. D) deposits at trust and mortgage loan companies. E) cheques. 43) Which of the following is a store of value? 43) A) A credit card. , B) A cheque. \ C) A debit card. D) A fixed term deposit. E) All of the above. 44) If Wolfgang transfers $1,000 out of his non-chequable deposit account and places it in his 44) chequable deposit account, A) M1 and M2 fall. / , B) M1 falls and M2 rises. % C) M1 falls and M3 rises. D) M1 falls and M2 remains the same. E) M1 rises and M2 remains the same. 45) The reserves of a bank include 45) A) the cash in its vault plus the value of its chequable deposits. B) the cash in its vault plus any deposits held on account at the Bank of Canada. C) the cash in its vault plus any gold held for the bank at the Bank of Canada. D) all of its common stock holdings, the cash in its vault, and all deposits held on account with the Bank of Canada. E) the cash in its vault plus any deposits held on account with the Bank of Canada plus the value of any govemment bonds that it holds. 10 46) Which of the following statements about the Large Value Transfer System is true? A) It allows all bank borrowers to pay their loans. B) It allows financial institutions and their customers to make large payments instantly. C) It is owned by the Bank of Canada. D) On an average day, it handles $17 billion worth of payments. E) It is operated by the government of Canada. 47) The money creation process begins when A) desired reserves increase because of an increase in deposits. . B) the quantity of money increases. 0 C) banks have excess reserves. D) bank deposits increase. E) banks lend reserves. 48) Choose the correct statement. A) The quantity of money measured in constant dollars is nominal money. B) The quantity of money measured in dollars is nominal money. C) The quantity of nominal money demanded is inversely related to the price level. D) As real GDP increase the quantity of nominal money demanded decreases. .. E) As the interest rate rises, the quantity of real money demanded increases. 49) Everything else remaining the same, an increase in real GDP A) increases the demand for real money. B) decreases the demand for real money. C) does not change the demand for real money. D) increases the demand for real money up to a point, and then demand will automatically fall. E) decreases the demand for real money up to a point, and then demand will automatically rise. 50) If households and firms find they are holding more money than desired, they will A) sell bonds, and the interest rate will rise. B) sell bonds, and the interest rate will fall. C) buy bonds, and the interest rate will rise. D) buy bonds, and the interest rate will fall. E) buy goods, and the price level will rise. 11 46) 47) 48) 49) 50) Answer Key Testname: IDIOT-TESTl-WIO g Jag/M “ i: ' 1) C 2) D 3) C 4) B 5) B 6) A 7) D 8) D 9) D 10) A 11) E 12) C 13) A 14) E 15) D 16) E 17) A 18) C 19) D 20) B 21) E 22) E 23) C 24) D 25) B 26) A 27) A 23) E 29) D 30) A 31) A 32) B 33) C 34) B 35) B 36) D 37) B 33) C 39) C 40) D 41) C 42) E 43) D 44) E 45) B 46) B 47) C 43) B 49) A 50) D 12 ...
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