ECON 102 FINAL

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Refer to Table 21-3. The simple multiplier in this economy is E) 1 500. A) 2.0. B) 2.5. C) 3.0. D) 4.0. E) 5.0.

A movement along the economy's AS curve could be caused by a change in a. Labour productivity. b. The cost of capital. c. The price level, caused in turn by an AD shock. d. Technology. e. The wage rate.

A recessionary output gap is characterized by a. Rising prices. b. Constant prices. c. Real output that varies one-for-one with aggregate demand. d. Real GDP exceeding potential output. e. Real GDP falling below potential output.

A reduction in the net tax rate might lead to an increase in the growth rate of potential output if a. The simple multiplier is large. b. The tax cuts stimulate private investment. c. Firms are operating at their normal capacity. d. Households are not forward looking. e. The marginal propensity to consume is large.

A rightward shift in the aggregate demand (AD) curve could result from a rise in a. Induced imports. b. Desired investment. c. The net tax rate. d. Desired saving. e. The price level.

Aggregate demand shocks have a large effect on real GDP and a small effect on the price level a. The steeper the AS curve. b. On the downward-sloping portion of the AS curve. c. The flatter the AS curve. d. When the AS curve is vertical. e. If the AD curve is steep.

Aggregate supply refers to the a. Decisions of firms to decrease inputs in order to produce outputs. b. Effects of increases in input prices on output. c. Economy's potential output at each possible labour force. d. Supply of labour inputs in the economy. e. Total output of goods and services that firms would like to produce and sell.

As a global recession began in late 2008, the governments of all major economies searched for policy responses to dampen the effects of the recession. In general, governments were aiming to a. Shift the AD curve to the left by decreasing tax rates. b. Increase potential GDP. c. Shift the AS curve to the right through large increases in government spending. d. Shift the AD curve to the right through large increases in government spending. e. Shift the AS curve to the left by increasing wage rates.

An important automatic fiscal stabilizer in Canada is a. The exchange rate. b. the marginal propensity to consume. c. The marginal propensity to import. d. The income-tax system. e. Government purchases of goods and services.

As a measure of the Canadian money supply, M2+ is defined as currency in circulation plus a. All chequable deposits. b. Demand and notice deposits at all financial institutions. c. Savings deposits at the chartered banks and non-bank financial institutions. d. Term deposits and money market funds at all financial institutions. e. Term deposits, money market funds and personal savings accounts.

Any central bank, including the Bank of Canada, can implement its monetary policy by directly influencing either ________ or ________, but not both. a. Money supply; money demand b. Aggregate supply; aggregate demand c. The money supply; the interest rate d. Aggregate demand; the interest rate e. The price level; the interest rate

As of 2015, the Bank of Canada's policy objective is to maintain inflation at or near the target of a. 0%. b. 1%. c. 2%. d. 3%. e. 4%.

Automatic fiscal stabilizers ________ the impact of demand or supply shocks on the economy since government's net tax revenues ________ during booms and ________ during recessions. a. Magnify; increase; decrease b. Magnify; decrease; increase c. Dampen; increase; decrease d. Dampen; decrease; increase e. Does not affect; are constant; are constant

The marginal propensity to consume is defined to be A) the change in desired consumption divided by the change in saving. B) the change in desired consumption divided by the change in disposable income. C) total desired consumption divided by total disposable income. D) the change in desired consumption divided by total disposable income. E) total desired consumption divided by the change in disposable income.

B 36)

Which of the following statements must be true in the simple macro model ? A) APC increases as income rises. B) the sum of MPC and MPS is one. C) MPS and MPC are both negative. D) APS decreases as income rises. E) MPC is negative below a certain level of income.

B 42)

In a simple model of the economy, without government or taxes, a shock that causes an upward shift of the aggregate consumption function also causes ________ shift of the saving function. A) a less-than-equal upward B) an equal downward C) a less-than-equal downward D) an equal upward E) no

B 46)

In a simple macroeconomic model, with a closed economy and no government, the aggregate expenditure (AE) function is the sum of A) saving and desired investment. B) desired consumption and desired investment. C) consumption and saving. D) consumption and disposable income. E) actual consumption and actual investment.

B 54)

Refer to Table 21-1. At the equilibrium level of national income, desired saving will be E) $280. A) zero. B) $ 40. C) $ 70. D) $200. E) $240.

B 69)

The aggregate consumption function is based on the assumption that as real disposable income rises, aggregate desired consumption A) and desired saving will both rise. B) will rise and desired saving will fall. C) remains constant and desired saving will rise. D) remains constant and desired saving will fall. E) will fall and desired saving will rise.

A 9)

The simple multiplier, which applies to short-run situations in which the price level is constant, describes changes in A) the equilibrium level of national income caused by changes in autonomous expenditure. B) the rate of interest caused by increased demand for credit. C) investment induced by changes in equilibrium income. D) saving caused by changes in investment. E) employment induced by changes in equilibrium income.

A 93)

A country's computed GDP deflator - Excludes the changes in the price of imported goods; - Is less relevant than the measured CPI for the typical consumer; - Is set to be equal to 100 in its base year. a. 1 only b. 2 only c. 1, 2, and 3 d. 1 and 3 e. 2 and 3

Consider a simple macro model with a constant price level and demand-determined output. In such a model, the level of national income will A) remain constant if savings equals consumption. B) tend to rise if firms have unplanned decumulation of inventories. C) be in equilibrium if all of the resources of the economy are fully employed. D) tend to rise if desired aggregate expenditure is less than actual national income. E) remain constant if firms are accumulating inventories.

B 77)

Consider a simple macro model with the price level assumed to be constant. If national income is less than its equilibrium level, it is likely that firms' inventories are ________, and so national income tends to ________. A) accumulating; rise B) being depleted; rise C) constant; fall D) being depleted; fall E) accumulating; fall

B 79)

The aggregate consumption function A) refers to the relationship between an individual's consumption and his/her wealth. B) describes the relationship between desired consumption expenditure and the factors that determine it, like national income. C) and aggregate expenditure are the same. D) is relatively unimportant in macroeconomics, because consumption is such a small component of aggregate expenditure. E) refers to the relationship between consumption expenditure and relative prices.

B 8)

When i is the annual interest rate, the formula for calculating the present value of a bond with a face value of R dollars, receivable in one year is a. PV = (1 + i)/R. b. PV = i(R + i). c. PV = R (1 + i). d. PV = R/i. e. PV = R/(1 + i).

When measuring actual gross domestic product from the expenditure side, we use the following simple equation: a. GNP = C + I + G + X. b. GDP = C + I + G + (X - IMa ). c. GDP = Ca + Ia + Ga + ( Xa - IMa ). d. GNP = Ca + Ia + Ga + ( Xa - IMa ). e. GDP = C + I + ( G - transfers ) + ( X - IM ).

When metal coins, such as gold and silver, were used as money, a technique which helped to prevent the reduction of their value through clipping was a. Basing. b. Re-minting. c. Milling. d. Debasement. e. Sweating.

When the Bank of Canada reduces the interest rate we call this an expansionary monetary policy. Why? a. The lower interest rate leads to an increase in the level of national saving. b. The lower interest rate causes an expansion of money demand. c. The lower interest rate leads to a rightward shift of the aggregate demand curve. d. The lower interest rate causes the money demand curve to shift to the right. e. The lower interest rate causes the money supply curve to shift to the left.

When the economy's AS curve is positively sloped, the multiplier in the AD/AS model is a. Constant. b. Equal to one. c. Equal to the simple multiplier. d. Smaller than the simple multiplier. e. Larger than the simple multiplier.

When the market price of a bond falls, ceteris paribus, then a. The term to maturity of the bond increases. b. The term to maturity of the bond decreases. c. The yield on that bond rises. d. The yield on that bond also falls. e. The market interest rate rises.

When the price level increases, ceteris paribus, it causes households and firms to try to a. Reduce money balances, which drives interest rates down. b. Reduce money balances, which drives interest rates up. c. Reduce money balances, which drives national income up. d. Increase money balances, which drives interest rates down. e. Increase money balances, which drives interest rates up.

When there is an excess demand for money balances, monetary equilibrium is established by a process that involves - Movement down the money demand function; - Interest rates falling; - The price of bonds falling. a. 1 only b. 2 only c. 3 only d. 1 and 2 e. 2 and 3

When there is an excess supply of money, monetary equilibrium is restored through e. Interest rates rising. b. Individuals attempting to sell bonds. c. The price of bonds falling. d. The price of bonds increasing. e. The price level falling.

When we study the adjustment process in macroeconomics, we are analyzing the process by which a. Potential output is adjusting to changes in factor supplies b. Potential output is adjusting to changes in technology c. Real GDP returns to the level of potential output. d. Real GDP expands over time. e. Changes in technology affect the level of real GDP.

When we study the adjustment process in macroeconomics, what assumption are we making about potential output, Y*? a. Potential output is adjusting to changes in factor prices b. Potential output is adjusting to changes in factor supplies c. Potential output is adjusting to changes in technology d. Potential output is constant e. Potential output is not relevant to the analysis of the adjustment process

When you pay for your $74 purchase at the grocery store with a debit card, you are a. Transferring $74 of currency from your bank account to the grocery store's bank account. b. Withdrawing $74 from your bank account with which you pay for your groceries. c. Transferring your claim on $74 worth of gold to the grocery store. d. Electronically transferring $74 of deposit money from your bank account to the grocery store's bank account. e. Essentially promising the grocery store that your bank will pay them $74 at the end of the month when debts are settled.

Which of the following are the defining assumptions of the long run in macroeconomics? a. Factor prices are exogenous, and technology and factor supplies are changing. b. Factor prices adjust to output gaps, and technology and factor supplies are constant. c. Factor prices are exogenous, and technology and factor supplies are constant. d. Factor prices have fully adjusted to output gaps, and technology and factor supplies are changing. e. Factor prices are exogenous, technology and factor prices are exogenous.

Which of the following are the defining assumptions of the short run in macroeconomics? a. Factor prices are exogenous, and technology and factor supplies are changing. b. Factor prices adjust to output gaps, and technology and factor supplies are constant. c. Factor prices are exogenous, and technology and factor supplies are constant. d. Factor prices adjust to output gaps, and technology and factor prices are changing. e. Factor prices are exogenous, technology and factor prices are endogenous.

Which of the following best describes the concept of potential output? a. The total output that can be produced when all factors of production (land, labour, and capital) are fully employed. b. The total output that can be produced when the economy is in short-run economic equilibrium. c. The total output that can be produced when all productive resources (land, labour, and capital) are used at their maximum capacity. d. The total output that could be produced in the future when technological advances allow for a higher level of output. e. The total output that could be produced if no productive resource (land, labour, and capital) was ever left idle.

Which of the following correctly describes the way in which a change in the money supply affects aggregate demand? a. A shift of the ID curve and a movement along the aggregate demand curve b. A movement along the ID curve and a shift of the aggregate demand curve c. A shift of both the ID curve and the aggregate demand curve d. Movements along the ID curve and the aggregate demand curve e. A movement along the aggregate demand curve

Which of the following describes the cause of a sustained inflation? a. The monetary transmission mechanism b. An aggregate demand shock significant enough to cause a substantial rise in the price level c. Continual monetary expansion d. An aggregate supply shock significant enough to cause a substantial rise in the price level e. Simultaneous AD and AS shocks

Which of the following describes the distinction between the Phillips curve and the AS curve? a. The AS curve has the price level on the vertical axis whereas the Phillips curve has the interest rate on the vertical axis. b. The AS curve has the price level on the vertical axis whereas the Phillips curve has the rate of change in the interest rate on the vertical axis. c. The AS curve has the price level on the vertical axis whereas the Phillips curve has the rate of wage changes on the vertical axis. d. The AS curve has the rate of price inflation on the vertical axis whereas the Phillips curve has the rate of wage changes on the vertical axis. e. There is no distinction: the two curves are essentially the same thing.

