ECON2091 - McGill University Faculty of Arts Department of...

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Unformatted text preview: McGill University Faculty of Arts Department of Economics Final Examination Economics 209B [Section 0031/ CRN: 2747 Macroeconomic Analysis and Applications Version # l Examinaer: Prof. Alex G. Vicas Wednesday, April 19, 2006 Associate Examiner: Prof. R. Rowley 9:00-12:00 Instructions: There are 110 questions on the pages following this title page. Please answer all questions, in pencil, on the scantron provided. Make certain that you have correctly entered your student number in a fashion that is legible to the computer. Failure to do this may result in a grade of zero for this examination. You are allowed to use a language dictionary. No 01 HER meow NOR carnal—mo s25 Pf“ (’- ALLOUQGQ). Do not answer Question 1. Please note that Article 12 of the University Examination Regulations states: 12. The Exam Security Computer Monitoring Program may be used to detect pairs of students with unusually similar answer patterns on multiple-choice exams. Data generated by this program can be used as admissible evidence, either to initiate or corroborate an investigation or a charge of cheating under Section 16 of the Code of Student Conduct and Disciplinary Procedures. The exam 00mprIS€S 2| pangs ”matudmg Cover page, Economics 209/ Section 003/ Final Examination/ Page 1 Price Lew-I Ron] National Inmmc {GDP} FIGURE 28-4 1) Refer to Figure 28-4. Suppose that the economy is in equilibrium at E0 and that the supply of money is held constant. In the long run, the economy will move to A) 52 because of an increase in consumer expenditure. B) E 1 because of a fall in the external value of our dollar. C) 53 because of an fall in the interest rates. D) E] because of an increase in wages. B) E] because of an increase in imports. 2) The annual primary budget deficit is equal to the A) decrease in the stock of government debt during the course of a year. 33) accumulation of government borrowing. C) excess of government expenditure over tax revenues in a given fiscal year. D) excess of current revenue over current expenditure. B) total amount of government spending on program expenses, personnel, and capital outlays. 3) If a basket of goods costs 1000 euros in Europe and the Canadian dollar exchange rate on the euro is 1.40, then the same basket of goods should cost in Canada. A) $ 140.00 B) $ 714.29 C) $1000.00 D) $ 1400.00 33) $7142.90 4) According to neoclassical growth modeis, an increase in the demand for investment causes A) an increase in the interest rate and increases the long-run increases the standard of living. B) a decrease in national public savings. C) a decrease in the interest rate and increases the long-run increases the standard of living. D) a decrease in private savings and in the long-run increases the standard of living. B) an increase in the interest rate and decreases the longnrun increases the standard of living. Economics 209/ Section 003/ Final Examination] Page 2 5) Credits in the trade account of the Canadian balance of payments would include A) a Swiss banking firm opens a branch office in Ottawa. 13) dividends payabie to Canadians on Canadian direct investment in Latin America. C) Canadian purchases of American—made vehicles. D) purchases by Japanese firms of shares in the Canadian entertainment industry. E) sales of Canadian steel to European importers. 6) The normal turnover of labour and the usual time it takes to find a satisfactory job opening causes m unemployment to persist even at potential GDP. A) frictional B) involuntary C) cyclical D) structural E) actual unemployment greater than NAIRU 7) One way that the Canadian economy can reduce its indebtedness to foreign creditors is to A) increase public saving. B) decrease private saving. C) reduce taxes. D) decrease its national saving rate. B) induce the government‘s budget deficit. {Hire Level Real Nationai inrmup (GDP) FIGURE 24-3 8) In Figure 24-3, the economy cannot be in equilibrium at E 1, in the long run, because the A) AS wilt shift to the right due to a decrease in the price level. B) AD] curve wiEl shift back to the originai position due to a fall in current consumption. C) AS will shift to the ieft due to an increase in the price level. D) AD) curve will shift back to the original position ADO due to an increase in the price level. 13) AS will shift to the left due to an increase in wages. Economics 209/ Section 003/ Final Examination/ Page 3 9) Demand shocks have a small effect on real GDP and large effect on the price level A) on the intermediate (mid-portion) portion of the short run AS curve. B) the steeper the short run AS curve. C) if the AD curve is flat. D) on the downward-sloping portion of the short run AS curve. E) the flatter the short run AS curve. 