Deck 19: What Macroeconomics Is All About

Question 1

If the Consumer Price Index changes from 120 in the year 2009 to 126 in the year 2011, the average rate of inflation per year over this two- year period is approximately

A)5 percent.
B)3 percent.
C)2.5 percent.
D)1.5 percent.
E)6 percent.

Answer 1

C

Question 2

Consider a small economy with 2500 employed workers who worked a total of 5 million hours at an average wage of $40 per hour. Which of the following is the best measure of labour productivity in this economy?

A)real GDP per employed worker = $80 000
B)real GDP per hour worked = $80
C)real GDP per employed worker = $125 000
D)real GDP per hour worked = $40
E)indeterminable from the information provided.

Answer 2

E

Question 3

Suppose the Bank of Montreal wants a five percent real rate of return on all its loans, and anticipates an annual inflation rate of four percent. It should therefore lend its money at a nominal interest rate of

A)ten percent.
B)nine percent.
C)five percent.
D)four percent.
E)one percent.

Answer 3

B

Question 4

If constant- dollar national income decreased by $6 billion over a one- year period, then it must be true that

A)aggregate output decreased and the price level increased.
B)the level of individual output decreased.
C)aggregate output decreased.
D)aggregate output increased and the price level decreased.
E)the price level decreased.

Question 5

Short- run fluctuations in real GDP around its trend value are

A)generally ignored by economists, because these fluctuations are constant and predictable.
B)referred to in economics as "background noise".
C)unimportant to the study of macroeconomics.
D)referred to in economics as "the business cycle".
E)generally ignored by economists, because these fluctuations do not affect behaviour of other variables such as the unemployment rate.

Question 6

Suppose Canada's exchange rate with the euro rises from 1.2 to 1.4. This rise indicates a(n) of the Canadian dollar, which means it takes Canadian dollars to purchase one euro.

A)appreciation; more
B)depreciation; fewer
C)depreciation; more
D)appreciation; fewer

Question 7

On a graph showing real national income on the vertical axis and time on the horizontal axis, the fluctuations of real national income around the trend- line would indicate the

A)distribution of income.
B)inflation rate.
C)business cycle.
D)unemployment rate.
E)path of potential output.

Question 8

The real rate of interest is equal to the nominal interest rate

A)divided by the price level.
B)minus the rate of inflation.
C)plus the price level.
D)plus the risk ratio.
E)multiplied by the rate of inflation.

Question 9

Suppose that a price index for a certain basket of goods and services has a value of 150 in 2009 and a value of 156 in 2010. This index suggests that the cost of the market basket of goods and services

A)was approximately the same in 2010 and 2009.
B)was 156 percent higher in 2010 than in 2009.
C)was four percent higher in 2010 than in 2009.
D)was six percent lower in 2010 than in 2009.
E)was six percent higher in 2010 than in 2009.

Question 10

An upward trend in real national income over an extended period of time is called

A)economic growth.
B)potential national income.
C)constant- dollar national income.
D)aggregate output.
E)an inflationary boom.

Question 11

In macroeconomics, if the value of the national product increases, there is

A)a decrease in the value of income claims on that output, due to importing.
B)an even larger increase in the value of income claims on that output, due to value added.
C)an equal increase in the value of income claims on that output.
D)a decrease in the value of income claims on that output, due to household saving.
E)a decrease in value of income claims on that output, due to taxation.

Question 12

Workers with experience and skills sometimes lose their jobs and become unemployed due to changing technology or market conditions, even while firms in other industries or regions are looking to hire more workers. This type of unemployment is called

A)historical unemployment.
B)frictional unemployment.
C)natural rate of unemployment.
D)cyclical unemployment.
E)structural unemployment.

Question 13

If 0.75 U.S. dollars can be exchanged for one Canadian dollar, we say that the Canadian- U.S. exchange rate is

A)0.75.
B)1.25.
C)75.
D)1.0.
E)1.33.