Which of the following entries would appear on the assets side of a commercial bank's balance sheet? a. Government of Canada securities b. Chequable deposits c. Government of Canada deposits d. Savings deposits e. Shareholders' equity

Which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet? a. Government of Canada securities b. Deposits of commercial banks c. Advances to commercial banks d. Savings deposits e. Shareholders' equity

Which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet? a. Deposit money held in accounts at Canada's commercial banks b. Government of Canada securities c. Foreign currency reserves d. Paper notes in circulation e. Canadian corporate securities

Which of the following events would cause the AE function to shift upwards in a parallel way? a. An increase in the MPC b. A decrease in the net tax rate c. A decrease in the business confidence of firms d. A decrease in foreign income e. A decrease in the aggregate price level

Which of the following events would justify the Bank of Canada implementing an expansionary monetary policy, while maintaining its commitment to its inflation target? a. An appreciation of the Canadian dollar due to increases in the world prices of Canadian exports. b. A depreciation of the Canadian dollar due to persistent current account deficits of Canada. c. An oil-price shock that results in Canadian inflation. d. The U.S. economy increasing its demand for Canadian goods and services. e. A major decline in the Canadian stock market.

Which of the following examples constitutes a new deposit to the Canadian commercial banking system? a. An individual transfers money from Ship Shape Credit Union to Scotiabank b. An individual immigrates to Canada and maintains his existing deposits in a foreign bank c. An individual puts cash in a safety-deposit box d. The Bank of Canada buys government securities from a Canadian commercial bank e. The Bank of Canada buys foreign currency from abroad

Which of the following examples constitutes a new deposit to the Canadian commercial banking system? a. An individual transfers money from ShipShape Credit Union to Scotiabank b. An individual immigrates to Canada and deposits money from abroad c. An individual puts cash in a safety-deposit box d. The Bank of Canada sells government securities to an individual or a firm e. The Bank of Canada buys foreign currency from abroad

Which of the following explanations for the negative slope of the AD curve is correct? A fall in the price level, with an unchanged money supply, causes the transactions demand for money to a. Decrease, shifting the MD curve downward, lowering the interest rate and increasing desired investment, causing the AE curve to shift upward. b. Decrease, shifting the MD curve upward, raising the interest rate and increasing desired investment, causing the AE curve to shift upward. c. Increase, shifting the MD curve upward, raising the interest rate and decreasing desired investment, causing the AE curve to shift upward. d. Increase, shifting the MD curve downward, lowering the interest rate and decreasing desired investment, causing the AE curve to shift downward. e. Increase, shifting the MD curve upward, raising the interest rate and decreasing desired investment, causing the AE curve to shift downward.

Which of the following goods are included in Canada's measure of "core inflation"? a. Natural gas b. A new car c. Fresh vegetables d. Excise tax on gasoline e. Coffee

Which of the following groups would benefit most in real terms from a period of high and unanticipated inflation, as was experienced in Canada in the early 1970s? a. Mortgage companies and banks who issued fixed-rate mortgages to clients b. Banks with outstanding loans to their customers c. Seniors whose income is largely interest earnings on past savings d. Firms that maintain large cash balances for the operation of their business e. Homeowners who had long-term fixed-rate mortgages

Which of the following illustrates the use of fiat money? a. Exchanging Canadian dollars for a T-shirt b. Exchanging money-market funds for gold c. Exchanging money-market funds for insurance d. Keeping gold as a hedge against inflation e. Bartering goods for services

Which of the following is a defining assumption of the AD/AS macro model in the long run? a. Factor supplies are assumed to be fixed b. Technology used in production is constant c. The level of potential output is constant d. Factor prices are assumed to be fixed e. Changes in real GDP are determined by the changes in potential output

Which of the following is a defining assumption of the AD/AS macro model in the short run? a. Factor supplies are assumed to be flexible b. Technology used in production is endogenous and variable c. The level of potential output fluctuates with the price level d. Factor prices are assumed to be exogenous e. Firms cannot operate near their normal capacity

Which of the following is an example of "near money"? a. Scotiabank credit card b. American Express card c. 30-day Treasury bill d. mortgage on a house e. car loan

Which of the following is an example of the use of money as a medium of exchange? a. Dave keeps $250 in his drawer for a "rainy day." b. Mike gets a friend to give him a beer today in return for promising to give the friend two beer when Mike gets paid at the end of the month. c. Judy lends her car to a friend who signs a promissory note that she will pay Judy $10 a day for the use of the car after she returns the car to Judy. d. Barry pays $275 with his bank debit card for tickets for an NHL play-off game. e. ABC Investments Inc. enters in its account books that it owes Nallai $20 for his last month's investment income.

Which of the following is consistent with the predictions of Gresham's law? a. An increase in the money supply will be followed by inflation. b. The increased circulation of U.S. coins in Canada during periods when the Canadian dollar is worth significantly less than the U.S. dollar. c. Debasement of a metallic money will be followed by inflation. d. Increases in the money supply led to the hyperinflation of the 1920s in Germany. e. The disappearance of U.S. coins circulating in Canada during periods when the Canadian dollar is worth less than the U.S. dollar.

Which of the following is excluded from GDP? a. The labour services provided by a police officer in the narcotics squad b. The purchase of new computers by a police department c. The repairs to a police car after damage as a result of a high speed chase d. The labour supplied by a lawyer to defend a suspect charged with a criminal offense e. The purchase price of illegal drugs sold by a drug dealer

Which of the following is included in current calculations of GDP? a. Computers produced here and exported to Europe b. The value of a vintage automobile purchased from the previous owner c. Volunteer work d. The value of vegetables consumed by the home gardener e. Welfare payments

Which of the following is partly responsible for the negative slope of the aggregate demand (AD) curve? a. Open-market operations of the Bank of Canada b. The monetary transmission mechanism c. The multiplier effect d. The speculative demand for money e. The precautionary demand for money

Which of the following phenomena add a second channel to the monetary transmission mechanism? a. Inflation b. Diminishing marginal returns c. Rising productivity d. Open-market operations e. International capital mobility

Which of the following provides the best explanation for why GDP may increase over long periods of time? a. Increase in capital stock b. Increase in emigration c. Increase in mortality rates d. Increase in interest rates e. Increase in unemployment

Which of the following represents a positive aggregate supply shock? a. An outbreak of war among oil-exporting countries b. A general labour strike across the country c. Bad weather which cripples telecommunications for one month d. Improved computer literacy for the typical worker e. An increase in exports

Which of the following statements about deposit money is true? a. The quantity of fiat money in the Canadian economy far exceeds the quantity of deposit money. b. Deposit money can legally be created solely by the Bank of Canada. c. Deposit money is the paper money or coinage that is decreed by the government to be accepted as legal tender. d. Deposit money is recorded as an asset on the balance sheet of a commercial bank. e. The quantity of deposit money in the Canadian economy far exceeds the quantity of fiat money in circulation.

Which of the following statements about depreciation is correct? a. Depreciation includes net additions to the economy's total stock of capital. b. The total amount of capital goods in a country is called depreciation. c. Net investment is equal to gross investment minus depreciation. d. Net investment is equal to gross investment plus depreciation. e. Depreciation is equal to net investment.

Which of the following statements about fiscal policy is the best description of "fine tuning"? a. The government continuously alters its spending and taxing plans to hold real GDP at potential. b. The government cuts taxes to remove a large and persistent recessionary gap. c. The government increases its spending to reduce an inflationary gap. d. The government decreases tax rates to decrease an inflationary gap. e. The government uses automatic stabilizers to reduce any output gaps.

Which of the following statements about fiscal policy is the best example of "gross tuning"? a. The government continuously alters its spending and taxing plans to hold real GDP at potential. b. The government cuts taxes to remove a large and persistent recessionary gap. c. The government increases its spending to reduce an inflationary gap. d. The government decreases tax rates to decrease an inflationary gap. e. The government uses automatic stabilizers to reduce any output gaps.

Which of the following statements about national-income accounting is correct? a. The total value added in the economy is equal to the sum of all components in the circular flow of expenditure and income. b. The value of the expenditure on a nation's output is equal to the total income claims generated by producing that output. c. GDP on the expenditure side is calculated by adding up all the income claims generated by the act of production. d. GDP on the income side is calculated by adding up total expenditure for each of the main components of final output. e. GDP from the expenditure side and GDP from the income side differ by the amount of investment in the economy.

Which of the following statements about reserve ratios at Canadian commercial banks is true? Commercial banks in Canada a. Are required by the Bank Act to hold required reserves. b. Have a reserve ratio of zero. c. Have a reserve ratio of 100%. d. Have a positive reserve ratio. e. Never have excess reserves.

Which of the following statements about the underground economy and how it relates to GDP is correct? a. Activity in the underground economy in Canada is estimated at over 25% of the value of GDP, which therefore significantly understates total output. b. Transactions in the underground economy are not legal, are not reported for tax purposes, and therefore not included in GDP. c. Transactions in the underground economy are legal but are not reported for tax purposes, and therefore not included in GDP. d. Activity in the underground economy is illegal and therefore should not be included in any measure of legitimate economic activity. e. Transactions in the underground economy are legal and therefore an estimate of their total value is included in GDP.

Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada? a. The Bank of Canada has the same status as the Department of Finance and is directly responsible to Parliament for its day-to-day operations of monetary policy. b. The Bank of Canada is a wholly owned entity of the government but is given independence in the day-to-day operations of monetary policy. c. The Bank of Canada is a central-banking institution that is completely independent of the government and is fully autonomous in its conduct of monetary policy. d. The Bank of Canada is a privately owned banking institution that is overseen by a Board of Directors with a mandate to act in the best interests of the citizens of Canada. e. The governor of the Bank of Canada and the minister of finance have joint responsibility for both fiscal and monetary policy.

Which of the following statements regarding housing expenditures in the national accounts is correct? a. Owner-occupied housing is counted as investment by imputing the value of the housing services enjoyed by the owner. b. Rental payments for houses are counted as part of consumption. c. The provision of new public housing by the government is classified as private investment. d. New residential construction is classified as consumption. e. The cost of a home purchased from its previous occupant is part of investment.

Which of the following statements regarding investment is correct? a. The capital stock includes investment in stocks and bonds. b. The accumulation of inventories does not count as current investment. c. Rental payments are included as investment expenditures. d. Depreciation refers to funds used to increase the existing stock of capital. e. Housing construction is classified as investment expenditure rather than consumption expenditure.