10) If the Bank of Canada pursues a contractionary monetary policy, interest rate will A) rise, there wili be capital outflow and the Canadian dollar will depreciate. B) fall, there will be capital inflow, and the Canadian doilar will depreciate. C) rise, there will be capital inflow, and the Canadian dollar will appreciate. D) fall, there will be a loss in official reserves at the Bank of Canada and the Canadian dollar will depreciate. E) fall, there will be capital outflow, and the Canadian dollar will appreciate. l 1) A chartered bank's reserve ratio is the A) fraction of its deposit iiabilities that are backed by gold. B) ratio of chequable deposits to term deposits that the chartered banks hold on their books. C) fraction of its deposit liabilities that it actually holds as gold, other precious metal or cash in its own vaults. D) ratio of Canadian dollars to foreign currencies that the chartered banks hold on their books. E) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada. 12) if the unemployment rate is greater than NAIRU, A) reai national income will be above potential real national income. B) there will be upward pressure on wages. C) there will be an output gap. 1)) there will be an inflationary gap. E) the AS curve will shift upward. 13) We have the following macro model: C: 150 + 0.8Yd, Yr! = Y—T, I: 400, G = 700, T=.2Y,X=130, [M = 0.14)”. The marginal propensity to spend on national income, 2, is _ A) 0.500 B) 0.540 C) 0.640 D) 0.840 B) 0.860 14) Many economists believe that generous employment insurance benefits would A) lower structural unemployment. B) have no effect on unemployment. C) raise frictional unemployment. D) lower frictional unemployment. E) raise structural unemployment. 15) Which of the following is excluded from in GDP? A) the purchase of a new computers by a police department B) the purchase price of illegal drugs sold by a drug dealer C) the labour supplied by a lawyer to defend a suspect charged with a criminal offense D) the repairs to a police car after damage as a result of a high speed chase E) the labour services provided by a police officer in the vice squad Economics 209/ Section 003/ Final Examination/ Page 4 16) Excess reserves in the chartered banking system refer to A) any surplus in the chartered banks‘ supply of gold. 13) any surplus of chequabie deposits. C) reserves (cash or deposits with the Bank of Canada) that the Bank of Canada requires the chartered banks to hold. D) excess demand for money in the banking system. 13) any reserves (cash or deposits with the Bank of Canada) that chartered banks hold over and above desired reserves. i7) According to New Classical theories of unemployment, if the unemployment rate exceeds NAIRU, wages will A) decrease and the iabour force will increase. 13) increase and the Eabour force wilt increase. C) decrease and the labour force will decrease. D) remain unchanged but the labour force will decrease until wages are in equilibrium. E) increase and the Eabour force will decrease. 18) Suppose the real interest rate equals the rate of growth of real GDP. In this case, the government's debt—to-GDP ratio will rise only if A) the primary budget surplus exceeds the overall budget surplus. B) the real interest rate is high. C) there is a primary budget deficit. D) the debt-to-GDP ratio is already high. B) there is an overali budget deficit. 19) If major labour unions succeed in increasing wages, in an AS—AD model this will cause the short run AS curve to shift g A) downward (to the right), reducing the price level. B) upward (to the left), and the AD curve to shift downward to the right. C) upward (to the left), increasing the price level. D) downward (to the right) and then return immediately to its originai position. E) upward (to the left) and then return immediately to its original position. 20) The benefits of economic growth include A) increased future interest rates. B) increased nominal GDP and constant real GDP. C) decreased current saving and increased current consumption. D) decreased productive capacity. E) ability to reduce inequality. 21) Which of the following describes the distinction between the Phillips curve and the short run AS curve? A) The short run AS curve has the price level on the vertical axis, and the Phillips curve has the rate of change in the interest rate on the vertical axis. B) The short run AS curve has the price levei on the vertical axis, and the Phillips curve has the interest rate on the verticai axis. C) The short run AS curve has the price levei on the vertical axis, and the Phillips curve has the rate of wage changes on the vertical axis. D) The short run AS curve has the rate of price inflation on the vertical axis, and the Phillips curve has the rate of wage inflation on the vertical axis. E) There is no distinction: the two curves are essentially the same thing. Economics 209/ Section 003/ Final Examination] Page 5 22) To calculate the value of inventories for the investment component of GDP, as measured from the expenditure side, one should record their A) value at the time the goods are sold and removed from inventory. B) cost of production at the time they were produced. C) cost of production minus the costs of labour and capital. D) market value at the time they were produced 33) current market value. 