Question 14

Suppose the city of Calgary, Alberta has a population of 1 million, a labour force of 575 000, and employment is equal to 545 000. The unemployment rate in Calgary is approximately

A)3.0 percent.
B)5.2 percent.
C)5.5 percent.
D)54..5 percent.
E)57.5 percent.

Question 15

Suppose Canada's exchange rate with the U.S. dollar falls from 1.21 to 1.13. This fall indicates a(n) of the Canadian dollar, which means it takes Canadian dollars to purchase one
U.S. dollar.

A)appreciation; fewer
B)depreciation; more
C)depreciation; fewer
D)appreciation; more

Question 16

If a country's labour force is 15 million people, and 500 000 of those are unemployed, the country's unemployment rate is

A)2.5 percent.
B)3.3 percent.
C)4.5 percent.
D)6.7 percent.
E)9.0 percent.

Question 17

Suppose actual output is less than potential output. If the output gap measures the output loss due to the failure to achieve full employment, it can generally be concluded that the larger this output gap, the

A)lower is frictional unemployment.
B)greater is the employment rate.
C)more upward pressure there is on prices.
D)lower the deadweight loss of unemployment.
E)greater is the unemployment rate.

Question 18

If the cyclical unemployment rate is greater than zero, then the

A)economy is operating at less than full employment.
B)economy is operating beyond full employment.
C)economy is operating at full employment.
D)real- wage unemployment rate is negative.
E)frictional unemployment rate is greater than the structural unemployment rate.

Question 19

the rate of unemployment.

A)2 only
B)1 only
C)1 and 2
D)1 and 3
E)3 only

Question 20

Suppose that a country's population is 30 million and it has a labour force of 15 million people. Assuming it has 1.35 million people unemployed, the country's unemployment rate is

A)2.5 percent.
B)3.3 percent.
C)4.5 percent.
D)6.7 percent.
E)9.0 percent.

Question 21

In macroeconomics, the "output gap" is the difference between

A)output in the current year and output in the base year.
B)potential real national income and actual real national income.
C)output and employment.
D)real GNP and real GDP.
E)real and nominal national income.

Question 22

Real GDP measures

A)the annual growth rate of real national income.
B)the constant- dollar value of the potential output of the nation's economy over the period of one year.
C)the fluctuations of national income around its long- term trend.
D)the quantity of total output produced by the nation's economy over the period of one year.
E)the long- term trend in total output produced by the nation's economy.

Question 23

If the price index is P₁ in year 1 and P₂ in year 3, the average inflation rate per year over this period is calculated as

A)[(P₂ - P₁)/P₁] x [100/2]
B)[(P₁ - P₂)/P₂] x [100/2]
C)[(P₁ - P₂)/P₂] x 100
D)[(P₂ - P₁)/P₁] x 100
E)(P₂ - P₁)x (100/2)

Question 24

If the price index is P₁ in one year and P₂ in the next year, the inflation rate from one year to the next is calculated as

A)(P₂ - P₁)x 100
B)[(P₁ - P₂)/P₂] x 100
C)[(P₂ - P₁)/P₁] x 100
D)(P_2/P₁)x 100
E)(P_1/P₂)x 100

Question 25

Economic theory argues that there will be fewer real effects from inflation as long as the

A)whole private sector is unaware that it is happening.
B)anticipated rate of inflation is more than the actual rate of inflation.
C)actual rate of inflation is less than 5 percent.
D)inflation is fully anticipated and no one changes their behaviour.
E)anticipated rate of inflation is less than the actual rate of inflation.

Question 26

Consider an economy in which existing capital is being used at a high degree, shortages in labour and goods markets are developing, and costs are rising. Which of the following terms best describes this stage of the business cycle?

A)peak
B)trough
C)recession
D)recovery
E)slump

Question 27

The unemployment rate will overstate the true amount of unemployment if:

A)Crime, divorce, and social unrest are all positively correlated with unemployment.
B)The unemployment rate is rising.
C)The official unemployment figure includes discouraged workers who have stopped actively looking for work.
D)The actual unemployment rate is greater than the natural rate of unemployment.
E)The labour force has grown more rapidly than output.

