Principles of Macroeconomics
ECON 202
2024 Spring
Assignment #1
Due Date: Sunday, Jan 28, 2023, 11:59 PM
For credit, you are asked to submit the answer for part II only in Moodle. I will distribute
the answer of part I on Jan 21, 2023 so that you can think part II more critically before
submitting your work for credit. Most answers can be answered by reading the
textbook. Again, the requirement for the assignment is to submit the answer for part II
ONLY.
Part I: Question Bank – You don’t need to hand-in the solutions for this section. These are
designed to help you to review the lectures.
True/False Questions
Chapter 1
T
F 1. Scarcity means that there is less of a good or resource available than people wish to
have.
T
F 2. With careful planning, we can usually get something that we like without having to
give up something else that we like.
T
F 3. A marginal change is a small incremental adjustment to an existing plan of action.
T
F 4. A rational decision maker takes an action if and only if the marginal cost exceeds the
marginal benefit.
T
F 5. An economic model can accurately explain how the economy is organized because it
is designed to include, to the extent possible, all features of the real world.
T
F 6. In the markets for goods and services, as in the markets for the factors of production,
households are buyers and firms are sellers.
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T
F 7. When economists are trying to explain the world they are acting as scientists, and
when they are trying to improve it, they are policymakers.
Chapter 4
T
F 8. In a simple circular-flow diagram, firms own the factors of production and use them
to produce goods and services.
T
F 9. The basic tools of supply and demand analysis are as central to macroeconomic
analysis as they are to microeconomic analysis.
T
F 10. Canadian GDP excludes the production of illegal goods.
T
F 11. If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125.
ANS: True
T
F 12. If GDP is higher in one country than in another, we can be sure that the standard of
living is higher in the country with the higher GDP.
T
F 13. Even though GDP is not the only thing that affects the quality of life, it is a useful
measure because it measures a nation's ability to purchase the inputs that can be used to
produce things such as good health and quality education.
Multiple Choice Questions
Chapter 1 & 4
14. For what reason do both households and societies face many decisions?
a. because resources are scarce
b. because populations may increase or decrease over time
c. because wages for households and therefore society fluctuate with business
cycles
d. because people, by nature, tend to disagree
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15. Because it is difficult for economists to use experiments to generate data, they generally
must
a. do without data.
b. substitute assumptions for data when data are unavailable.
c. rely upon hypothetical data that were previously concocted by other economists.
d. use whatever data the world gives them.
16. What does the adage, "There is no such thing as a free lunch," mean?
a. Even people on welfare have to pay for food.
b. The cost of living is always increasing.
c. To get something we like, we usually have to give up another thing we like.
d. All costs are included in the price of a product.
17.Henry decides to spend 2 hours playing golf rather than working at his job which pays $8 per
hour. What is Henry's tradeoff?
a. the $16 he could have earned working for 2 hours
b. nothing, because he enjoys playing golf more than working
c. the increase in skill he obtains from playing golf for those 2 hours
d. nothing, because he spent $16 for green fees to play golf
18.What do we know about college-age athletes who drop out of college to play professional
sports?
a. They are not rational decision makers.
b. They are well aware that their opportunity cost of attending college is very high.
c. They are concerned more about present circumstances than their future.
d. They underestimate the value of a college education.
19. Paul receives $300 as a birthday gift. In deciding how to spend the money, he narrows his
options down to four choices, Option A, Option B, Option C, and Option D. Each option costs
$200. Finally, he decides on Option B. What is the opportunity cost of Option B?
a. the value to him of the Option he would have chosen if Option B were not
available
b. the value to him of Options A, C, and D combined
c. $300
d. $200
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20. How do economists begin building an economic model?
a. by writing grants for government funding
b. by conducting controlled experiments in a lab
c. by making assumptions
d. by reviewing statistical forecasts
Figure 1
21.Refer to Figure 1. Which arrow shows the flow of goods and services?
a. arrow A
b. arrow B
c. arrow C
d. arrow D
22.Refer to Figure 1. Which arrow shows the flow of income payments?
a. arrow A
b. arrow B
c. arrow C
d. arrow D
23.Which of the following statements best captures the relationship between microeconomics
and macroeconomics?
a. For the most part, microeconomists are unconcerned with macroeconomics, and
macroeconomists are unconcerned with microeconomics.
b. Microeconomists study markets for small products, whereas macroeconomists study
markets for large products.
c. Microeconomics and macroeconomics are distinct from one another, yet they are
closely related.
d. Microeconomics is oriented toward policy studies, whereas macroeconomics is
oriented toward theoretical studies.