23) For a given level of private saving, an increase in growth of government spending economic growth. A) may accelerate or may retard B) will accelerate C) is beneficial to D) will slow down B) will not affect 24) The substantial increase in the budget deficit in the early 19803 was a reflection of A) an increase in government expenditures. B) the severe recession in 1982. C) increased debt service costs combined with a growing public debt. D) rising interest rates as a result of a monetary contraction. E) all of the above 25) When the growth rate of the labour force is greater than the growth rate of total employment, the unemployment rate A) increases. B) is equal to NAIRU. C) is below NAIRU. D) is above NAIRU. E) decreases. 26) The study of cyciical fluctuations assumes, for simplicity, that there are no changes in the position of the A) short run AS curve. B) intersection of the AD, and short run AS curves. C) AD and short run AS curves. D) potential GDP. E) short run AS curve and potential GDP. Economics 209/ Section 003/ Final Examination/ Page 6 Nominal Rate offnterest Quantity of Manny FIGURE 28-2 27) Referring to Figure 28-2, The process of adjustment in the money market, when the interest rate is at i] is best described as the A) excess demand for money Eeads to a purchase of bonds, which in turn causes the interest rate to rise. B) excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise. C) interest rate will remain at 172, because the money market is in equilibrium at this rate. D) excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall to to. E) MS curve will shift to the left as to maintain the interest rate at £2. 28) The long-term burden of government debt in a closed economy occurs when A) it is no longer possible to find individuals in the private sector willing to finance the debt. B) the burden of the debt is being borne by the current generation rather than future generations. C) the stock of physical productive capital is reduced because of past crowding-out. D) present consumption and government expenditure are hot reduced because of future crowding-out. E) foreign owners of Canadian debt demand repayment. 29) The important automatic fiscal stabilizers in Canada are A) marginal propensity to import. 13) progressive income taxes and employment insurance payments. C) government spending on goods and services. D) marginal propensity to consume. B) interest rates and exchange rates. 30) An example of the acquisition of human capital would best be shown by a A) government-sponsored program increases the amount of investment available per worker. B) worker takes a training course that increases his/her productivity. C) chip manufacturer introduces a new faster processor for micro-computing. D) worker receives new machinery enabling himfher to do the amount of work that was formerly done by two workers. 13) worker communicates more quickly and accurately with suppliers because of upgrades to communications software. Economics 209/ Section 003/ Final Examination] Page 7 Prime Le w! Real Notional luremr ((33)?) FIGUIHE 30-1 31) Referring to Figure 30-1, the movement of the economy from E0 to E 1 was caused by a A) positive demand shock associated with increased investment. B) positive suppiy shock induced by lower nominal wages. C) negative demand shock due to government cut backs. D) negative suppty shock due to rise in input prices. E) positive supply shock induced by new technology. 32) Total consumption divided by total income is calEed the A) average propensity to spend. B) total propensity to save. C) average propensity to save. D) average propensity to consume. E) marginal propensity to save. 33) If commercial banks are voluntarily holding excess reserves A) they are violating margin requirements. B) they are violating Bank of Canada regulations. C) this wiil increase the potentiai for money creation. D) this will weaken the link between desired reserves and money creation. E) this wili cause an expansion of demand deposits. 34) Suppose that a government report indicates that recent high~school graduates have better computing skills than did graduates in the past, resulting in an increase in labour productivity. This will A) shift the AD curve to the right. B) cause a movement along the AS curve to the right. C) shift the short run AS curve to the right. D) shift the short run AS curve to the left. E) shift the AD curve to the left. 35) A highly inelastic [(1 curve and a highiy elastic Demand for Money M D curve A) make it impossible for Bank of Canada to change the money supply. 