Macroeconomics Test

2. Which of the following is a macroeconomic statement? A. The gross profits of all Canadian businesses were $60 billion last year. B. The price of computers declined by 3 percent last year. C. Research in Motion's profits decreased last year. D. The productivity of Canadian steelworkers increased by 1 percent last year. E. The prices of science and technology stock rose by 10 percent last year.

A. The gross profits of all Canadian businesses were $60 billion last year.

10. An economy faces an inflationary gap. Which of the following is the appropriate government fiscal policy? A. an increase in the federal Goods and Services Tax (GST) B. an increase in the size of income tax exemptions for each dependent C. the passage of legislation providing for the construction of 8000 new post office buildings D. an increase in soil conservation subsidies to farmers E. a reduction in the interest rate on bonds

A. an increase in the federal Goods and Services Tax (GST)

11. Economists are in general agreement that fiscal policy will stabilize the economy most when: A. deficits are incurred during recessions and surpluses are incurred during booms B. the budget is balanced each year C. deficits are incurred during booms and surpluses are incurred during recessions D. budget deficits are continually incurred E. budget surpluses are continually incurred

A. deficits are incurred during recessions and surpluses are incurred during booms

4. In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the aggregate: A. demand curve rightward B. demand curve leftward C. supply curve rightward D. supply curve leftward E. demand and aggregate supply curves leftward

A. demand curve rightward

25. Stagflation refers to a(n): A. increase in inflation accompanied by constant or expanding unemployment B. decline in the price level accompanied by increases in real output and employment C. simultaneous increase in output and the price level D. simultaneous reduction in output and the price level E. period of falling inflation

A. increase in inflation accompanied by constant or expanding unemployment

9. In a certain year, an economy's potential output is $280 billion, while its equilibrium real output is expected to be $300 billion. Under these conditions, the government should: A. increase tax rates and reduce government purchases B. discourage personal saving by reducing the interest rate on government bonds C. increase government purchases D. encourage private investment by reducing corporate income taxes E. increase amounts spent on government transfer payments

A. increase tax rates and reduce government purchases

2. Fiscal policy refers to the: A. manipulation of government purchases and taxes for the purpose of stabilizing real output, employment, and the price level B. manipulation of government purchases and taxes for the purpose of achieving greater equality in the distribution of income C. altering of the interest rate to change aggregate demand D. fact that equal increases in government purchases and taxation will be contractionary E. changing regulations that govern how businesses operate

A. manipulation of government purchases and taxes for the purpose of stabilizing real output, employment, and the price level

24. Which of the following would be the most likely cause of cost-push inflation? A. more aggressive wage bargaining by labour unions B. a reduction in raw material prices C. a decline in the number of workers belonging to labour unions D. more rapid increases in labour productivity E. an increase in consumption spending

A. more aggressive wage bargaining by labour unions

13. If the Bank of Canada wants to reduce bank lending, it typically: A. sells bonds in the open market B. buys bonds in the open market C. lowers the target overnight rate D. issues a directive demanding that banks call in loans E. issues a press release asking banks to call in loans

A. sells bonds in the open market

9. GDP may be defined as: A. the monetary value of all final goods and services produced within a nation in a given year B. GNP minus all non-income charges against output C. the monetary value of the capital stock used in the production of a year's output D. the monetary value of all goods and services, both final and intermediate, produced in a given year E. the total monetary earnings of households supplying resources in the Canadian economy

A. the monetary value of all final goods and services produced within a nation in a given year

16. When the Bank of Canada sells a bond to a member of the public: A. the money supply is reduced B. the money multiplier is not relevant C. the lending ability of the banking system is increased D. bank reserves stay the same E. the money multiplier falls

A. the money supply is reduced

15. Which of the following will tend to increase bank reserves? A. the purchase of bonds in the open market by the Bank of Canada B. federal tax collections C. an increase in the target overnight rate D. the sale of bonds in the open market by the Bank of Canada E. a budget deficit by the federal government

A. the purchase of bonds in the open market by the Bank of Canada

10. Assume a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: A. $110 B. $30 C. $40 D. $70 E. -$40

B. $30

18. If the size of the underground economy increases over time: A. real GDP will rise more rapidly than per capita real GDP B. GDP will increasingly tend to understate the level of output through time C. GDP will increasingly tend to overstate the level of output through time D. the accuracy of GDP will be unaffected through time E. per capita real GDP will rise more rapidly than real GDP