Question 28

Over the last 50 years in Canada,

A)the number of unemployed persons has been a much larger fraction of the labour force than it was during the first half of the 20th century.
B)both the labour force and employment have remained roughly constant.
C)the labour force has grown much more rapidly than employment.
D)the main trend of the economy has been to have employment grow more rapidly than the growth in output.
E)the main trend of the economy has been one of growth in employment that roughly matches the growth in the labour force.

Question 29

In the study of short- run fluctuations in national income, potential income (output)is usually assumed to be

A)constant.
B)moving together with potential output in neighbouring countries.
C)irrelevant, as the economy is rarely there.
D)equal to actual income.
E)falling at its average growth rate.

Question 30

Consider a small economy with 3 individuals where each individual produces $1000 worth of final goods and services. The national income for this economy is

A)$3000.
B)less than $3000 if there are taxes in this economy.
C)less than $3000 if some of the income is saved.
D)more than $3000 if the individuals are earning profits.
E)more than $3000 if some of the income is invested.

Question 31

Economic booms can cause problems as well as create benefits because they are often accompanied by

A)pressure on the government budget deficit to rise.
B)excessive labour- force participation.
C)deflationary pressures.
D)inflationary pressures.
E)rising real interest rates.

Question 32

Which of the following is the best example of cyclical unemployment?

A)An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta.
B)A worker quits her current job to search for a better one.
C)Bank tellers are unable to find jobs due to technological advances in the banking system.
D)A worker is laid off because his firm had to reduce production due to reduced demand.
E)Inflationary pressures have led to higher wages for all jobs.

Question 33

If one Canadian dollar can be exchanged for 0.5 euros, we say that the Canadian- euro exchange rate is

A)2.0.
B)5.0.
C)1.0.
D)0.5.
E)20.

Question 34

During the 1970s, Canada experienced an unusual pattern of interest rates. During this period

A)the nominal and real interest rates were equal to each other.
B)the inflation rate was negative, implying a nominal interest rate higher than the real interest rate.
C)the inflation rate exceeded the nominal interest rate, implying a negative real interest rate.
D)the inflation rate was negative, implying a real interest rate that was higher than the nominal interest rate.
E)the nominal interest rate was less than the real interest rate.

Question 35

If a country is experiencing inflation, the change in the nominal national product will

A)overstate the change in the real value of production.
B)overstate the inflation rate.
C)be falling faster than the rate of inflation.
D)equal the change in the real national product.
E)understate the value of national income.

Question 36

Macroeconomics is mainly concerned with the study of

A)large economic units such as General Motors or Molson Breweries.
B)governments and their intervention in individual markets.
C)individual households and how they deal with problems like inflation and unemployment.
D)fluctuations and trends in aggregated data.
E)fluctuations and trends in disaggregated data.

Question 37

Suppose the Bank of Montreal wants a four percent real rate of return on all its loans, and anticipates an annual inflation rate of six percent. It should therefore lend its money at a nominal interest rate of

A)ten percent.
B)nine percent.
C)five percent.
D)four percent.
E)one percent.

Question 38

Suppose the unemployment rate is 8.5 percent and we know that frictional and structural unemployment together account for 5.5 percent. The cyclical unemployment rate is then

A)14 percent.
B)8.5 percent.
C)5.5 percent.
D)3.0 percent.
E)- 3.0 percent.

Question 39

An equivalent term for "real national income" is

A)nominal national income.
B)potential national income.
C)current- dollar national income.
D)constant- dollar national income.
E)actual national income.

Question 40

Suppose Honest Rob's Used Cars buys a used car for $2000 and resells it for $3000. The result of Honest Rob's transactions is to

A)decrease the value of national income by $3000.
B)decrease the value of national income by $1000.
C)increase the value of national income by $3000.
D)increase the value of national income by $1000.
E)leave the value of national income unchanged.