Which of the following was the most important initial step in the evolution of paper currency? a. The acceptance of bank notes b. The acceptance of goldsmiths' receipts c. The acceptance of metallic coins d. The issuance of currency by governments e. The use of the Gold Standard

Which of the following will cause a negative aggregate demand shock? a. An increase in the price of raw materials b. A decrease in the domestic price level c. An increase in the domestic price level d. An increase in government expenditures e. An increase in tax rates

Which of the following will cause a positive aggregate supply shock? a. An increase in the price of raw materials b. A decrease in the price of foreign output c. An increase in the price of foreign output d. A decrease in the price of oil e. A decrease in productivity

Which of the following will occur as part of the automatic adjustment process in an economy with an inflationary gap? a. Falling prices b. Increasing investment c. Declining government purchases d. Rising wages e. Increasing tax rates

Which of the following would be classified as "investment" in the national income and product accounts? a. The purchase of a government bond b. The purchase of Telus stock c. The construction of a new factory d. The payment of real-estate fees e. The holding of money

Which of the following would likely cause a downward shift in the AE curve and a movement upward along the AD curve? a. A decrease in the business confidence of firms b. A reduction in government purchases c. A decrease in the MPC d. A decrease in the price level e. An increase in the price level

Which of the following would likely cause an upward parallel shift in the AE curve and a rightward shift in the AD curve? a. An increase in the business confidence of firms b. A reduction in government purchases c. An increase in the MPC d. A decrease in the price level e. An increase in the price level

Which of the following would occur as part of the automatic adjustment process in an economy with a recessionary gap? a. Rising prices b. Decreasing investment c. Increasing government purchases d. Falling tax rates e. Decreasing wages

Which one of the following government expenditures is an example of "government purchases"? a. $2000 paid to a retiree b. $1000 paid to a poor person for income support c. $4000 spent for services provided by a private consultant d. $100 000 paid as interest on the national debt e. $600 paid to an unemployed worker for employment insurance

Why is the possibility of a bank run extremely small in Canada today? a. The Bank of Canada guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals. b. The Department of Finance guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals. c. The Canadian Deposit Insurance Corporation provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic. d. The Office of the Superintendent of Financial Institutions provides deposit insurance on eligible deposits, so most depositors would not feel the need to withdraw all of their money in a panic. e. Industry Canada guarantees the deposits at all commercial banks in Canada, eliminating the danger of a rush of withdrawals.

Without a central bank, commercial banks in Canada would probably hold ________ reserves than they do now, resulting in a ________ money supply than at present. a. The same; the same b. More; larger c. More; smaller d. Less; smaller e. Less; larger

Women entered the labour force in large numbers in the 20th century and increased the economy's GDP. This change a. Created inflationary gaps. b. Created recessionary gaps. c. Raised potential output. D) was only possible in an economy operating above normal rates of utilization. E) was only possible in an economy operating below normal rates of utilization.

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. Cyclical unemployment. b. Frictional unemployment. c. Historical unemployment. d. Natural rate of unemployment. e. Structural unemployment.

Disposable Income Desired Consumption 0 10 50 30 150 70 300 130 TABLE 21-6 29) Refer to Table 21-6. The marginal propensity to consume is equal to A) 0.4. B) 0.2. C) 0.67. D) 0.6. E) 0.8.

The increase in aggregate planned expenditures divided by the change in national income that brought it about is called the marginal propensity to spend. A) total propensity to save. B) marginal propensity to save. C) average propensity to consume. D) average propensity to save.

A 56)

Consider a simple macro model with a constant price level and demand-determined output. In such a model, an upward shift of the saving function causes equilibrium national income to A) fall because it causes the AE function to shift downward. B) rise because it causes the AE function to shift upward. C) remain constant but consist of less consumption and more investment. D) remain constant because it does not affect desired aggregate expenditure. E) remain constant but consist of more consumption and less investment.

A FIGURE 21-3 89)

Consider a consumption function of the following form: C = 50 + (0.6)YD. At what level of disposable income will desired savings be equal to zero? A) 125 B) 208.33 C) 31.25 D) 50 E) 83.33

A 25)

If the consumption function coincides with the 45-degree line, then we know that A) desired saving is zero at all levels of disposable income. B) the marginal propensity to consume is greater than one. C) desired consumption equals desired saving at all levels of disposable income. D) the marginal propensity to consume is less than one. E) desired consumption is constant at all levels of disposable income.

A 27)

Aggregate desired consumption divided by aggregate disposable income is called the A) average propensity to consume. B) average propensity to spend. C) marginal propensity to save. D) average propensity to save. E) total propensity to save.

A 32)

The change in desired consumption divided by the change in (disposable) income that brought it about is called the A) marginal propensity to consume. B) average propensity not to consume. C) average propensity to consume. D) consumption function. E) marginal propensity not to spend.

A 35)

If the marginal propensity to consume (MPC) is equal to 0.9, an increase in household income causes desired consumption expenditure to A) rise by less than the full increase in income. B) remain constant, because the MPC is also constant. C) fall, as an increase in income will increase saving. D) rise by the full increase in income. E) rise by more than the increase in income.

A 37)

The Smith family's disposable income rose from $40 000 per year to $42 000 and their desired consumption expenditure rose from $38 000 to $39 600. It can be concluded that their A) marginal propensity to consume is 0.8. B) marginal propensity to save is 0.8. C) average propensity to consume is 0.8. D) average propensity to save is 0.8. E) marginal propensity to consume is $800.

A 39)

Robert Tetley's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600. It can be concluded that his A) marginal propensity to save is 0.20. B) marginal propensity to consume decreased. C) marginal propensity to consume is 0.05. D) average propensity to save is always 0.05. E) average propensity to consume is constant.

A 41)

If the Jones family's disposable income increases from $1 200 to $1 700 and their desired saving increases from -$100 to +$100, then the family's A) marginal propensity to consume is 0.60. B) marginal propensity to save is 1. C) average propensity to consume is 0.40. D) average propensity to consume is 0.60. E) marginal propensity to consume is 0.40.

A 43)

When desired consumption exceeds disposable income, desired saving is ________; when desired consumption is less than the disposable income, desired saving is ________. A) negative; positive B) positive; negative C) positive; positive D) negative; negative E) zero; positive

A 47)

In Canada, as in many other countries, the largest component of domestic investment expenditure is A) plant and equipment. B) financial assets. C) inventories. D) residential housing. E) savings.

A 52)

An increase in the marginal propensity to spend out of national income will cause A) an increase in the slope of the AE curve. B) a decrease in the slope of the AE curve. C) a movement to the left along the AE curve. D) a movement to the right along the AE curve. E) a parallel upward shift in the AE curve.

A 57)

Refer to Figure 21-3. If national income is Y1 and the aggregate expenditure function is AE1, then desired aggregate expenditure A) exceeds income and income will rise. B) is equal to income and income will not change. C) exceeds income and income will fall. D) is less than income and income will fall. E) is less than income and income will rise.

A 62)

The aggregate expenditure (AE) function is an upward-sloping curve that describes A) what firms and households would like to spend at each level of national income. B) what is actually spent on an economy's output at each level of output. C) what an economy would like to spend, in the absence of income constraints, at each level of output. D) the amount spent on an economy's output at each national income. E) what is actually spent at each level of national income.

A 65)

In a simple macro model, an increase in households' wealth is generally assumed to A) cause an upward shift in the aggregate consumption function. B) cause no change in desired consumption because consumption is a function of disposable income only. C) cause a downward shift in the aggregate consumption function. D) cause no change in desired consumption because the increase is always expected. E) affect only desired saving, not desired consumption.

A 7)

In a simple macro model with no government and no foreign trade, the equilibrium level of national income is the level of income at which A) aggregate desired expenditure equals actual national income. B) saving equals income. C) aggregate desired expenditure is greater than actual national income. D) aggregate desired expenditure equals consumer spending. E) saving equals consumer spending.

A 71)

Consider a simple macro model with a constant price level and demand-determined output. Suppose the level of actual national income is less than desired aggregate expenditure. In this case, A) shortages of goods and reductions in inventories will cause producers to increase output and national income to rise. B) national income may increase or decrease, depending on the relative sizes of the average propensity to consume and the average propensity to save. C) there will be no change in national income because only actual expenditure is relevant. D) inventories will build up, causing national income to rise. E) national income will fall, because desired expenditures are less than actual expenditures.

A 84)

Consider a simple macro model with a constant price level and demand-determined output. Suppose desired aggregate expenditures are less than the current level of national income. The vertical distance between the AE curve and the 45-degree line represents A) the amount by which output exceeds desired expenditures. B) desired decumulation of inventories. C) desired accumulation of inventories. D) the output gap. E) the amount by which desired expenditures exceeds output.

A 85)

A common assumption among macroeconomists is that when real GDP exceeds potential output, factor prices rise and the a. AS curve shifts to the left. b. AD curve shifts to the right. c. AS curve shifts to the right very rapidly. d. AD curve shifts to the left rapidly. e. None of the above — the AS curve remains unchanged.

A common assumption among macroeconomists is that when real GDP is less than potential output, factor prices adjust and the a. AS curve shifts to the left fairly rapidly. b. AS curve shifts to the right only very slowly. c. AS curve shifts to the right very rapidly. d. AD curve shifts to the left rapidly. e. None of the above — the AS curve remains unchanged.

A decrease in aggregate supply in the short run is a. Reflected in a movement to the left along the AS curve. b. Reflected in a shift to the right in the AS curve. c. Interpreted to mean that less total output will be supplied at any given price level. d. Caused by a decrease in the price level. e. Caused by an increase in the price level.

A decrease in aggregate supply in the short run is a. Shown by a shift to the left of the AS curve. b. Shown by a shift to the right of the AS curve. c. Interpreted to mean that more national output will be supplied at any given price level. d. Caused by a decrease in the price level. e. Caused by an increase in the price level.

A decrease in the money supply is most likely to a. Raise interest rates, investment, and aggregate expenditures. b. Raise interest rates, lower investment, and lower aggregate expenditures. c. Lower interest rates, raise investment, and raise aggregate expenditures. d. Lower interest rates, investment, and aggregate expenditures. e. Raise interest rates and investment, and lower aggregate expenditures.

A leftward shift in the economy's AS curve implies that a. At any given price level, a lower level of output will be supplied. b. At any given price level, a higher level of output will be supplied. c. There is an increase in aggregate supply. d. There is a demand shock. e. The same output will be produced in equilibrium, but at a lower price level.

A leftward shift of the aggregate demand (AD) curve could result from a fall in a. Autonomous government purchases. b. Induced imports. c. The net tax rate. d. Autonomous desired saving. e. The price level.

A leftward shift of the aggregate demand (AD) curve could result from a rise in a. Desired exports. b. Government purchases. c. Government transfer payments to households. d. The net tax rate. e. Desired investment.

A nation's real national income in a given year measures the a. Dollar income earned by the nation's producing sector. b. Value of output produced by the economy, measured in constant dollars. c. Level of national income that is subject to taxation by the federal government. d. Market value of national output produced by the economy. e. Opportunity cost of the economy's national output.

A recessionary output gap implies that a. The demand for all factor services will be relatively low. b. The intersection of AD and AS occurs where real GDP exceeds potential output. c. The economy's resources are being used at more than their normal capacity. d. There is upward pressure on wages. e. There is excess demand for most factors of production.

A rightward shift in the economy's AS curve implies that a. At any given price level, a lower level of output will be supplied. b. At any given price level, a higher level of output will be supplied. c. There is a decrease in aggregate supply. d. There is a demand shock. e. The same output will be produced, but only at a higher price level.

According to the "liquidity preference" theory of the rate of interest, if the supply of money increases, then, ceteris paribus, bond prices will a. Fall as the rate of interest rises. b. Rise as the rate of interest rises. c. Fall as the rate of interest falls. d. Rise as the rate of interest falls. e. Stay the same.

Aggregate demand (AD) shocks have a smaller effect on real GDP and a larger effect on the price level a. The steeper the AS curve. b. On the downward-sloping portion of the AS curve. c. The flatter the AS curve. d. On the upward-sloping portion of the AS curve. e. If the AD curve is flatter.