B. GDP will increasingly tend to understate the level of output through time

13. Automatic stabilizers operate in which of the following ways? A. An annually balanced budget will automatically tend to offset the destabilizing effects created by provincial and territorial governments and, thereby, stabilizes the economy. B. With given tax rates and government spending policies, a rise in GDP will tend to produce a budget surplus, while a decline will tend to result in a deficit. C. Parliament will automatically change the tax structure and spending programs to correct upswings and downturns in business activity. D. Government purchases and tax receipts automatically balance over the course of the business cycle, though they may be out of balance in any single year. E. Tax rates are automatically increased during recessions and decreased during inflationary periods

B. With given tax rates and government spending policies, a rise in GDP will tend to produce a budget surplus, while a decline will tend to result in a deficit.

12. Which of the following is a final product? A. diesel fuel bought for a delivery truck B. a haircut C. fertilizer purchased by a farm supplier D. Prius windows purchased by a Toyota assembly plant E. expenditures on stationery by an insurance company.

B. a haircut

15. Real GDP measures: A. current output in current dollars B. current output in constant dollars from a given year C. GDP per person in current dollars D. GDP per person in constant dollars from a given year E. current output adjusted to take account of price differences between countries

B. current output in constant dollars from a given year

3. GDP can be calculated by adding: A. consumption, gross investment, government purchases, exports, and imports B. gross investment, government purchases, consumption, and net exports C. consumption, net investment, wages, and rents D. consumption, gross investment, government purchases, and imports E. consumption, gross investment, government purchases, and exports

B. gross investment, government purchases, consumption, and net exports

7. An increase in the money supply will tend to: A. lower the interest rate and lower equilibrium real output B. lower the interest rate and increase equilibrium real output C. increase the interest rate and increase equilibrium real output D. increase the interest rate and lower equilibrium real output E. keep the interest rate and equilibrium real output the same

B. lower the interest rate and increase equilibrium real output

17. The growth of GDP may understate economic well-being if the: A. distribution of income becomes increasingly unequal B. quality of products and services improves C. environment deteriorates because of air pollution D. population increases E. amount of leisure decreases

B. quality of products and services improves

17. If government adhered strictly to an annually balanced budget, then the government's budget would: A. raise real output during recessions and lower it during booms B. tend to destabilize the economy C. have no impact upon real output and employment D. tend to stabilize the economy E. always cause inflation

B. tend to destabilize the economy

17. Open market operations are defined as: A. purchases of stocks in a stock exchange B. the purchase or sale of bonds by the Bank of Canada C. central bank lending to banks D. the specifying of margin requirements on stock purchases E. central bank borrowing from banks

B. the purchase or sale of bonds by the Bank of Canada

8. BGF Corporation buys $100 000 of sand, rock, and cement to produce ready-to-mix concrete. It sells 10 000 cubic meters of concrete at $30 per cubic meter. The value added by BGF Corporation is: A. $300 000 B. $100 000 C. $200 000 D. $500 000 E. $0

C. $200 000

3. Which of the following statements is correct? A. Government purchases and taxes both increase real output. B. Government purchases and taxes both decrease real output. C. Government purchases increase, but taxes decrease, real output. D. Government purchases decrease, but taxes increase, real output. E. Neither government purchases nor taxes affect real output.

C. Government purchases increase, but taxes decrease, real output.

1. Which of the following statements best describes the Bank of Canada? It is: A. a publicly owned and publicly controlled central bank, whose basic goal is to provide income for the Government of Canada B. a privately owned and publicly controlled central bank, whose basic goal is to earn profits for its owners C. a publicly owned and publicly controlled central bank, whose basic goal is to control the money supply and interest rates in promoting the general economic welfare D. a privately owned and publicly controlled central bank, whose basic function is to minimize the risks in chartered banking in order to make it a reasonably profitable industry E. a privately owned and privately controlled bank, whose basic goal is to earn profits for its owners

C. a publicly owned and publicly controlled central bank, whose basic goal is to control the money supply and interest rates in promoting the general economic welfare