13) make the money supply a particularly powerful poEicy—instrument variable. C) increase the effectiveness of expansionary monetary policy. D) are believed by many monetarists to be realistic descriptions of the economy. E) impiy that Iarge increases in the money supply have little effect on aggregate expenditure. Economics 209/ Section 003/ Final Examination/ Page 8 36) The statement that "Inflation is everywhere and aiways a monetary phenomenon" is associated with A) J.M. Keynes. B) Adam Smith. C} Paul Martin. D) Alfred Marshall. B) Milton Friedman. 37) One automatic adjustment mechanism associated with an inflationary gap is A) reduction in taxes B) increasing wages. C} falling prices D) increasing government spending E) increasing investment w Bush's-d Aggx'vzutl- Rugs-rimmin- tr Arhml Ntrlinzint lurimlc FIGURE 21-«2 38) According to Figure 21-2, if national income is Y2 and the aggregate expenditure function is A50, A) the economy is in equilibrium. 8) there is unintended inventory accumuiation and income must rise. C) there is unintended inventory accumulation and income must fall. D) there is unintended inventory decuniulation and income must rise. 13) there is unintended inventory decumulation and income must fall. 39) An appreciation of the Canadian doilar implies 39) A) is shown only by changes in the official reserves of the Bank of Canada and does not influence the exchange rate. B) a fall in the external vaiue of the dollar, such that more dollars are required to buy foreign currency. C) a rise in the external value of the dollar, such that more doilars are required to purchase foreign currency. D) a fail in the external vaiue of the doilar, such that fewer doliars are required to purchase foreign currency. E) a rise in the external value of the doilar, such that fewer dollars are required to purchase foreign currency. Economics 209/ Section 003/ Final Examination/ Page 9 40) In an open economy, the government budget deficit tends to A) crowd out private consumption. B) attract foreign capital and reduce interest rates. C) crowd out exports and reduce interest rates. D) depreciate the currency. E) crowd out exports and attract foreign capital. Price Level if; if. )2 Real National Income {GDP} FIGURE 26-2 41) Starting from an initial equilibrium at point A in Figure 26—2, the paradox of thrift results in a new short-run equilibrium at point m and an eventual long-run equilibrium at point A)D;GB) EGC) H;FD) D;HE) H;A 42) The acceleration hypothesis states that A) when the central bank holds an inflationary gap constant, inflation will tend to accelerate. B) if an economy is growing, inflation will grow at an ever—increasing rate. C) if a recessionary gap is not closed, unemployment will tend to accelerate. D) capital investment is the primary cause of inflation. E) monetary accommodation causes inflation. 43) An increase in labor productivity, everything else constant, causes shift in the Y* curve. A) an upward; no B) no; a rightward C) a downward; no D) a downward; a rightward B) an upward; a leftward 44) A rise in the price level, given no change in the supply of money, wiil A) decrease the demand for money and decrease aggregate demand. 13) increase the demand for money and decrease aggregate expenditure. C) increase the demand for money and increase aggregate expenditure. D) decrease the demand for money and increase aggregate demand. E) decrease aggregate demand but not affect the demand for money. shift in the AS curve and Economics 209/ Section 003/ Final Examination/ Page 10 45) GDP measures tend to understate the economic welfare of less-developed countries because those countries tend to A) import much more than they export. B) have a large share of nonmarket activities. C) have very high rates of pollution. D) have a high degree of foreign direct investment. E) emphasize agricultural and resource-based production. / CM J’n' (.‘mmmlptiwn Function Desired Consmnpliun Expemfiluro Real Diqmmhln Income FIGURE 21-] 46) In Figure 21-1, marginal propensity to consume is equal to A) ED/Y2 Y3. B) ED/CF. C) DF/ Y 2 y3_ D) EFI'DF. E) EF/ Y2 )3. 47) If the Bank of Canada has engaged in Inflation Targeting, it would react to a negative suppiy shock by A) by changing its target variable from inflation to real GDP. B) raising the bank rate. C) with a contractionary monetary policy. D) buying bonds from the open market. E) switching Government of Canada accounts out of the commercial banks. 48) We have the following macro model: CI 60 + 0.43 Y, 1"“ 150, G "“ 260, T“ 0, X“ 90, 1M" 0.06Y. Equilibrium nationai income is A) 560.00 B) 888.89 C) E 142.85 D) 1 302.33 E) 1 513.50 Economics 209/ Section 003/ Final Examination/ Page 11 49) One reason that economists are interested in gross flows in the labour market, as opposed to stock of unemployment, is that examining the gross flows: A) gives a better estimate of the total number of people employed in the labour force at any one time. B) provides a better indication of the total number of people unemployed at any one time. C) in relation to the stocks of unemployed can tell us about the amount of the overall level of employment. D) gives a better picture of the amou...
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