Question 41

In general, productivity is a measure of

A)potential output.
B)the total amount of output that the economy is capable of producing.
C)the economy's ability to increase real GDP per capita.
D)real GDP as a function of total employment.
E)the amount of output that the economy produces per unit of input.

Question 42

Consider a small economy with real GDP of $1 billion and the total number of hours worked equal to 5 million. Which of the following is the best measure of labour productivity in this economy?

A)real GDP per employed worker = $20
B)real GDP per hour worked = $200
C)real GDP per hour worked = $20
D)real GDP per employed worker = $200
E)indeterminable from the information provided.

Question 43

people entering the labour force typically take some time to find a job.

A)2 and 3
B)1 only
C)2 only
D)3 only
E)1 and 2

Question 44

The three main reasons that Canada's real GDP has increased steadily for many years are

A)increasing productivity of labour, increasing productivity of land and increasing productivity of the capital stock.
B)rising employment, increasing stock of physical capital and increasing productivity.
C)the increase in life expectancy, the rise in employment and increasing productivity.
D)rising employment, increasing levels of education of the labour force and the increase in the participation rate of women in the labour force.
E)an increasing stock of physical capital, increasing exports and rising employment.

Question 45

Inflation, the rate of change of average prices in the economy, generally

A)increases the purchasing power of money.
B)reduces the real value of existing nominal debt.
C)increases the real value of fixed money incomes.
D)has no real effects if it is unanticipated.
E)benefits creditors if it is unanticipated.

Question 46

Which of the following is the best example of frictional unemployment?

A)Inflationary pressures have led to higher wages for all jobs.
B)An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta.
C)A worker is laid off because his firm has to reduce production due to reduced demand.
D)A worker quits her current job to search for a better one.
E)Bank tellers are unable to find jobs due to technological advances in the banking system.

Question 47

If the Canadian dollar exchange rate increases, the

A)Canadian dollar depreciates relative to foreign currencies.
B)Canadian dollar appreciates relative to foreign currencies.
C)internal value of the dollar falls.
D)internal value of the dollar rises.
E)external value remains unaffected.

Question 48

If a country's labour force is 15 million people, and 1 million of those are unemployed, the country's unemployment rate is

A)2.5 percent.
B)3.3 percent.
C)4.5 percent.
D)6.7 percent.
E)9.0 percent.

Question 49

Potential or full- employment output is

A)the maximum GDP that an economy actually achieves throughout its entire history.
B)achieved during periods when all of the labour force is employed.
C)the GDP that would be produced if the economy's resources were fully employed at a normal intensity of use.
D)the GDP that could be produced if the economy's resources were fully employed at their maximum intensity of use.
E)a goal that can never be achieved by the economy.

Question 50

The group that tends to be most hurt by unexpected inflation is

A)banks.
B)individuals with unindexed pensions.
C)employers.
D)fixed- income earners.
E)both B and D are correct.

Question 51

An example of a topic outside the scope of macroeconomics is

A)the level of productivity, as compared with that in the United States.
B)the aggregate growth rate of the economy.
C)changes in the unemployment rate.
D)changes in the price of a particular good in a specific market.
E)the overall level of unemployment.

Question 52

Consider a small economy with real GDP of $1 billion and the number of workers employed equal to 2500. Which of the following is the best measure of labour productivity in this economy?

A)real GDP per employed worker = $400 000
B)real GDP per hour worked = $200
C)real GDP per employed worker = $200 000
D)real GDP per hour worked = $400
E)indeterminable from the information provided

Question 53

The real interest rate must be

A)negative if the nominal rate of interest is greater than the rate of inflation.
B)low if the nominal interest rate is high.
C)positive if the nominal rate of interest is greater than the rate of inflation.
D)high if the inflation rate is greater than the nominal interest rate.
E)high if the nominal interest rate is high.