19. If the Bank of Canada wants to lower the interest rate, it should: A. raise the target overnight rate B. try to recall currency from circulation C. buy bonds in the open market D. sell bonds in the open market E. try to encourage banks to reduce their lending

C. buy bonds in the open market

23. If the demand for money increases and the monetary authorities want interest rates to remain unchanged, which of the following would be the most appropriate policy? A. recall currency from circulation B. reduce tax rates C. buy bonds in the open market D. raise the target overnight rate E. sell bonds in the open market

C. buy bonds in the open market

12. Which of the following is not a tool of monetary policy? A. an increase in the target overnight rate B. an open market purchase of bonds C. changes in tax rates D. an open market sale of bonds E. a decrease in the target overnight rate

C. changes in tax rates

1. Fiscal policy refers to: A. changes in government purchases or taxes that have the effect of destabilizing the economy B. the authority that the Prime Minister has to change personal income tax rates C. changes in taxes and government purchases made by legislation for the purpose of stabilizing the economy D. the changes in taxes and transfers that occur as output changes E. changes in the money supply and interest rates by the Bank of Canada

C. changes in taxes and government purchases made by legislation for the purpose of stabilizing the economy

14. The monetary authorities signal changes in monetary policy by: A. selling bonds in the open market B. buying bonds in the open market C. changing the 50-basis-point range for the overnight rate D. issuing a press release E. informing the government of their decision

C. changing the 50-basis-point range for the overnight rate

5. National income accountants can avoid double counting by: A. including government transfer payments in their calculations B. counting both intermediate and final products C. counting only final products D. counting only intermediate products E. subtracting taxes from their calculations

C. counting only final products

19. Net exports may be defined as: A. the portion of domestic products sent to other countries B. exports plus imports C. exports minus imports D. imports minus exports E. exports minus net investment income to the rest of the world

C. exports minus imports

27. Cost-push inflation may be caused by: A. a decline in per-unit production costs B. a decrease in wage rates C. higher raw material prices D. an increase in resource availability E. higher spending

C. higher raw material prices

7. Assume that the economy is operating below its potential output. Under these conditions, government fiscal policy should be directed toward a(n): A. decrease in both government purchases and taxes B. decrease in government purchases and/or tax increases C. increase in government purchases and/or tax cuts D. increase in both government purchases and taxes E. change in neither government purchases nor taxes

C. increase in government purchases and/or tax cuts

21. Monetary policy is thought to be: A. equally effective in moving the economy out of a recession as in controlling inflation B. more effective in moving the economy out of a recession than in controlling inflation C. more effective in controlling inflation than in moving the economy out of a recession D. only effective in moving the economy out of a recession E. only effective in controlling inflation

C. more effective in controlling inflation than in moving the economy out of a recession

11. The term "final products" refers to: A. products that are unsold and, therefore, added to inventories B. products whose value has been adjusted for inflation C. products to be purchased by ultimate users that are not intended for resale or further processing D. consumer products, as opposed to investment products E. investment products, as opposed to consumer products

C. products to be purchased by ultimate users that are not intended for resale or further processing

15. A major advantage of automatic stabilizers is that they: A. simultaneously stabilize the economy and tend to reduce the absolute size of the public debt B. automatically produce surpluses during recessions and deficits during inflation C. require no legislative action by Parliament to be made effective D. guarantee that the federal budget will be balanced over the course of the business cycle E. guarantee that the federal budget will be balanced each year

C. require no legislative action by Parliament to be made effective

20. The value of Canadian imports is: A. added to exports when calculating GDP, because imports indicate spending by Canadians B. subtracted from exports when calculating GDP, because imports do not require spending by Canadians C. subtracted from exports when calculating GDP, because imports do not involve production in Canada D. added to exports when calculating GDP, because imports do not involve production in Canada E. ignored when calculating GDP, since imports do not represent spending by Canadians

C. subtracted from exports when calculating GDP, because imports do not involve production in Canada

19. In Year X, the federal government's expenditures were $180 billion and its revenues were $200 billion. During this year: A. public debt increased by $20 billion B. there was a federal deficit of $20 billion C. there was a federal surplus of $20 billion D. the federal government was running a balanced budget E. public debt equalled $20 billion