Among other things, people hold cash balances for which of the following reasons? - To meet unforeseen emergencies - To maximize their returns on interest-earning assets - To guard against the uncertainty of the timing of receipts and payments a. 1 only b. 2 only c. 3 only d. 1 and 2 e. 1 and 3

An adjustment "asymmetry" in aggregate supply is a. The concave shape of the AS curve. b. The convex shape of the AS curve. c. The difference in speed of a rightward shift versus a leftward shift (when wages adjust to output gaps). d. The difference in speed of increases in factor prices versus wage rates. e. The difference in speed of decreases in output levels.

An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9800. The analyst should recommend a. Purchasing the bond because the buyer will earn a profit of $185. b. Purchasing the bond because the bond price is equal to its present value. c. Not purchasing the bond because the price is lower than its present value. d. Not purchasing the bond because the buyer could earn an additional $192 by investing the $9800 elsewhere. e. Not purchasing the bond because the buyer could earn an additional $392 by investing the $9800 elsewhere.

An economy may not quickly and automatically eliminate a recessionary output gap because wages a. Never change in response to changes in the demand for labour. b. Have a tendency to be sticky downward. c. Have a tendency to fall too quickly. d. Have a tendency to rise too quickly. e. Are flexible but prices have a tendency to be sticky downward.

An equivalent term for "real national income" is a. Nominal national income. b. Current-dollar national income. c. Constant-dollar national income. d. Actual national income. e. Potential national income.

An example of "interbank activities" in the Canadian banking system is a. Banks pooling their money together to fund the operations of the Bank of Canada. b. Banks lending money to each other in order to meet daily cash requirements. c. The joint regulation of financial markets. d. The joint regulation of the money supply. e. Lender of last resort to the banking system.

An example of an item that would be excluded from a measure of GDP from the expenditure side is a. The purchase of windows by an automobile assembly plant. b. Fertilizer purchased by Farmer Jones to increase crop yields. c. Buying tomato plants for your garden. d. Government pension payments to a retired person. e. A new truck purchased by a furniture-delivery company.

An example of how inflation targeting by the Bank of Canada helps to stabilize the economy is a. Firms and households are aware of the announced inflation target and adjust their behaviour so as to maintain this level of actual inflation. b. When a recessionary gap reduces the rate of inflation (below the target level) the Bank of Canada will implement an expansionary monetary policy, which helps to close the gap. c. When the actual inflation rate falls below the targeted level of inflation, then commercial banks automatically increase deposit creation. d. When an output gap opens in the economy, the inflationary target adjusts to close the gap. e. When an output gap opens in the economy, the Bank of Canada chooses the inflation target appropriate for closing the gap.

An exogenous fall in the domestic price level causes an increase in real wealth and a. A fall in desired investment. b. A rise in desired consumption. c. A downward shift in the AE curve. d. A downward shift of the net export function. e. A fall in government purchases.

An expansionary fiscal policy that takes the form of an increase in government purchases carries the possibility that private investment ________ and, as a result, the future growth rate of ________. a. Rises to an unsustainable level; real GDP is reduced b. Is crowded out; corporate tax revenue is reduced c. Increases; aggregate demand increases d. Increases; net exports increases e. Is crowded out; potential output is reduced

An expansionary monetary policy by the Bank of Canada could include a. Moral suasion to increase the commercial banks' target reserve ratio. b. Moral suasion to reduce lending by commercial banks. c. An open-market sale of government securities. d. A reduction of the Bank's target for the overnight interest rate. e. None of the above would be expansionary.

An expansionary monetary policy would ________ and would eventually increase the money supply. a. Reduce short-term interest rates b. Involve selling foreign-currency reserves in the foreign-exchange market c. Involve selling government bonds on the open market d. Increase short-term interest rates e. Involve increasing the target for the overnight interest rate

As the macro economy adjusts from the short run to the long run, a. Wages and other factor prices adjust to close output gaps. b. Potential output is adjusting to close inflationary or recessionary gaps. c. Wages and other factor prices remain constant. d. Aggregate demand shocks cause deviations from potential output. e. Aggregate supply shocks cause deviations from potential output.

Assume that Bank ABC has a target reserve ratio of 10%. If Bank ABC receives a new deposit of $100 000, the largest new loan this bank could initially make, and maintain its target reserve ratio, is a. $1000. b. $10 000. c. $90 000. d. $100 000. e. $900 000.

Assume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $110 at the end of the year. If inflation over that one year is 7%, what real rate of interest does Sarah earn on her $100? a. 10% b. 7% c. 3% d. 13% e. 17%

Assume there are just two assets, money and bonds. We can expect that an individual with a given level of wealth will a. Hold less money when bond prices rise. b. Hold more money when the current interest rate is very low. c. Not hold money as long as bonds pay a positive rate of interest. d. Hold lots of money even at very high interest rates. e. Hold less money when the current interest rate is very low.

Automatic fiscal stabilizers are most helpful in a. Making discretionary fiscal policy effective. b. Removing persistent output gaps. c. Promoting economic growth. d. Eliminating price fluctuations in the economy. e. Reducing the intensity of business cycles.

If a family's annual disposable income rose from $60 000 to $65 000 and their desired consumption expenditures rose from $50 000 to $54 000, it can be concluded that the family's A) average propensity to save is 0.8. B) marginal propensity to consume is 0.8. C) average propensity to consume is 0.8. D) marginal propensity to save is 0.8. E) marginal propensity to consume is $800.

Refer to Table 21-2. The simple multiplier in this economy is E) 1 500. A) 2.0. B) 2.5. C) 3.0. D) 4.0. E) 5.0.

In a simple macro model with the price level assumed to be constant, a change in firms' level of desired investment is predicted to influence equilibrium national income by A) shifting the saving function. B) shifting the aggregate expenditure function. C) causing movement along the investment function. D) shifting the 45-degree line. E) shifting the consumption function.

B 76)

In a simple macro model with demand-determined output, the simple multiplier is equal to 1/(1-z), where z equals the A) average propensity to spend. B) marginal propensity to spend. C) marginal propensity not to spend. D) level of autonomous expenditure. E) average propensity not to spend.

B 96)

Consider a simple macro model with demand-determined output. In such a model, the multiplier is larger, the A) lower the level of autonomous expenditures. B) steeper the slope of the AE function. C) flatter the slope of the AE function. D) lower the APC. E) higher the level of autonomous expenditures.

B 106)

Suppose aggregate output is demand-determined. If the simple multiplier is 4 and there is a $10 billion increase in planned investment spending, then equilibrium income will ________ and the marginal propensity to spend must equal ________. A) increase by $40 billion; 0.25 B) increase by $40 billion; 0.75 C) decrease by $10 billion; 0.25 D) decrease by $40 billion; 0.75 E) none of the above

B 112)

Refer to Table 21-3. This economy's equilibrium level of national income is A) 500. B) 600. C) 750. D) 1 000.

B 120)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend is 0.9, the simple multiplier is A) 0.1. B) 10.0. C) 1.0. D) 1.1. E) 0.9.

B 124)

Suppose aggregate output is demand-determined. Suppose a decrease in autonomous expenditure of $20 million reduces equilibrium national income by $50 million. The marginal propensity to spend is equal to A) -2.5. B) 0.6. C) -0.6. D) 0.4. E) 2.5.

B 126)

Refer to Figure 21-1. Desired consumption expenditures will equal disposable income at an income level of A) more than Y3. B) Y2. C) Y3. D) Y1. E) zero.

B 17)

Refer to Figure 21-3. Assuming AE0 to be the prevailing aggregate expenditure function, the distance 0A is a measure of A) aggregate expenditure at equilibrium national income. B) autonomous desired expenditures. C) desired investment. D) induced expenditures. E) desired saving.

B 59)

Undesired or unplanned inventory decumulation is likely to occur when A) investment exceeds consumption. B) desired aggregate expenditure exceeds actual aggregate expenditure. C) autonomous expenditure exceeds induced expenditure. D) consumption exceeds investment. E) actual aggregate expenditure exceeds desired aggregate expenditure.

B 6)

Consider a simple macro model with a constant price level and demand-determined output. If desired aggregate expenditure is less than actual national income, then A) inventories begin to fall, causing firms to increase production. B) actual income must be above the equilibrium level. C) actual income must be at equilibrium. D) actual income is below the equilibrium level. E) inventories begin to fall, causing national income to fall.

B 74)

Consider a simple macro model with a constant price level and demand-determined output. Using this model, if economists want to estimate the effect of a given change in desired investment on equilibrium national income, they would multiply the change in desired investment by the A) equilibrium level of national income. B) simple multiplier. C) marginal propensity to save. D) average propensity to save. E) reciprocal of the marginal propensity to spend.

B 94)

Consider a simple macro model with a constant price level and demand-determined output. If national income is above its equilibrium level, it is likely that inventories are ________, and so national income tends to ________. A) being depleted; rise B) accumulating; fall C) being depleted; fall D) accumulating; rise E) constant: fall

B Consider the following information describing an economy with demand-determined output. There is no government or foreign trade. 1. equilibrium condition is Y = C + I 2. marginal propensity to save (MPS) = 0.20 3. the autonomous part of C is $50 4. investment is autonomous and equals $25 TABLE 21-5 80)

Basic functions of the Bank of Canada include - Acting as lender of last resort to private non-financial corporations; - Acting as banker for the chartered banks. - Regulating the money supply. a. 1 only b. 2 only c. 3 only d. 2 and 3 e. 1, 2, and 3

Because of the volatility of food and energy prices, the Bank of Canada pays more attention in the short run to changes in ________ than to changes in ________. a. Core inflation; total CPI inflation b. Total CPI inflation; core inflation c. Total CPI inflation; inflation of the GDP deflator d. Inflation of the GDP deflator; total CPI inflation e. The nominal exchange rate; the real exchange rate

Suppose aggregate output is demand-determined. The simple multiplier will increase as a result of A) an increase in autonomous consumption. B) a decrease in autonomous consumption. C) an increase in the marginal propensity to consume. D) an increase in investment. E) a decrease in the marginal propensity to consume.

Suppose the price level is constant, output is demand-determined, and the economy is closed with no government. If the saving function is S = -100 + (0.4)Y, the simple multiplier is A) 0.2. B) 1. C) 2.5. D) 5. E) insufficient information to know.

Consider the aggregate consumption function in a macro model with no taxes. At the level of national income where APC = 1, the nation's households are A) allocating their income equally between saving and consumption. B) spending more than their current income. C) consuming all of their disposable income. D) saving a portion of their income, but saving is less than consumption. E) none of the above.

C FIGURE 21-1 11)

Refer to Figure 21-1. If disposable income is zero, then A) desired consumption must also be zero. B) autonomous desired saving will be 0A. C) autonomous desired consumption is 0A. D) the level of desired saving will be 0A. E) autonomous desired consumption is 0Y1.

C FIGURE 21-2 18)

In a simple macro model, a decrease in households' wealth is generally assumed to A) cause no change in consumption because consumption is a function of disposable income only. B) affect only saving, not consumption. C) cause a downward shift in the consumption function. D) cause an upward shift in the consumption function. E) cause no change in consumption because the decline is always expected.

C 10)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend in such a model is 0.4, the simple multiplier is A) 0. B) 0.4. C) 1.67. D) 2.5. E) 4.0.

C 101)

Suppose aggregate output is demand-determined. If the business community decreases its planned investment expenditures by $4 billion, causing equilibrium national income to fall by $8 billion, the marginal propensity to spend must be A) 2/5. B) 1/3. C) 1/2. D) 2/3. E) 4/5.

