Exam
Name___________________________________
Mid Term Test Macro Economics 1010 C Summer 2012 Version 1
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) A medical clinic has 10 workers. Each worker can produce a maximum of either 2 units of medical
services or 5 units of secretarial services a day. One day, the firm decides it would like to produce
10 units of medical services and 30 units of secretarial services. This output level is
A) costless.
B) unattainable.
C) efficient.
D) inefficient.
E) is attainable if the firm reduces the number of its workers.
1)
2) The cost of the CPI basket in base-period prices is $200 and the cost of the CPI basket in
current-period prices is $450. The CPI in the current year is
A) 250.
B) 44.44.
C) 450.
D) 300.
E) 225.
2)
3) Suppose the economy of Econoworld produces only two goods, kayaks and birdseed. In one year
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) $20,300.
C) $20,000.
D) $300.
E) 20 kayaks plus 10 bags of birdseed.
3)
4) Which of the following situations illustrates how fiscal policy can influence aggregate demand?
A) The exchange rate value of the Canadian dollar rises. As a result, people living near the
US-Canada border increase their imports of goods and net exports decrease.
B) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a
result, the aggregate demand curve shifts leftward.
C) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As
a result, aggregate demand decreases.
D) The government reduces the goods and services tax. As a result, consumption expenditure
increases and aggregate demand increases.
E) Both A and C are examples of fiscal policy.
4)
5) If real GDP is less than potential GDP, then the economy is
A) in a full-employment equilibrium.
B) not in short-run equilibrium.
C) in an above full-employment equilibrium.
D) in a below full-employment equilibrium.
E) in long-run equilibrium.
5)
1
6) The income approach to measuring GDP is derived by adding together
A) wages, salaries and supplementary labour income, corporate profits, interest and
miscellaneous investment income, farmers' income, and income of non-farm unincorporated
businesses, plus indirect taxes less subsidies, plus depreciation.
B) the total expenditures of consumers, investors, net exporters, and purchases of all levels of
government.
C) wages, salaries and supplementary labour income, corporate profits, interest and
miscellaneous investment income, farmers' income, subsidies paid by the government,
indirect taxes paid, and income of non-farm unincorporated businesses.
D) the value added of each firm in the economy.
E) the value added of each firm in the economy, indirect business taxes, depreciation, and by
subtracting subsidies paid by the government.
6)
Use the figure below to answer the following questions.
Figure 20.1.1
7) Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During
2008, A was $100, B was $50, C was $30 and D was $10. How much is net exports?
A) $30.
B) $25.
C) $10.
D) $50.
E) None of the above.
7)
8) Some producers are chatting over a beer. Which one of the following quotations refers to a leftward
shift of the supply curve?
A) "Wage increases have forced us to raise our prices."
B) "Our new, sophisticated equipment will enable us to undercut our competitors."
C) "Raw material prices have sky-rocketed; we will have to pass the cost on to our customers."
D) "We anticipate a big increase in demand. Our product price should rise, so we are planning
for an increase in output."
E) Both A and C.
8)
2
Use the figure below to answer the following questions.
Figure 26.3.1
9) Refer to Figure 26.3.1. As Econoworld automatically adjusts to long-run equilibrium, the
A) SAS curve shifts leftward.
B) LAS curve shifts leftward.
C) AD curve shifts rightward.
D) SAS curve shifts rightward.
E) AD curve shifts leftward.
9)
10) Refer to Figure 26.3.1. Short-run macroeconomic equilibrium real GDP in Econoworld is
A) $480 billion.
B) $400 billion.
C) $520 billion.
D) $360 billion.
E) $440 billion.
10)
11) If the labor force participation rate is rising and the working-age population is not changing, then
the
A) number of unemployed people is rising and the size of the labor force is falling.
B) number of unemployed people is falling and the size of the labor force is rising.
C) size of the labor force is rising.
D) number of employed people must be increasing.
E) size of the labor force is falling.
11)
12) Which one of the following people would be counted as unemployed in Canada?
A) Rebekah is a recent graduate looking for work.
B) Ron has quit looking because he believes that there is no work available for him.
C) Ruth is a 14-year-old student and has been looking for an after-school job every day for the
past month.
D) Simone is currently working but expects to be laid off by the end of the month, before next
month's survey can be completed.
E) Sarah has been looking for a job but is taking a month-long break from the job-seeking effort
due to her lack of skills.
12)
3
13) The quantity of real GDP demanded is the sum of real consumption expenditure (C), investment
(I),
A) exports (X), and imports (M).
B) government expenditure (G), exports (X), and imports (M).
C) and government expenditure (G).
D) government expenditure (G), and exports (X) minus imports (M).
E) and exports (X) minus imports (M).
13)
14) 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) 6.25 percent
B) 9.4 percent
C) 5.9 percent
D) 4.2 percent
E) 8 percent
14)
15) A ________ macroeconomist believes that the economy is self-regulating and always at full
employment.