C. there was a federal surplus of $20 billion

18. Functional finance: A. is designed to increase consumer spending in the interest of greater macroeconomic stability B. leads to annually balanced budgets C. treats the government budget primarily as a means of stabilizing the economy D. is defended by those economists who are most sceptical of fiscal policy's effectiveness E. leads to cyclically balanced budgets

C. treats the government budget primarily as a means of stabilizing the economy

16. GDP tends to: A. overstate economic well-being, because it does not include certain nonmarket activities such as the productive work of homemakers B. understate economic well-being, because it includes expenditures to reduce or eliminate pollution C. understate economic well-being, because it does not take into account increases in leisure D. overstate economic well-being, because it does not reflect improvements in product quality E. fairly reflect economic well-being at all times

C. understate economic well-being, because it does not take into account increases in leisure

10. Assume that the Bank of Canada's policy is to keep the price level from either rising or falling. If aggregate supply decreases in the economy, the Bank of Canada: A. will have to decrease interest rates if it wishes to keep the price level from falling B. will have to increase the money supply if it wishes to keep the price level from falling C. will have to decrease the money supply if it wishes to keep the price level from rising D. can keep the price level stable without altering the money supply or interest rate E. will have to increase the money supply if it wishes to keep the price level from rising

C. will have to decrease the money supply if it wishes to keep the price level from rising

11. Assume that the Bank of Canada's policy is to stabilize the interest rate. If the economy begins to expand, the Bank of Canada: A. would have to increase the money supply to keep the interest rate from falling B. would have to decrease the money supply to keep the interest rate from rising C. would have to increase the money supply to keep the interest rate from rising D. can keep the interest rate stable without altering the money supply E. will have to accept a lower interest rate if it does not alter the money supply

C. would have to increase the money supply to keep the interest rate from rising

16. Which of the following statements best describes automatic stabilizers as they function in Canada? A. The size of the spending multiplier varies inversely with the level of GDP. B. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises. E. The size of the spending multiplier varies directly with the level of GDP.

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

8. Assume that the economy is in the midst of a severe recession. Which of the following policies would be appropriate? A. a proposal to run a federal surplus B. a reduction in agricultural subsidies and veterans' benefits C. a postponement of a highway construction program D. a reduction in federal tax rates on personal and corporate income E. an increase in the federal Goods and Services Tax (GST)

D. a reduction in federal tax rates on personal and corporate income

20. An easy money policy may be less effective than a tight money policy because: A. the Bank of Canada is always willing to make loans to CPA members that are short of reserves B. fiscal policy always works at cross purposes with an easy money policy C. an easy money policy has longer lags associated with its use D. chartered banks may not be able to find loan customers E. a tight money policy is always backed up by fiscal policy

D. chartered banks may not be able to find loan customers

20. The public debt: A. refers to the debts of Canadian governments, businesses, and households B. consists of the total debts of Canadian provincial and territorial governments C. refers to the collective amount that Canadians owe to foreigners D. consists of the accumulation of all past federal deficits minus any federal surpluses E. refers to the portion of total Canadian government debt owed to foreigners

D. consists of the accumulation of all past federal deficits minus any federal surpluses

22. In terms of the aggregate demand and aggregate supply model, the sale of bonds by the Bank of Canada to chartered banks will: A. increase aggregate supply B. decrease aggregate supply C. increase aggregate demand D. decrease aggregate demand E. increase both aggregate demand and aggregate supply

D. decrease aggregate demand

14. If Parliament adjusted our tax system so that the rate of taxation increased, the: A. economy would become more inflation-prone B. economy would tend to become less stable C. stability of the economy would be unaffected D. economy would tend to become more stable E. the distribution of income would become more unequal

D. economy would tend to become more stable

7. GDP includes: A. neither intermediate nor final products B. both intermediate and final products C. intermediate, but not final, products D. final, but not intermediate, products E. all natural resources

D. final, but not intermediate, products

2. The bank rate is the interest rate at which: A. chartered banks lend to large corporations B. the Bank of Canada lends to large corporations C. near banks lend to home builders D. the Bank of Canada lends to CPA members E. chartered banks lend to ordinary customers

D. the Bank of Canada lends to CPA members

4. If Holmes pays Weiss $190, then: A. we can say with certainty that GDP has increased by $190 B. we can say with certainty that GDP has increased, but we cannot determine the amount C. we can say with certainty that GNP has increased, but we can't say whether GDP has increased or decreased D. we need more information to determine whether GDP has changed or not E. GDP and GNP have definitely stayed the same