C 110)

Refer to Table 21-2. This economy's equilibrium level of national income is A) 500. B) 600. C) 750. D) 1 000.

C 118)

Refer to Figure 21-1. The APC will be equal to one (1.0) when disposable income is equal to \ A) Y3. B) Y1. C) Y2. D) 0. E) none of the above.

C 12)

Suppose aggregate output is demand-determined. Suppose a decrease in autonomous expenditure of $20 million reduces equilibrium national income by $50 million. The simple multiplier is equal to A) -0.6. B) 0.6. C) 2.5. D) 0.4. E) -2.5.

C 125)

Refer to Figure 21-2. The APC will be equal to one (1.0) when disposable income is A) $0. B) $3000. C) $1000. D) $2000. E) not enough information to determine.

C 20)

Refer to Figure 21-2. Which of the following is the correct equation for the consumption function depicted in the figure? A) C = 2000 + (2/3)YD B) C = (0.5)YD C) C = 500 + (0.5)YD D) C = 500 + (2/3)YD E) C = 1000 + (2/3)YD

C 21)

Refer to Figure 21-2. The slope of the consumption function in the figure is equal to A) the average propensity to consume. B) the average propensity to save. C) the marginal propensity to consume. D) the slope of the 45-degree line. E) the marginal propensity to save.

C 22)

Consider a consumption function that is upward sloping but flatter than the 45-degree line. When real disposable income rises A) saving remains constant. B) desired consumption will rise and saving will fall. C) desired consumption and saving will both rise. D) desired consumption remains constant. E) desired consumption will fall and saving will rise.

C 28)

Desired aggregate consumption expenditure divided by aggregate disposable income is called the A) relative consumption ratio. B) average propensity to save. C) average propensity to consume. D) consumption function. E) marginal propensity to consume.

C 33)

The marginal propensity to consume" refers to the additional A) desired consumption that occurs out of an additional dollar of investment. B) desired consumption caused by a change in tastes. C) desired consumption that occurs out of an additional dollar of disposable income. D) desired consumption that occurs over time. E) desired saving that occurs out of an additional dollar of disposable income.

C 34)

Investment expenditure is the ________ volatile component of GDP, and changes in investment are ________ associated with business-cycle fluctuations. a) most; weakly b) least; not c) most; strongly d) least; weakly e) least; strongly

C 50)

A rise in the real rate of interest ________ the opportunity cost of holding an inventory of a given size, and therefore ________ desired investment expenditure. A) decreases; leaves unaffected B) increases; increases C) increases; decreases D) decreases; increases E) decreases; decreases

C 51)

The schedule that relates the level of desired total expenditures to the level of actual national income is called the A) equilibrium function. B) desired aggregate demand function. C) aggregate expenditure function. D) consumption function. E) dissaving function.

C 55)

Refer to Figure 21-3. Assuming AE0 to be the prevailing aggregate expenditure function, at a level of national income equal to Y3 we can state that A) consumption is less than desired aggregate expenditure. B) consumption is greater than desired aggregate expenditure. C) desired aggregate expenditure is less than output. D) desired aggregate expenditure is greater than output. E) desired saving is less than zero.

C 60)

Refer to Figure 21-3. If national income is Y3 and the aggregate expenditure function is AE1, A) the economy is in equilibrium. B) there is unintended inventory accumulation and income will rise. C) there is unintended inventory accumulation and income will fall. D) there is unintended inventory decumulation and income will rise. E) there is unintended inventory decumulation and income will fall.

C 63)

Consider a simple macro model with demand-determined output. At the equilibrium level of national income, A) consumers' purchases of goods and services equal firms' purchases of investment goods. B) desired aggregate expenditures will equal total output minus inventory holdings. C) desired aggregate expenditures will equal total output. D) firms will hold no inventories of raw materials or final goods. E) consumers' purchases of goods and services equals their saving.

C 70)

In a simple model of the economy with demand-determined output, the equilibrium level of national income is at an income A) to the left of the point where the AE curve intersects the 45-degree line. B) where saving equals consumption. C) where aggregate desired expenditure equals the value of total output. D) where aggregate desired expenditure equals consumption. E) to the right of the point where the AE curve intersects the 45-degree line.

C 72)

In a simple macro model with demand-determined output, the equilibrium level of national income is at an income A) to the left of the point where the AE curve intersects the 45-degree line. B) to the right of the point where the AE curve intersects the 45-degree line. C) where the AE curve intersects the 45-degree line. D) where saving equals income. E) where saving equals consumption.

C 73)

Refer to Table 21-5. The equilibrium level of national income is A) $75. B) $155. C) $375. D) $249.

C 81)

Refer to Figure 21-3. A shift in the aggregate expenditure function from AE0 to AE1 could be caused by A) a decrease in desired investment expenditures. B) a fall in the marginal propensity to consume. C) an increase in desired investment expenditures. D) a rise in the multiplier. E) a rise in the marginal propensity to consume.

C 90)

Changes in the money supply in an open economy, as compared to a closed economy, a. Are likely to have a greater effect on AD because of the secondary effect that exchange rates have on exports. b. Are likely to have a smaller effect on AD because the secondary effect of exchange rates will offset the changes created by monetary disturbances. c. Are the same in either situation. d. Affect investment to a greater degree because foreign investors can create new investment in an open economy. e. Cannot be determined with the available information.

Consider Canada's GDP deflator and Consumer Price Index (CPI). Now suppose the prices of the following goods and services increased. Which is likely to have a larger direct effect on the CPI than the GDP deflator? a. Consumer electronics b. Lumber c. Car parts d. Aircraft engines e. Engineering services

Consider Canada's GDP deflator and Consumer Price Index (CPI). Now suppose the prices of the following goods and services increased. Which is likely to have a larger effect on the GDP deflator than the CPI? a. Bananas b. Chocolate c. Hollywood movies d. Consumer electronics e. Forest products

Consider Canada's national accounts. An example of a transfer payment is a. Government payments of salaries to schoolteachers. b. Government spending on military equipment. c. Pensions paid from the Canada Pension Plan. d. Private firms' payments of dividends. e. Government payments of salaries to Members of Parliament.

Consider Figure 24-7. At the initial short-run equilibrium, there is ________ output gap of ________. This gap could be closed by a ________. a. A recessionary; 100; fiscal contraction b. A recessionary; 200; fiscal expansion c. An inflationary; 100; fiscal contraction d. An inflationary; 200; fiscal contraction e. An inflationary; 350; fiscal expansion

Consider a Government of Canada bond with a face value of $1000, and a present value of $925. If this bond is offered for sale at $960, then a. The excess demand for the bond at $960 will drive the price up to the face value of the bond. b. Individuals will purchase the bond at the offer price which will drive the market rate of interest up. c. Individuals will purchase the bond at the offer price which will drive the market rate of interest down. d. The equilibrium market price of this bond has been achieved. e. The lack of demand for this bond will drive the price down until it reaches its equilibrium market price of $925.

Consider a Hydro Quebec bond with a face value of $1000, and a present value of $1175. If this bond is offered for sale at $1025, then a. Excess supply of this bond will drive the price down until it reaches its face value. b. Individuals will purchase the bond at the offer price which will drive down the price further. c. Excess demand for this bond will drive the price up until it reaches its equilibrium market price of $1175. d. The equilibrium market price of this bond has been achieved. e. Hydro Quebec will be forced to change the face value of the bond.

Consider a bond that promises to make coupon payments of $100 each year for three years (beginning in one year's time) and also repays the face value of $2000 at the end of the third year. If the market interest rate is 4%, what is the present value of this bond? a. $288.45 b. $1866.67 c. $1941.57 d. $1966.39 e. $2055.50

Consider a bond that promises to make coupon payments of $100 each year for three years (beginning in one year's time) and also repays the face value of $2000 at the end of the third year. If the market interest rate is 6%, what is the present value of this bond? a. $267.30 b. $283.02 c. $1763.22 d. $1854.67 e. $1946.53

Consider a bond with a face value of $10 000, a three-year term and a coupon payment of 6% made at the end of each year. The face value of the bond is repaid at the end of the term. Which of the following equations will correctly calculate the present value of the bond? a. PV = ($600/1.06) + ($600/1.1236) + ($10,600/1.1910) b. PV = ($600/1.06) + ($600/1.1236) + ($600/1.1910) c. PV = ($600/1.06) + ($600/1.106) + ($10,000/1.106) d. PV = ($600/1.6) + ($600/2.56) + ($10,600/4.096) e. PV = ($600/1.06) + ($600/1.06) + ($9,400/1.1910)

Consider a central bank that chooses to implement its monetary policy by expanding the money supply by a fixed percentage amount in every year. One important disadvantage with this approach to monetary policy is that it may a. Lead to sustained inflation. b. Be destabilizing if the demand for money is unstable. c. Lead to stable growth of national income. d. Be inconsistent with the Bank of Canada Act. e. Create a recessionary output gap.

Consider a firm producing car parts in Oshawa, Ontario. In determining this firm's value added to national income, we would start with its total revenue and subtract the cost of (among other things) - Imported plastic molds; - Labour costs for sales and marketing; - Computer-aided design (CAD) equipment. a. 1 and 2 b. 2 and 3 c. 1 and 3 d. 1 only e. 2 only

Consider a firm producing skateboards in one factory. In determining this firm's value added to national income, we would start with its total revenue and subtract the cost of (among other things) - Salaries to the firm's cleaning staff; - Electricity used in the factory; - The wood used for the base of the skateboards. a. 1 and 2 b. 2 and 3 c. 1 and 3 d. 1 only e. 3 only

Consider a firm providing consulting engineering services. In determining this firm's value added to national income, we would start with its total revenue and subtract the cost of (among other things) - Hard hats for engineers; - Executive compensation; - Wages and benefits to in-house engineers. a. 1 and 2 b. 2 and 3 c. 1 and 3 d. 1 only e. 2 only

Consider a money market in which there is an excess demand for money at the prevailing interest rate. The likely response is ________ until the quantity demanded of money equals the quantity supplied of money. a. The corresponding excess demand of bonds will cause the price of bonds to decrease and the interest rate to rise b. The money supply curve will shift to the left c. The money supply curve will shift to the right d. The money demand curve will shift to the right, causing the price of bonds to increase, and the interest rate to fall e. The corresponding excess supply of bonds will cause the price of bonds to decrease and the interest rate to rise

Consider a money market in which there is an excess supply of money at the prevailing interest rate. The likely response is a. The corresponding excess supply for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money. b. The corresponding excess demand for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money. c. The money supply curve will shift to the left until the demand for money equals the supply. d. The money supply curve will shift to the right until the demand for money equals the supply. e. The money demand curve will shift to the right, causing the price of bonds to increase, and the interest rate to fall, until the demand for money equals the supply.

Consider a new deposit of $10 000 to the Canadian banking system. Assuming that all Canadian banks have a target reserve ratio of 2%, and that there is no cash drain, the banking system as a whole could create ________ as a result of this single new deposit. a. $10 000 of new deposits b. $50 000 of new deposits c. $500 000 of new deposits d. $980 000 of additional loans e. $1 000 000 of additional loans

Consider a new deposit of $10 000 to the Canadian banking system. The bank that initially receives this deposit will find itself with a. No excess reserves if there is no reserve requirement. b. $1000 of excess cash reserves if its target reserve ratio is 10%. c. $2000 of excess cash reserves if its target reserve ratio is 10%. d. $8000 of excess cash reserves if its target reserve ratio is 20%. e. $10 000 of excess cash reserves if its target reserve ratio is 100%.