A ________ macroeconomist believes the economy requires active help from fiscal policy and
monetary policy to maintain full employment.
A) classical; monetarist
B) Keynesian; new Keynesian
C) monetarist; classical
D) new classical; monetarist
E) classical; Keynesian
15)
16) Which one of the following correctly describes how price adjustment eliminates a shortage?
A) As the price falls, the quantity demanded decreases and the quantity supplied increases.
B) As the price rises, the quantity demanded decreases and the quantity supplied increases.
C) As the price rises, the quantity demanded increases and the quantity supplied decreases.
D) As the price falls, the quantity demanded increases and the quantity supplied decreases.
E) As the price falls, the quantity demanded increases and the quantity supplied increases.
16)
17) From the following list, choose the item that would be included in a current measure of GDP.
A) a $2,000 cheque from your aunt Grace
B) income from the sale of your Canadian Snowfun stocks
C) the purchase of a previously owned house that was built last year
D) a social security cheque for $500
E) the purchase of 10 litres of gasoline for your car
17)
18) An inflationary gap is the amount by which
A) the price level must adjust to achieve full employment.
B) potential GDP exceeds real GDP.
C) real GDP exceeds potential GDP.
D) demand must increase to achieve full employment at a given price level.
E) supply must increase to achieve full employment at a given price level.
18)
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19) Allocative efficiency refers to a situation where
A) opportunity cost is zero.
B) opportunity costs are equal.
C) we cannot produce more of any one good without giving up some other good.
D) goods and services are produced at the lowest possible cost and in the quantities that provide
the greatest possible benefit.
E) none of the above.
19)
Use the figure below to answer the following questions.
Figure 2.1.2
20) Consider the production possibilities frontier in Figure 2.1.2, and assume that everything that is
produced is also consumed. Which of the following statements is false?
A) Points inside the frontier indicate unused or misallocated resources.
B) The opportunity cost of producing Y increases as production of Y increases.
C) Resources are not equally useful in all activities.
D) The opportunity cost of producing X increases as production of X increases.
E) Starting at point A, an increase in the production of Y will shift the frontier outward.
20)
21) Structural unemployment arises in part because
A) of technological change.
B) people become discouraged when they cannot find jobs.
C) people will not quit their present jobs until they can find suitable employment elsewhere.
D) there are not enough jobs available.
E) of unrealistic wage expectations.
21)
5
Use the figure below to answer the following questions.
Figure 26.3.2
22) Refer to Figure 26.3.2. If the economy of Mythlo automatically adjusts to long-run equilibrium,
then
A) real GDP is $600 billion.
B) potential GDP decreases.
C) the SAS curve shifts rightward.
D) the price level rises to 90.
E) the actual unemployment rate exceeds the natural unemployment rate.
22)
23) Refer to Figure 26.3.2. Consider statements (1) and (2) and select the correct answer.
(1) The actual unemployment rate exceeds the natural unemployment rate in the short run.
(2) SAS automatically shifts rightward as the economy adjusts to long-run equilibrium.
A) (1) is true; (2) is false.
B) (2) is true; (1) is false.
C) (1) and (2) are true.
D) (1) is false; (2) is true if the LAS curve shifts rightward at the same time.
E) (1) and (2) are false.
23)
24) The short-run aggregate supply curve is the relationship between the quantity of real GDP
supplied and
A) the price level.
B) real income.
C) the real interest rate.
D) the quantity of real GDP demanded.
E) the inflation rate.
24)
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25) All of the following statements are true except
A) the Lucas wedge arises from the slowdown of productivity growth that began during the
1970s.
B) the Lucas wedge is the dollar value of the accumulated gap between what real GDP per
person would have been if the 1960s growth rate had persisted and what real GDP per person
turned out to be.
C) real GDP per person was $23,230 per year lower in 2008 than it would have been with no
growth slowdown.
D) the Lucas wedge accumulated to $316,000 per person by 2007.
E) the Lucas wedge equals real GDP minus potential GDP.
25)
26) If real GDP is greater than potential GDP, the economy is
A) in an above full-employment equilibrium.
B) in long-run equilibrium.
C) in a recessionary equilibrium.
D) in a below full-employment equilibrium.
E) not in short-run equilibrium.
26)
27) Which one of the following newspaper quotations describes a movement along an LAS curve?
A) "The increase in consumer spending is expected to lead to inflation, without any increase in
real GDP."
B) "Recent higher wage settlements are expected to cause higher inflation this year."
C) "Growth has been unusually high the last few years due to more women entering the labour
force."
D) "The recent tornadoes destroyed many factories in Calgary and Edmonton."
E) "The decrease in consumer spending may lead to a recession."