D. we need more information to determine whether GDP has changed or not

9. Which of the following statements best describes the cause-and-effect chain of an expansionary monetary policy? A. A decrease in the money supply will lower the interest rate, increase aggregate demand, and increase real output. B. A decrease in the money supply will raise the interest rate, decrease aggregate demand, and decrease real output. C. An increase in the money supply will raise the interest rate, decrease aggregate demand, and decrease real output. D. An increase in the money supply will lower the interest rate, decrease aggregate demand, and increase real output. E. An increase in the money supply will lower the interest rate, increase aggregate demand, and increase real output

E. An increase in the money supply will lower the interest rate, increase aggregate demand, and increase real output

18. Which of the following statements is not correct? A. The money supply increases when the Bank of Canada buys bonds from households or businesses. B. Excess reserves are the amount by which actual reserves exceed desired reserves. C. Chartered banks increase the money supply when they lend to households or businesses. D. Bank reserves are an asset to banks but a liability to the Bank of Canada. E. The money supply decreases when the Bank of Canada buys bonds from households or businesses.

E. The money supply decreases when the Bank of Canada buys bonds from households or businesses.

21. In the treatment of Canadian exports and imports, national income accountants: A. subtract exports, but add imports, in calculating GDP B. subtract both exports and imports in calculating GDP C. add both exports and imports in calculating GDP D. add exports and ignore imports in calculating GDP E. add exports, but subtract imports, in calculating GDP

E. add exports, but subtract imports, in calculating GDP

12. Fiscal policy that increases the budget deficit has the same impact upon equilibrium output as does a(n): A. contractionary monetary policy B. increase in saving C. decrease in investment D. increase in imports E. decrease in imports

E. decrease in imports

1. Macroeconomics approaches the study of economics from the viewpoint of: A. individual producers B. governmental units C. specific product and resource markets D. individual consumers E. entire economic sectors

E. entire economic sectors

14. Professor Shields grows tomatoes in her garden for her family and friends. This activity is: A. excluded from GDP because it is not a productive activity B. excluded from GDP to avoid double counting C. excluded from GDP because an intermediate product is involved D. included in GDP because it reflects production E. excluded from GDP because no money changes hands

E. excluded from GDP because no money changes hands

6. The effect of a contractionary fiscal policy upon the equilibrium level of real output is substantially the same as a(n): A. decrease in saving B. increase in exports C. increase in consumption D. increase in investment E. increase in saving

E. increase in saving

8. Monetary policies that cause an increase in the money supply: A. raise the interest rate, decrease spending on investment and consumer durables, and shift aggregate demand leftward B. lower the interest rate, decrease spending on investment and consumer durables, and shift aggregate demand rightward C. lower the interest rate, increase spending on investment and consumer durables, and shift aggregate demand leftward D. raise the interest rate, increase spending on investment and consumer durables, and shift aggregate demand rightward E. lower the interest rate, increase spending on investment and consumer durables, and shift aggregate demand rightward

E. lower the interest rate, increase spending on investment and consumer durables, and shift aggregate demand rightward

26. Rising inflation accompanied by constant or falling employment can be described as: A. demand-pull inflation B. Okun's law C. deflation D. the Phillips curve E. stagflation

E. stagflation

3. The interest rate at which the Bank of Canada lends to CPA members is called: A. the prime rate B. the short-term rate C. the long-term rate D. the government bond rate E. the bank rate

E. the bank rate

6. "Value added" refers to: A. any increase in GDP that has been adjusted for negative environmental effects B. the excess of a country's exports over its imports C. the excess of gross investment over net investment D. the difference between GDP and GNP E. the difference between the value of a business's output and the value of the resources that it has purchased from others

E. the difference between the value of a business's output and the value of the resources that it has purchased from others

13. Which of the following is an intermediate product? A. the purchase of gasoline for a holiday to Florida B. the purchase of a pizza by a hungry student C. the purchase of a family TV D. the purchase of roller blades by a teacher E. the purchase of pencils by a politician who is writing her memoirs

E. the purchase of pencils by a politician who is writing her memoirs