Consider a new deposit of $10 000 to the Canadian banking system. The commercial bank that initially receives this deposit will find itself with a. No excess reserves if there is no reserve requirement. b. $1000 of excess cash reserves if its target reserve ratio is 10%. c. $2000 of excess cash reserves if its target reserve ratio is 2%. d. $9000 of excess cash reserves if its target reserve ratio is 10%. e. $98 000 of excess cash reserves if its target reserve ratio is 2%.

Consider a new deposit of $100 000 to the Canadian banking system. The commercial bank that initially receives this deposit will find itself with a. No excess reserves if there is no reserve requirement. b. $1000 of excess cash reserves if its target reserve ratio is 10%. c. $2000 of excess cash reserves if its target reserve ratio is 2%. d. $10 000 of excess cash reserves if its target reserve ratio is 10%. e. $98 000 of excess cash reserves if its target reserve ratio is 2%.

Consider a simple macro model with a given price level and demand-determined output. An exogenous change in the domestic price level changes equilibrium real GDP a. In the same direction. b. In the opposite direction. c. By the same amount in the same direction. d. By the same amount in the opposite direction. e. By a lesser amount in either direction.

Consider a simple macro model with a given price level and demand-determined output. An exogenous change in the price level causes a a. Shift in both the AE and AD curves. b. Movement along the AE curve and a shift in the AD curve. c. Movement along both the AE and AD curves. d. Shift in the AE curve and a movement along the AD curve. e. Movement along AE but does not affect the AD curve.

Consider a simple macro model with demand-determined output. An exogenous increase in the domestic price level will a. Shift both the net export function and the AE curve upward. b. Shift the net export function upward and the AE curve downward. c. Shift both the net export function and the AE curve downward. d. Shift the net export function downward and the AE curve upward. e. Pivot the net export function and the AE curve upward.

Consider a simple macro model with demand-determined output. Other things being equal, the price level and desired aggregate expenditure are related to each other a. Positively. b. Proportionally. c. Progressively. d. Exponentially. e. Negatively.

Consider a simple macro model with demand-determined output. Which of the following parameters will produce the largest fluctuations in real GDP from autonomous expenditure shocks? a. MPC = 0.8, t = 0.2, m = 0.3 b. MPC = 0.7, t = 0.3, m = 0.2 c. MPC = 0.7, t = 0.1, m = 0.4 d. MPC = 0.9, t = 0.2, m = 0.4 e. MPC = 0.8, t = 0.1, m = 0.2

Consider a simple macro model with demand-determined output. Which of the following parameters will produce the most stable real GDP in the face of autonomous expenditure shocks? a. MPC = 0.8, t = 0.2, m = 0.3 b. MPC = 0.7, t = 0.3, m = 0.2 c. MPC = 0.7, t = 0.1, m = 0.4 d. MPC = 0.9, t = 0.2, m = 0.4 e. MPC = 0.8, t = 0.1, m = 0.2

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sector's wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function. a. Increase; a decrease; a downward b. Increase; an increase; a downward c. Increase; an increase; an upward d. Reduce; a decrease; a downward e. Reduce; an increase; an upward

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 hour worked = $40 b. Real GDP per employed worker = $80 000 c. Real GDP per hour worked = $80 d. Real GDP per employed worker = $125 000 e. Not able to determine from the information provided

Consider a small economy with 3 individuals where each individual produces and sells $1000 worth of final goods and services. The national income for this economy is a. $3000. b. Less than $3000 if some of the income is saved. c. More than $3000 if some of the income is invested. d. Less than $3000 if there are taxes in this economy. e. More than $3000 if the individuals are earning profits.

Consider an AD/AS model in long-run equilibrium. An output gap, caused by a leftward shift of the AD curve, will be eliminated if a. Wages rise quickly. b. The AS curve shifts upward. c. Wages and other factor prices fall sufficiently. d. Real national income decreases. e. Prices rise quickly.

Consider an economy with a relatively steep AS curve. If the AD curve shifts to the left, then the price level will ________ and national output will ________. a. Increase slightly; significantly increase b. Increase slightly; significantly decrease c. Increase sharply; increase slightly d. Fall sharply; will not change. e. Fall sharply; decrease slightly.

Consider an economy with a relatively steep AS curve. If there is a shift to the right in the AD curve, there will be a ________ in the price level and ________ in national output. a. Small increase; a large increase b. Small increase; a large decrease c. Large increase; a small increase d. Large increase; a small decrease e. Large increase; no change

Consider monetary equilibrium and the monetary transmission mechanism. An exogenous decrease in the price level, with no change in the supply of money, will a. Increase the demand for money and increase aggregate expenditure. b. Increase the demand for money and decrease aggregate expenditure. c. Decrease the demand for money and increase real GDP along the aggregate demand curve. d. Decrease the demand for money and decrease real GDP along the aggregate demand curve. e. Decrease the demand for money and leave aggregate demand unchanged.

Consider monetary equilibrium and the monetary transmission mechanism. An exogenous fall in the price level will lead to a. An excess demand for money resulting in a rise in the rate of interest, which shifts the AE function downward and decreases the equilibrium level of income. b. An excess supply of money resulting in a fall in the rate of interest, which shifts the AE function upward and increases the equilibrium level of income. c. People being able to buy more with their increased wealth, which will shift the AE function downward and decrease the equilibrium level of income. d. A movement to the right along the AE function. e. A movement to the left along the AE function.

Consider monetary equilibrium and the monetary transmission mechanism. An exogenous rise in the price level, with no change in the supply of money, will a. Increase the demand for money and increase desired aggregate expenditure. b. Increase the demand for money and decrease desired aggregate expenditure. c. Decrease the demand for money and increase aggregate demand. d. Decrease the demand for money and decrease aggregate demand. e. Decrease aggregate demand but not affect the demand for money.

Consider the AD/AS macro model. A permanent demand shock that causes equilibrium output to rise above potential output will a. Allow a stable expansion of real income over time. b. Always reverse itself. c. Be negated in the long run, through the economy's adjustment process. d. Result in a price level lower than that preceding the demand shock. e. Set off an endless cycle of price rises and increases in unemployment.

Consider the AD/AS macro model. An important asymmetry in the behaviour of aggregate supply is the a. Changing slope of the aggregate demand curve. b. Difference between actual and potential output. c. Different relative sizes of inflationary versus recessionary gaps. d. Economy's path of potential output as a result of labour force growth. d. Eifferent speeds at which factor prices adjust to positive and negative output gaps.

Consider the AD/AS macro model. An important asymmetry in the behaviour of the AS curve is that a. Prices are sticky but wages are not. b. Positive output gaps can persist for a long time without causing increases in wages and prices, whereas negative output gaps lead to immediate reductions in wages and prices. c. Negative output gaps can persist for a while without causing large decreases in wages and prices, whereas positive output gaps lead more quickly to increases in wages and prices. d. Wages are very flexible in the downward direction, but not in the upward direction. e. Wages and prices are equally sticky in both directions.

Consider the AD/AS macro model. Suppose there is an increase in aggregate demand and, simultaneously, a decrease in aggregate supply. The result will be a a. Rise in real GDP but price level changes will be indeterminate. b. Rise in real GDP and a rise in the price level. c. Rise in real GDP and a fall in the price level. d. An indeterminate change in real GDP and a rise in the price level. e. An indeterminate change in real GDP and a fall in the price level.

Consider the AD/AS macro model. The main source of increases in material living standards over the long term is the a. Maintenance of a continuous inflationary gap. b. Continual avoidance of recessionary gaps. c. Continuous outward shift of aggregate demand. d. Continual increase in potential national income. e. Positive slope of the aggregate supply curve.

Consider the AD/AS macro model. The study of short-run cyclical fluctuations usually assumes, for simplicity, that there are no changes in a. The AS curve. b. Potential GDP. c. Either the AS curve or potential GDP. d. Either the AD or AS curves. e. The intersection of the AD and AS curves.

Consider the AD/AS macro model. The wage-adjustment process is asymmetrical because a. Factor prices fluctuate more frequently than goods prices. b. Goods prices rise more quickly than factor prices. c. Employers delay wage increases in a boom but lay off workers quickly during a slump. d. Taxes rise quickly in a boom but do not fall during a slump. e. Wages rise quickly in a boom but fall slowly during a slump.

Consider the AD/AS model after factor prices have fully adjusted to output gaps. A reduction in the level of potential output, with aggregate demand constant, will a. Leave real output unaffected and increase the price level. b. Decrease real output and decrease the price level. c. Decrease real output and leave the price level unchanged. d. Decrease real output and increase the price level. e. Increase real output and decrease the price level.

Consider the AD/AS model after factor prices have fully adjusted to output gaps. An increase in the level of potential output, with aggregate demand constant, will a. Affect only the price level. b. Decrease real GDP and the price level. c. Affect only the level of real GDP. d. Increase real GDP and lower the price level. e. Decrease real GDP and raise the price level.

Consider the AD/AS model and suppose the economy begins at potential output. The effect of a negative AS shock on real GDP will be reversed in the long run with a ________ shift in ________. a. Rightward; AS b. Rightward; AD c. Leftward; AS e. Leftward; Y*

Consider the AD/AS model in which the price level varies. In this case, the multiplier is ________ the simple multiplier. a. Larger than b. Smaller than c. Definitionally the same as d. Not comparable to e. Equal to

Consider the AD/AS model, and suppose that the economy begins at potential output. The effect of a positive AS shock on real GDP will be reversed in the long run with a ________ shift in ________. a. Rightward; AS b. Rightward; AD c. Leftward; AS d. Leftward; AD e. Leftward; Y*

Consider the AD/AS model. An increase in government purchases will have no impact on equilibrium real GDP if a. The AS curve slopes upward. b. The AS curve is vertical. c. The AS curve is horizontal. d. The marginal propensity to spend is very small. e. The simple multiplier is very small.

Consider the AD/AS model. In the long run, after factor prices have fully adjusted to any output gaps, real GDP a. And the price level are determined by aggregate demand. b. And the price level are determined by "long-run aggregate supply." c. Is determined by aggregate demand and the price level by potential output. d. Is determined by potential output and the price level by aggregate demand. e. Is determined by AD and the price level is determined by the AS curve.

Consider the AD/AS model. Since output in the long run is determined by Y*, the only role of the AD curve is to determine the price level. This is true because a. Y* is independent of the price level. b. The aggregate demand curve is vertical. c. The aggregate demand curve is horizontal. d. Y* depends on the price level. e. The AS curve is upward sloping.

Consider the AD/AS model. Suppose there is a decrease in aggregate demand and, simultaneously, an increase in aggregate supply. The result will be a a. Rise in real GDP but price level changes will be indeterminate. b. Rise in real GDP and a rise in the price level. c. Rise in real GDP and a fall in the price level. d. An indeterminate change in real GDP and a rise in the price level. e. An indeterminate change in real GDP and a fall in the price level.

Consider the AD/AS model. Suppose there is an increase in autonomous desired consumption at a given price level. The result is a. The AE curve shifts downward and the AD curve shifts to the left. b. The AE curve shifts downward and the AD curve shifts to the right. c. The AE curve shifts upward and the AD curve shifts to the left. d. The AE curve shifts upward and the AD curve shifts to the right. e. To change in either the AE or the AD curve.