Question 54

A change in a price index measures

A)a change in a specific absolute price.
B)a change in some broad average price over some particular time span.
C)a change in quantities of commodities sold.
D)a change in relative prices.
E)the change in gross domestic product.

Question 55

Women entered the labour force in large numbers in the 20^th century and increased the economy's GDP. This change

A)raised potential output.
B)was only possible in an economy operating above normal rates of utilization.
C)created inflationary gaps.
D)created recessionary gaps.
E)was only possible in an economy operating below normal rates of utilization.

Question 56

The output gap is the

A)difference between nominal and real output.
B)percentage change in real GDP.
C)difference between Y and Y^*.
D)dead- weight loss of inflation.
E)measure of output that could have been produced if the economy were fully employed.

Question 57

It is important for policy makers to recognize that most macroeconomic variables are characterized by

A)short- run fluctuations that need to be smoothed for a well- functioning economy.
B)long- run economic growth.
C)gradual increases over long periods of time.
D)long- run trends and short- run fluctuations.
E)the impacts of the business cycle.

Question 58

An output gap with Y < Y^*

A)is known as an inflationary boom.
B)tends to force prices up.
C)occurs when there is excess demand.
D)results in a loss of output due to unemployed resources.
E)is desirable because it keeps wage costs low.

Question 59

Consider the situations of a lender of money and a borrower of money. Which of the following situations is least burdensome for the borrower?

A)nominal interest rate of 8% and an inflation rate of 2%
B)nominal interest rate of 10% and an inflation rate of 1%
C)nominal interest rate of 15% and an inflation rate of 8%
D)nominal interest rate of 4% and an inflation rate of 4%
E)nominal interest rate of 29% and an inflation rate of 21%

Question 60

If the Consumer Price Index changes from 120 in year one to 122 in year two, the rate of inflation in the intervening year is

A)20 percent.
B)0 percent.
C)22 percent.
D)2.0 percent.
E)1.67 percent.

Question 61

If nominal national income increased by 10 percent over a certain period of time while real national income increased by 20 percent, then

A)the price level has declined by about 10 percent.
B)the price level has increased by approximately 10 percent.
C)inflation has occurred during this time period.
D)everybody in the economy became worse off.
E)the labour force increased by 10 percent.

Question 62

Suppose the city of Calgary has a population of 1 million, a labour force of 575 000, and employment equal to 545 000 . We can conclude that for legal and various other reasons people are excluded from the labour force.

A)395 000
B)420 000
C)425 000
D)445 000
E)450 000

Question 63

Suppose that in 2010 Canada's automobile manufacturers produced 2 million cars priced at $20 000 each. And in 2011 they produced 1 million cars priced at $40 000 each. Ceteris paribus, the change in nominal national income is

A)an increase because the price of each car increased.
B)a decrease because fewer cars were produced.
C)insufficient information to know.
D)no change in nominal national income.
E)an increase because of inflation.

Question 64

In some macroeconomic analyses, it is common to treat the level of productivity as roughly constant. This is a justifiable assumption in

A)macroeconomics but not microeconomics.
B)both the long run and the short run.
C)the long run.
D)the short run.
E)neither the long run nor the short run.

Question 65

As the banking industry becomes more and more automated, tellers find themselves with unneeded skills and some of them become unemployed. At the same time, computer programmers are in high demand. These unemployed tellers would be classified as

A)cyclically unemployed.
B)frictionally unemployed.
C)structurally unemployed.
D)naturally unemployed.
E)underemployed.

Question 66

Suppose Appliance Mart buys a used refrigerator for $100, repairs it, and resells it for $250. The result of this transaction is to

A)increase the value of national product by $150.
B)decrease the value of national product by $100.
C)increase the value of national product by $250.
D)leave the value of national product unchanged.
E)insufficient information to know.

Question 67

When macroeconomists use the term "recession" they usually define it as a fall in real GDP that lasts for at least

A)three quarters.
B)two quarters.
C)two years.
D)one quarter.
E)one year.