27)
28) Suppose the economy's capital increases over the year. It must be true that
A) depreciation is less than zero.
B) depreciation was greater than net investment.
C) depreciation was greater than gross investment.
D) net investment was positive.
E) net investment was greater than gross investment.
28)
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Use the table below to answer the following questions.
Table 20.2.1
Data From Eastland
Wages, salaries, and supplementary labour income
Farmers' income
Government expenditures on goods and services
Depreciation
Business investment
Personal income taxes net of transfer payments
Corporate profits
Indirect taxes
Net exports
Consumption expenditure
Interest and miscellaneous investment income
800
80
240
240
400
140
80
120
80
640
100
29) Refer to Table 20.2.1. From the information given in the table, the value of gross domestic product
is
A) $1,290.
B) $1,360.
C) $1,100.
D) $1,120.
E) $1,280.
29)
Use the table below to answer the following questions.
Table 20.2.4
Corporate profits
Interest and miscellaneous investment income
Indirect taxes
Depreciation
Wages, salaries and supplementary labour income
Farmers' income
Income of non-farm unincorporated businesses
Consumption expenditure
Government expenditure on goods and services
Government transfer payments
Net exports
Subsidies
30) Refer to Table 20.2.4. Gross domestic product is equal to
A) $1,920.
B) $2,150.
C) $2,350.
D) $1,940.
31) What is the definition of marginal benefit?
A) the benefit that arises from an increase in an activity
B) the sum of benefit and cost that arises from an increase in an activity
C) the benefit that arises from a decrease in an activity
D) the cost of a decrease in an activity
E) the cost of an increase in an activity
8
$200
150
230
250
1,350
150
70
1,400
500
50
40
0
E) $2,400.
30)
31)
32) In a country with a working-age population of 22 million, 16 million are employed, 2 million are
unemployed, and 1 million of the employed are working part-time, half of whom wish to work
full-time. The unemployment rate is
A) 10.3 percent.
B) 15.4 percent.
C) 11.1 percent.
D) 10 percent.
E) none of the above.
32)
33) Complete the following sentence. As you consume more and more of a good,
A) marginal benefit always equals marginal cost.
B) marginal benefit increases or decreases depending on where you are on the production
possibilities frontier.
C) marginal benefit decreases.
D) marginal benefit increases.
E) the price of the good falls.
33)
34) If the working-age population increases, then
A) the size of the labour force will increase.
B) the total number of people aged 15 years and above will increase.
C) the labour force participation rate will increase.
D) the number of people employed will increase.
E) the unemployment rate will increase.
34)
Use the figure below to answer the following questions.
Figure 20.3.2
35) Refer to Figure 20.3.2. In the figure, a recession begins at point ________ and an expansion begins at
point ________.
A) A; B
B) B; A
C) C; D
D) B; C
E) D; C
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35)
36) The circular flow model is used to
A) show the stocks of various sectors of the economy.
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 how nominal GDP is distinct from real GDP.
36)
Use the figure below to answer the following questions.
Figure 26.2.1
37) Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money
increases?
A) (a)
B) (b)
C) (c)
D) (d)
E) (a) and (b)
37)
38) Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure
increases?
A) (a)
B) (b)
C) (c)
D) (d)
E) None of the above
38)
10
Use the table below to answer the following questions.
Table 21.3.1
Suppose a simple economy produces three goods only.
The price and output data for some selected years are shown below.
Pop
Crackers
Cucumbers
Price
(dollars)
1998
0.75
1.25
2.00
Price
(dollars)
2008
1.10
2.10
3.00
Quantity
(number)
1998
100
300
200
39) Refer to Table 21.3.1. The reference base period is 2008. The CPI in 1998 is
A) 100.
B) 157.
C) 64.
D) 152.
Quantity
(number)
2008
120
280
190
E) 129.
39)
40) Refer to Table 21.3.1. The reference base period is 1998. Which one of the following statements is
true?
A) From 1998 to 2008, the cost of the market basket rose by 58 percent.
B) The inflation rate in 1998 is greater than the inflation rate in 2008.
C) The inflation rate in 2008 is greater than the inflation rate in 1998.
D) It costs 158 times more in 2008 than it does in 1998 to buy the same market basket.
E) All prices have risen by the same amount.
40)
41) A bakery uses flour to produce bread.
When calculating GDP, we include ________, because when we add the value of the flour to the
value of the loaf of bread to calculate GDP, the result is ________.
A) only the value of the flour used to produce the bread; double counting
B) only the value of the bread sold in a store; double counting
C) both the value of the bread sold in a store and the value of the flour used to produce the
bread; the true value of the economy's output
D) both the value of the bread sold in a store and the value of the flour used to produce the
bread; double counting
E) none of the above
41)
42) When all of the economy's labour, land, capital and entrepreneurial ability are fully employed, the
value of production is called
A) nominal GDP.
B) productive GDP.