Consider the basic AD/AS diagram. The vertical line at Y* shows the relationship between the price level and the amount of output ________ have adjusted to output gaps. a. Demanded by households after all factor prices b. Supplied by firms after all factor prices c. Demanded by households before all factor prices d. Supplied by firms before all factor prices e. Supplied by firms after all output prices

Consider the basic AD/AS macro model in long-run equilibrium. A negative AS shock will ________ the price level and ________ output in the short run. In the long run, the price level will ________ and output ________. a. Decrease; decrease; decrease further; will decrease further b. Decrease; decrease; decrease further; will be restored to potential output c. Increase; decrease; decrease; will be restored to potential output d. Increase; decrease; increase further; will be restored to potential output e. Increase; increase; increase further; will be restored to potential output

Consider the basic AD/AS macro model in long-run equilibrium. A permanent expansionary AD shock has ________ price-level effect in the short run and ________ price-level effect in the long run. a. A positive; no b. A negative; no c. Positive; an even larger d. A positive; a smaller e. A negative; a positive

Consider the basic AD/AS macro model in long-run equilibrium. An expansionary AD shock will ________ the price level and ________ output in the short run. In the long run, the price level will ________ and output will ________. a. Decrease; decrease; decrease further; decrease further b. Decrease; decrease; decrease further; be restored to potential output c. Increase; increase; increase further; increase further d. Increase; decrease; increase further; be restored to potential output e. Increase; increase; increase further; be restored to potential output

Consider the basic AD/AS macro model in long-run equilibrium. An expansionary AD shock would have ________ output effect in the short run and ________ output effect in the long run. a. A positive; no b. A positive; a positive c. No; a positive d. No; no e. Not enough information to know

Consider the basic AD/AS macro model, initially in a long-run equilibrium. A positive AS shock will ________ the price level and ________ output in the short run. In the long run, the price level will ________ and output ________. a. Decrease; decrease; decrease further; will decrease further b. Decrease; increase; decrease further; will be restored to potential output c. Decrease; increase; return to its initial level; will be restored to potential output d. Increase; increase; decrease; will be restored to potential output e. Increase; increase; return to its initial level; will be restored to potential output

Consider the basic AD/AS macro model. A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level a. And real GDP are higher than in the initial equilibrium. b. And real GDP are lower than in the initial equilibrium. c. Is lower and real GDP higher than in the initial equilibrium. d. Is higher and real GDP remained the same as in the initial equilibrium. e. Is higher and real GDP lower than in the initial equilibrium.

Consider the basic AD/AS macro model. The simple multiplier is reflected by the a. Horizontal distance between initial macroeconomic equilibrium and the new intersection of AD and AS in response to a change in autonomous expenditure. b. Downward movement along the AD curve in response to a change in autonomous expenditure. c. Size of the rightward shift of the AD curve in response to a change in autonomous expenditure. d. Upward movement along the AD curve in response to a change in autonomous expenditure. e. Size of the leftward shift of the AD curve in response to a rise in autonomous expenditure.

Consider the basic AD/AS model in the short run. When there is a change in autonomous desired expenditure, the simple multiplier is equal to the a. Product of the horizontal shift of the AD curve times the change in autonomous expenditure. b. Product of the vertical movement along the AD curve times the change in autonomous expenditure. c. Ratio of the horizontal shift of the AD curve to the change in autonomous expenditure. d. Ratio of the vertical movement along the AD curve to the change in autonomous expenditure. e. Ratio of the vertical shift of the AD curve to the change in autonomous expenditure.

Consider the basic AD/AS model with an upward-sloping AS curve. A positive aggregate demand shock will initially cause a. A decrease in the price level. b. The equilibrium point to move rightward along the AS curve. c. A movement along the AD curve to the right. d. A shift to the right in the AS curve. e. The unemployment rate to remain constant.

Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts leftward unexpectedly, the fiscal policy may be ________, and real GDP may ________ potential GDP. a. Too weak; stay below b. Too weak; rise above c. Too strong; stay below d. Too strong; rise above e. Appropriate; equal

Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy is pursued and the AS curve shifts right unexpectedly, the fiscal policy may be ________, and real GDP may ________ potential GDP. a. Too weak; stay below b. Too weak; rise above c. Too strong; stay below d. Too strong; rise above e. Appropriate; equal

Consider the basic AD/AS model. A rise in an input price like the wage rate would be expected to create a new macroeconomic equilibrium, which in comparison to the original equilibrium, has a price level that is a. Higher and a real GDP that is higher. b. Higher and a real GDP that is lower. c. Higher and a real GDP that is the same. d. Lower and a real GDP that is higher. e. Lower and a real GDP that is lower.

Consider the basic AD/AS model. If firms' unit costs remained constant as firms increased their output levels, this would lead to a a. Vertical AD curve. b. Horizontal AD curve. c. Vertical AS curve. d. Horizontal AS curve. e. Horizontal AE curve.

Consider the basic AD/AS model. If major labour unions succeed in increasing wages across the economy, the AS curve will shift a. Downward (to the right), reducing the price level. b. Downward (to the right) and then return immediately to its original position. c. Upward (to the left) and then return immediately to its original position. d. Upward (to the left), increasing the price level. e. None of the above; there will no effect on the AS curve.

Consider the basic AD/AS model. If their unit costs rise as output increases, price-taking firms will be prepared to produce ________ only if ________. a. More; prices decrease b. More; the economy is in equilibrium c. Their current output; prices increase d. Less; prices increase e. More; prices increase

Consider the basic AD/AS model. Real GDP is demand determined along the a. Upward-sloping portion of the AS curve. b. Downward-sloping portion of the AS curve. c. Vertical portion of the AS curve. d. Horizontal portion of the AS curve. e. None of the above — real GDP cannot be demand determined.

Consider the basic AD/AS model. Suppose firms are currently producing beyond their normal capacity. A change in AD leads to a relatively a. Large change in price level and a large change in real GDP. b. Llarge change in price level and a small change in real GDP. c. Small change in price level and a large change in real GDP. d. Small change in price level and a small change in real GDP. e. No change in both price and output.

Consider the basic AD/AS model. Suppose that high-school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will a. Shift the AS curve to the left. b. Shift the AS curve to the right. c. Shift the AD curve to the left. d. Shift the AD curve to the right. e. Cause a movement along the AS curve to the right.

Consider the basic AD/AS model. When wage rates rise faster than the increase in labour productivity, the a. AD curve shifts left. b. AS curve shifts upward. c. Output gap falls. d. Output gap increases. e. AS curve shifts downward.

Consider the creation of deposit money in the banking system. One implication of an increase in the cash drain to the public is that the a. Banking system cannot create any additional money following a new deposit. b. Amount of new money that can be created from a new source of reserves is increased. c. Desired ratio is reduced. d. Desired reserve ratio is increased. e. Banking system's ability to create new money following a new deposit is reduced.

Consider the demand for money curve. As we move down and to the right along the curve, the opportunity cost of holding money a. Is increasing, so households and firms increase their desired money holdings. b. Is increasing, so households and firms decrease their desired money holdings. c. Is declining, so households and firms decrease their desired money holdings. d. Is declining, so households and firms increase their desired money holdings.

Consider the demand for money curve. As we move up and to the left along the curve, the opportunity cost of holding money a. Is increasing, so households and firms increase their desired money holdings. b. Is increasing, so households and firms decrease their desired money holdings. c. Is declining, so households and firms decrease their desired money holdings. d. Is declining, so households and firms increase their desired money holdings.

Consider the demand for money. If real GDP falls, other things being equal, we can expect a. An increase in the speculative demand for money. b. An increase in the total demand for money. c. A decrease in transactions demand for money. d. An increase in transactions demand for money. e. An increase in precautionary demand for money.

Consider the economy's aggregate supply curve. Other things being equal, unit costs will tend to fall if a. There is a fall in the price of oil. b. The government increases payroll taxes. c. Wages fall. d. Wage and price controls are in effect. e. Wage increases are less than productivity increases.

Consider the economy's aggregate supply curve. Other things being equal, unit costs will tend to increase if a. There is a rise in the price of oil. b. The government reduces payroll taxes. c. Wage increases exceed productivity increases. d. Wages rise. e. Wage and price controls are in effect.

Consider the following news headline: "Governments plan massive hospital construction programs across the country." Choose the statement below that best describes the likely macroeconomic effects. a. The AD curve shifts to the left; the price level falls and real GDP falls b. The AD curve shifts to the right; the price level rises and real GDP rises c. The AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate d. The AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate e. The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises

Consider the following news headline: "Information technology costs for Canadian firms continue to drop." Choose the statement below that best describes the likely macroeconomic effect. a. The AD curve shifts to the right; the price level rises and real GDP rises b. The AD curve shifts to the left; the price level falls and real GDP falls c. The AS curve shifts to the left; the price level rises and real GDP falls d. The AS curve shifts to the right; the price level falls and real GDP rises e. The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises

Consider the following news headline: "Threat of widespread labour unrest leads to generous wage increases in several industries." Choose the statement below that best describes the likely macroeconomic effects. a. The AS curve shifts to the left; the price level rises and real GDP falls. b. The AS curve shifts to the right; the price level falls and real GDP rises. c. The AD curve shifts to the left; the price level falls and real GDP falls. d. The AD curve shifts to the right; the price level rises and real GDP rises. e. The AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP falls.

Consider the following news headline: "World commodity prices rise sharply." Choose the statement below that best describes the likely macroeconomic effects in Canada. (Remember that Canada is both a producer and a consumer of commodities.) a. There is no change in either the AD or the AS curves b. The AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate c. The AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP decreases d. The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP increases e. The AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate

Consider the following statement about inflation targeting: A policy of inflation targeting acts as an automatic stabilizer in the economy, just like the automatic fiscal stabilizers. Choose the most appropriate response to this statement. The statement is a. True, because an inflationary gap is met with a contractionary monetary policy. b. True, because a recessionary gap is met with an expansionary monetary policy. c. Not true, because inflation targeting requires active policy decisions by the Bank of Canada, whereas fiscal stabilizers need no policy implementation. e. Not true, because inflation targeting automatically maintains inflation within the target range, whereas fiscal stabilizers require government policy decisions. e. True, because inflation targeting and fiscal stabilizers are essentially the same policy tool.

Consider the following two headlines appearing in the same day: "Federal government announces major new infrastructure investments" and "New technology drives down transport costs." Choose the statement below that best describes the likely macroeconomic effects. a. The AS curve shifts to the left; the price level rises and real GDP falls. b. The AS curve shifts to the right; the price level falls and real GDP rises. c. The AD curve shifts to the left; the price level falls and real GDP falls. d. The AD curve shifts to the right; the price level rises and real GDP rises. e. The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises.

Consider the global recession that began in late 2008. In terms of the AD/AS model, which of the following statements best describes the macroeconomic effect on Canada's economy? a. The AD curve shifted to the right due to reduced demand for Canadian exports, which created a recessionary gap. b. The AD curve shifted to the left due to reduced demand for Canadian exports, which created a recessionary output gap. c. The AS curve shifted to the right due to increased factor prices, which created a recessionary gap. d. The AS curve shifted to the left due to increased factor prices, which created a recessionary gap. e. Potential GDP fell, which reduced actual national income.

Consider the implementation of monetary policy. One difficulty in attempting to stabilize the economy by controlling the money supply is that a. Firms may be sensitive to changes in the rate of interest. b. The Bank of Canada can print more money. c. The commercial banks may choose not to hold excess reserves. d. The money demand function may be unstable. e. The Canadian government requires long-term loans.