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Chapter 4
24. For an economy as a whole,
a. income is greater than expenditure
b. expenditure is greater than income.
c. income is equal to expenditure.
d. GDP measures income more precisely than it measures expenditure.
25. To compute GDP, we
a. add up the wages paid to all workers.
b. add up the costs of producing all final goods and services.
c. add up the market values of all final goods and services.
d. take the difference between the market value of all final goods and services and the
cost of producing those final goods and services.
26. Which of the following is not included in Canadian GDP?
a. unpaid cleaning and maintenance of houses
b. services such as those provided by lawyers and hair stylists
c. the estimated rental value of owner-occupied housing
d. production of foreign citizens living in Canada
27. A steel company sells some steel to a bicycle company for $100. The bicycle company uses
the steel to produce a bicycle, which it sells for $200. Taken together, these two
transactions contribute
a. $100 to GDP.
b. $200 to GDP.
c. between $200 and $300 to GDP, depending on the profit earned by the bicycle
company when it sold the bicycle.
d. $300 to GDP.
28. An Italian company operates a pasta restaurant in the U.S. The profits from this pasta
restaurant are included in
a. U.S. GNP and Italian GNP.
b. U.S. GDP and Italian GDP.
c. U.S. GDP and Italian GNP.
d. U.S. GNP and Italian GDP.
29. Which of the following items is counted in Canadian GDP?
a. final goods and services that are purchased by Canadian government
b. intermediate goods that are produced in Canada but which are unsold at the end of
the GDP accounting period
c. goods and services produced by foreign citizens working in Canada
d. All of the above are included in Canadian GDP.
30. Which of the following items is included in Canadian GDP?
a. the estimated value of production accomplished at home, such as backyard production
of fruits and vegetables
b. the value of illegally-produced goods and services
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c. the value of cars and trucks produced in foreign countries and sold in Canada
d. None of the above is included in U.S. GDP.
31. In a certain economy in 2019, households spent $1,000 on goods and services; purchases
of capital equipment, inventories, and structures amounted to $350; government spent
$450 on goods and services; and the value of imports exceeded the value of exports by
$50. It follows that 2019 GDP for this economy was
a. $1,750.
b. $1,850.
c. $1,950.
d. $2,100.
Table 1
Year
2017
2018
2019
Prices and Quantities
Price of
Quantity of
Price of
Sandwiches
Sandwiches
Magazines
$4.00
100
$2.00
$5.00
120
$2.50
$6.00
150
$3.50
Quantity of
Magazines
180
200
200
32. Refer to Table 1. Nominal GDP for 2018 is
a. $900.
b. $1,100.
c. $1,250.
d. $1,350.
33.Refer to Table 1. Using 2017 as the base year, for 2018,
a. real GDP is $880 and the GDP deflator is 80.
b. real GDP is $880 and the GDP deflator is 125.
c. real GDP is $950 and the GDP deflator is 95.
d. real GDP is $950 and the GDP deflator is 116.
34.Refer to Table 1. Using the GDP deflator to measure the average level of prices and using
2017 as the base year, the economy's inflation rate is
a. 20 percent for 2018 and 12.5 percent for 2019.
b. 20 percent for 2018 and 30 percent for 2019.
c. 25 percent for 2018 and 28 percent for 2019.
d. 44.7 percent for 2018 and 45.5 percent for 2019.
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Part II: Answers to be submitted in the Blackboard
[4 marks] 35. Below are some data from the land of milk and honey.
Year
2017
2018
2019
Price of
Milk
$1
$1
$2
Quantity of Milk
(litres)
1000
2000
2000
Price of
Honey
$2
$2
$4
Quantity of
Honey (litres)
500
1000
1000
a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2017 as the
base year.
b. Compute the percentage change in nominal GDP, real GDP (2017 as the base year), and the
GDP deflator in 2018 and 2019 from the preceding year.
c. Did economic well-being rise more in 2018 or 2019? Explain.
[2 marks] 36. Consider the following data on Canadian GDP.
Year
2018
2019
Nominal GDP
(billions)
$1,520
$1,600
GDP Deflator
(base year: 2012)
121
118
a. What was the growth rate of nominal GDP between 2018 and 2019? (Note: The
growth rate is the percentage change from one period to the next.)
b. What was the inflation rate using GDP deflator between 2018 and 2019?
c. What was real GDP in 2018, using 2012 as the base year?
[2 marks] 37. 37. Using Excel, solve question 2.5 at the textbook, page 114. A copy of the
question is attached for your note. Make sure to include Excel tables sorted by GNI
and HDI in your answer.
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