C) potential GDP.
D) actual GDP.
E) real GDP.
42)
11
Use the table below to answer the following questions.
Table 21.2.1
This table shows the answers given by interviewees to the Labour Force Survey
Person A
Now that kids are in school full-time, this person is looking for
work and has been interviewed for three jobs over the past 2
weeks.
Person B
This person has been laid off but expects to be called back in a few
weeks, just as soon as the economy improves.
Person C
This person has just graduated from university and will start a
new job in 8 weeks. In the meantime, this person is surveying
local drinking establishments.
Person D
This person was laid off last year when new equipment at the
plant reduced the number of jobs. Since his layoff, this person has
been constantly job searching.
Person E
This economics graduate is working two nights a week at the
7-11, but wants full-time work as an economist.
43) In Table 21.2.1, which person is frictionally unemployed?
A) A
B) B
C) C
D) E
E) none of them
43)
44) The consumer price index is a measure of
A) the consumer prices paid by average households for a fixed basket of goods and services.
B) the average of the prices paid by rural consumers for a fixed basket of consumer goods and
services.
C) the lowest prices paid by urban consumers for a fixed basket of consumer goods and services.
D) the commodity prices paid by urban consumers for a fixed basket of consumer goods and
services.
E) the average of the prices paid by urban consumers for a fixed basket of consumer goods and
services.
44)
45) Complete the following sentence. Potential GDP
A) increases as the price level rises.
B) never changes.
C) does not vary with the price level.
D) is the level of real GDP when unemployment is zero.
E) increases as the quantity of money in the economy increases.
45)
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46) Suppose Angela falls in love with and subsequently marries her regularly employed housekeeper,
Tony. What effect would this action have on GDP?
A) It would stay the same.
B) It would fall but then increase after the honeymoon was over.
C) It would rise.
D) It would fall.
E) It depends on whether he starts to work in the house free of charge or whether she still pays
him.
46)
47) Keynesian macroeconomists recommend
A) an increase in the quantity of money to offset decreases in aggregate demand and a decrease
in the quantity of money to offset increases in aggregate demand.
B) policies that minimize the disincentive effects of taxes on employment, investment, and
technological change.
C) policies that actively offset changes in long-run aggregate supply that result in negative
economic growth.
D) policies that actively offset changes in aggregate demand that bring recession.
E) none of the above.
47)
48) The night before a history test, you decide to go to the movies instead of reviewing your notes. You
get 60 percent on your test compared with the 75 percent that you normally score. You ________ a
tradeoff ________, and the opportunity cost of your evening at the movies was ________.
A) did not face; because your roommates agreed you should go to the movies and not study;
zero
B) did not face; most students get 60 percent on history tests; the mark of 60 percent on your test
C) did not face; because you made the best choice; zero
D) faced; between a higher test score and an evening at the movies; the mark of 60 percent on
your test
E) faced; between a higher test score and an evening at the movies; the 15 percent fall in your
grade
48)
49) If A and B are substitutes and the cost of a factor of production used in the production of A
increases, then the price of
A) A and B fall.
B) B falls but the price of A rises.
C) B rises but the price of A falls.
D) A falls, and the price of B will stay unchanged.
E) A and B rise.
49)
50) Counting discouraged workers as unemployed would
A) raise the measured unemployment rate.
B) raise the natural unemployment rate.
C) lower the measured unemployment rate.
D) raise the full employment rate.
E) not change the measured unemployment rate.
50)
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51) Which one of the following people is structurally unemployed?
A) a Saskatchewan welder who lost her job when her company relocated to B. C. and is currently
looking for a job
B) a steel worker who is laid off but who expects to be called back soon
C) an office worker who has lost her job because of a general slowdown in economic activity
D) a Nova Scotia fishery worker who is searching for a better job closer to home
E) none of the above
51)
52) In a country with a working-age population of 22 million, 16 million are employed, 2 million are
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) 5 percent.
B) 6.3 percent.
C) 12.5 percent.
D) 2.8 percent.
E) none of the above.
52)
53) Some sales managers are talking shop. Which of the following quotations refers to a movement
along the demand curve?
A) "It has been an unusually mild winter; our sales of wool scarves are down from last year."
B) "The Green movement has sparked an increase in our sales of biodegradable products."
C) "We decided to cut our prices, and the increase in our sales has been remarkable."
D) "Since our competitors raised their prices, our sales have doubled."
E) None of the above.
53)
54) The largest component of GDP using the expenditure approach is
A) exports.
B) government expenditure.
C) consumption expenditure.
D) investment.
E) imports.
54)
55) If the economy is at full employment,
A) the entire labor force is employed.
B) the entire population is employed.
C) the only unemployment is frictional unemployment plus discouraged workers.
D) all unemployment is cyclical and structural.
E) real GDP equals potential GDP.
55)
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