Question 68

Suppose a small city has a population of 100 000 and a labour force of 60 000. Employment is 55 000 and 5,000 workers are unemployed. How many people are not in the labour force?

A)0
B)30 000
C)5000
D)40 000
E)35 000

Question 69

A nation's real national income in a given year measures the

A)value of output produced by the economy, measured in constant dollars.
B)level of national income that is subject to taxation by the federal government.
C)opportunity cost of the economy's national output.
D)market value of national output produced by the economy.
E)dollar income earned by the nation's producing sector.

Question 70

A worker is considered unemployed if that worker has no job, is legally eligible to work,

A)but only if they previously held a job.
B)whether the worker is looking for a job or is not looking for a job.
C)and is not collecting unemployment insurance.
D)and is actively searching for employment.
E)but only if they were previously employed for at least three consecutive months.

Question 71

Suppose that a country's population is 30 million and it has a labour force of 15 million people. Assuming it has 500 000 people unemployed, the country's unemployment rate is

A)2.5 percent.
B)3.3 percent.
C)4.5 percent.
D)6.7 percent.
E)9.0 percent.

Question 72

Suppose an employer and its employees enter into a wage contract specifying a wage increase of 2 percent. But suppose that the price level rises by 3 percent over the course of the contract. In this case,

A)the employer will experience a greater fall in purchasing power than would have occurred if the price level had held steady.
B)both employer and employees will benefit from increased purchasing power.
C)the employees' purchasing power will fall.
D)both employer and employees will experience a loss of purchasing power.
E)the employees' purchasing power will rise.

Question 73

To compare the economy's aggregate output in two different time periods, economists compare the

A)nominal national income for the two periods.
B)unemployment rates for the two periods.
C)real national income for the two periods.
D)potential national incomes for the two periods.
E)inflation rates for the two periods.

Question 74

If nominal national income increased by 20 percent over a certain period of time while real national income increased by 10 percent, then

A)everybody in the economy became worse off.
B)the labour force increased by 10 percent.
C)the price level has declined by about 10 percent.
D)inflation has decreased during this time period.
E)the price level has increased by approximately 10 percent.

Question 75

In determining the economy's real GDP growth rate between two time periods,

A)real national income, which is equal to nominal national income corrected for price- level changes, should be used.
B)we should ignore prices completely, in order to examine output alone.
C)potential national income should be used.
D)nominal national income should be used in comparing levels of output.
E)only the real national product from the latest time period is relevant.

Question 76

If a country's labour force is 20 million people, and 1 million people are unemployed, the country's unemployment rate is

A)5 percent.
B)4 percent.
C)2.5 percent.
D)0.5 percent.
E)3.5 percent.

Question 77

Consider a small economy with 3 individuals. Individual A produces 100 chickens that sell for $8 each. Individual B produces 50 bags of corn that sell for $10 each. Individual C produces 40 bushels of apples that sell for $20 each. National product in this economy is

A)$2100.
B)$2470
C)100 chickens plus 50 bags of corn plus 40 bushels of apples.
D)190 units of goods produced.
E)not determinable from the information provided.

Question 78

If the cyclical unemployment rate is negative, then the

A)frictional unemployment rate is negative.
B)frictional unemployment rate is greater than the structural unemployment rate.
C)real- wage unemployment rate is negative.
D)economy is operating at less than full employment.
E)economy is operating beyond full employment.

Question 79

Cyclical unemployment is associated with

A)people quitting their present jobs to look for other jobs.
B)people entering the labour force typically take some time to find a job.
C)changes to the economy's industrial structure resulting from growth in some industries and decline in others.
D)an output level different from the economy's potential output.
E)differences between the characteristics of the supply of labour and the demand for labour.

Question 80

If the Consumer Price Index changes from 120 in year one to 144 in year two, the rate of inflation in the intervening year is

A)10 percent.
B)12.5 percent.
C)20 percent.
D)25 percent.
E)30 percent.