Consider the investment component (I) of GDP. To calculate the change in the value of inventories for the investment component of GDP, one should use their a. Cost of production at the time they were produced. b. Cost of production minus the costs of labour and capital. c. Current market value. d. Market value at the time they were produced. e. Value at the time the goods are sold and removed from inventory.

Consider the investment component of GDP. The change in the country's capital stock during a year is equal to a. Gross investment. b. Capital consumption allowance. c. Net investment. d. Net change in inventories plus capital consumption allowance. e. Gross fixed investment.

Consider the monetary transmission mechanism in an open economy. Other things being equal, a decrease in the domestic money supply leads to a. An appreciation of the domestic currency, thereby inhibiting net exports and reducing aggregate demand. b. A depreciation of the domestic currency, thereby inhibiting net exports and raising aggregate demand. c. A depreciation of the domestic currency, thereby stimulating net exports and raising aggregate demand. d. An appreciation of the domestic currency, thereby stimulating net exports and raising aggregate demand. e. An appreciation of the domestic currency, thereby stimulating net exports and reducing aggregate demand.

Consider the monetary transmission mechanism in an open economy. Other things being equal, an increase in the domestic money supply leads to a. An appreciation of the domestic currency, thereby inhibiting net exports and raising aggregate demand. b. A depreciation of the domestic currency, thereby inhibiting net exports and raising aggregate demand. c. A depreciation of the domestic currency, thereby stimulating net exports and raising aggregate demand. d. An appreciation of the domestic currency, thereby stimulating net exports and raising aggregate demand. e. An appreciation of the domestic currency, thereby stimulating net exports and reducing aggregate demand.

Consider the monetary transmission mechanism. A disturbance to monetary equilibrium which changes the interest rate will affect aggregate demand through a. A shift of the investment demand function and a movement along the aggregate expenditure curve. b. A movement along the investment demand function and a shift of the aggregate expenditure curve. c. A shift of both the investment demand function and the aggregate expenditure curve. d. Movements along the investment demand function and the aggregate expenditure curve. e. A movement along the aggregate expenditure curve.

Consider the monetary transmission mechanism. In an open economy, such as Canada's, a decrease in the money supply leads to a rise in the interest rate. This is followed by a. An outflow of financial capital and an appreciation of the Canadian dollar. b. An inflow of financial capital and a depreciation of the Canadian dollar. c. An outflow of financial capital and a depreciation of the Canadian dollar. d. An inflow of financial capital and an appreciation of the Canadian dollar.

Consider the monetary transmission mechanism. In an open economy, such as Canada's, an increase in the money supply leads to a fall in the interest rate. This is followed by a. An outflow of financial capital and an appreciation of the Canadian dollar. b. An inflow of financial capital and a depreciation of the Canadian dollar. c. An outflow of financial capital and a depreciation of the Canadian dollar. d. An inflow of financial capital and an appreciation of the Canadian dollar.

Consider the nature of macroeconomic equilibrium. If, at a particular price level, aggregate output demanded is less than that supplied by producers, then a. The price level will rise toward its equilibrium value. b. The price level will decline toward its equilibrium value. c. The aggregate demand curve will shift to the right, re-establishing an equilibrium. d. The aggregate supply curve will shift to the left, re-establishing an equilibrium. e. The aggregate supply curve will shift to the right, re-establishing an equilibrium.

Consider the nature of macroeconomic equilibrium. If, at a particular price level, the total output demanded is greater than that supplied by producers, then a. The price level will decline toward its equilibrium value. b. The price level will rise toward its equilibrium value. c. The aggregate demand curve will shift to the left, re-establishing an equilibrium. d. The aggregate supply curve will shift to the right, re-establishing an equilibrium. e. The aggregate supply curve will shift to the left, re-establishing equilibrium.

Consider the relationship between the AE curve and the AD curve. A decline in the amount of desired net exports at each level of national income a. Shifts the AD curve to the right. b. Shifts the AD curve to the left. c. Causes a movement up along the AD curve. d. Causes a movement down along the AD curve. e. Causes an upward shift of the AE curve but no movement of the AD curve.

Consider the relationship between the AE curve and the AD curve. A fall in the amount of desired consumption, investment, government purchases, or net exports at any given level of national income a. Shifts the AD curve to the left. b. Shifts the AD curve to the right. c. Causes a movement along the AD curve. d. Causes a movement along the AE curve. e. Causes a shift of the AE curve but no movement of the AD curve.

Consider the relationship between the AE curve and the AD curve. A rise in the amount of desired consumption, investment, government purchases, or net exports at any given level of national income a. Shifts the AD curve to the left. b. Shifts the AD curve to the right. c. Causes a movement along the AD curve. d. Causes a movement along the AE curve. e. Causes a shift of the AE curve but no movement of the AD curve.

Consider the relationship between the AE curve and the AD curve. A rise in the amount of desired investment expenditure at each level of national income a. Shifts the AD curve to the left. b. Shifts the AD curve to the right. c. Causes a movement along the AD curve. d. Causes a movement along the AE curve. e. Causes a shift of the AE curve but no movement of the AD curve.

Consider the simple multiplier when the price level is constant. We can say that national income is ________ and that the simple multiplier measures the horizontal shift in ________ in response to a change in autonomous desired expenditure. a. Demand determined; the AS curve b. Unit-cost determined; the AD curve c. Constant; the AD curve d. Demand determined; the AD curve e. Constant; the AE curve

Consider the simplest macro model with demand-determined output. Other things being equal, the ________ the value of the simple multiplier, the ________ stable is real GDP in response to shocks to autonomous spending. a. Larger; more b. Larger; less c. Smaller; more d. Smaller; less e. Both B and C are correct

Consider the situations of a lender and a borrower of money. Which of the following situations is most advantageous to the lender? a. Inflation rate of 0% nominal interest rate of 2% b. Inflation rate of 2% nominal interest rate of 7.5% c. Inflation rate of -1% nominal interest rate of 3% d. Inflation rate of 2% nominal interest rate of 4% e. Inflation rate of 3% nominal interest rate of 7.5%

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 15% and an inflation rate of 8% b. Nominal interest rate of 10% and an inflation rate of 1% c. Nominal interest rate of 8% and an inflation rate of 2% d. Nominal interest rate of 4% and an inflation rate of 4% e. Nominal interest rate of 29% and an inflation rate of 21%

Consider two bonds, Bond A and Bond B, offered for sale in the same market for financial assets: - Bond A has a face value of $1000, a market price of $971, and matures in one year. - Bond B has a face value of $1000, a market price of $926, and matures in one year. Which of the following statements about Bonds A and B are correct? a. Bond A is perceived as a riskier asset than Bond B. b. Bond B is perceived as a riskier asset than Bond A. c. Bond B has a higher present value than Bond A. d. There is a disequilibrium in this market for financial assets.

Consider two bonds, Bond A and Bond B, offered for sale in the same market for financial assets: - Bond A has a face value of $1000, a market price of $971, and matures in one year. - Bond B has a face value of $1000, a market price of $926, and matures in one year. Which of the following statements about Bonds A and B are correct? a. Bond B has a higher present value than Bond A. b. Bond A has a lower present value than Bond B. c. Bond B has a higher yield than Bond A. d. Bond A has a higher yield than Bond B. e. There is a disequilibrium in this market for financial assets.

Consider two bonds, Bond A and Bond B, offered for sale in the same market for financial assets: - Bond A has a face value of $1000, a market price of $971, and matures in one year. - Bond B has a face value of $1000, a market price of $926, and matures in one year. Which of the following statements about Bonds A and B are correct? a. Bond B has a higher present value than Bond A. b. Bond A has a lower present value than Bond B. c. The yield on Bond B is 3%; the yield on Bond A is 3%. d. The yield on Bond A is 3%; the yield on Bond B is 8%. e. There is a disequilibrium in this market for financial assets.

Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.1 and a marginal propensity to import of 0.1. Economy B has a marginal propensity to consume of 0.6, a net tax rate of 0.2 and a marginal propensity to import of 0.2. Suppose there is a decrease in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? a. The AD curve shifts farther to the left in Economy A than Economy B. b. The AD curve shifts farther to the right in Economy A than Economy B. c. The AD curve shifts to the left the same amount in both economies. d. The AD curve shifts to the right the same amount in both economies. e. The simple multiplier is larger in Economy B.

Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.2 and a marginal propensity to import of 0.2. Economy B has a marginal propensity to consume of 0.7, a net tax rate of 0.2 and a marginal propensity to import of 0.2. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? a. The AD curve shifts farther to the left in Economy B than Economy A. b. The AD curve shifts farther to the right in Economy A than Economy B. c. The AD curve shifts to the left the same amount in both economies. d. The AD curve shifts to the right the same amount in both economies. e. The simple multiplier is larger in Economy A.

Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.2 and a marginal propensity to import of 0.2. Economy B has a marginal propensity to consume of 0.7, a net tax rate of 0.2 and a marginal propensity to import of 0.2. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? a. There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment. b. There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. c. There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. d. There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. e. There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.

Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.3 and a marginal propensity to import of 0.3. Economy B has a marginal propensity to consume of 0.9, a net tax rate of 0.1 and a marginal propensity to import of 0.3. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? a. The AD curve shifts farther to the left in Economy B than Economy A. b. The AD curve shifts farther to the right in Economy B than Economy A. c. The AD curve shifts to the left the same amount in both economies. d. The AD curve shifts to the right the same amount in both economies. e. The simple multiplier is larger in Economy A.

Consider two economies, A and B. Economy A has a marginal propensity to consume of 0.9, a net tax rate of 0.3 and a marginal propensity to import of 0.3. Economy B has a marginal propensity to consume of 0.9, a net tax rate of 0.1 and a marginal propensity to import of 0.3. Suppose there is an increase in autonomous investment of $5 billion in each of these economies. Which of the following statements is true? a. There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment. b. There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. c. There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. d. There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. e. There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.

Credit cards are considered to be "money substitutes" instead of money because a. They are not acceptable to pay for purchases. b. They cannot serve as a temporary medium of exchange. c. The only function of money they can perform is to serve as a store of value. d. Money must eventually be used to pay for the transaction. e. Credit card accounts are not chequable.

Suppose there is an increase in the marginal propensity to spend out of national income. The result will be A) a movement up the AE curve. B) an upward parallel shift in the AE curve. C) a movement down the AE curve. D) an increase in the slope of the AE curve. E) a downward parallel shift in the AE curve.

A decrease in the marginal propensity to spend out of national income will cause A) a movement to the right along the AE curve. B) an increase in the slope of the AE curve, which rotates it upward. C) a parallel downward shift in the AE curve. D) a decrease in the slope of the AE curve, which rotates it downward. E) a movement to the left along the AE curve.

D FIGURE 21-3 58)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend in such a model is 0.6, the simple multiplier is A) 0. B) 0.6. C) 1.67. D) 2.5. E) 6.0

D 100)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend in such a model is 0.8, the simple multiplier is A) 0. B) 0.8. C) 1.25. D) 5.0. E) 8.0.

D 102)

Consider a simple macro model with demand-determined output. In such a model, the smaller the marginal propensity to spend, the A) larger the simple multiplier. B) smaller the MPS. C) larger the MPC. D) smaller the simple multiplier. E) larger is investment.

D 105)

Consider a simple macro model with demand-determined output. Using such a model, if economists want to estimate the effect of a given change in desired investment on equilibrium national income, they would multiply the change in desired investment by the reciprocal of one minus A) the marginal propensity not to spend. B) the marginal propensity to save. C) the equilibrium level of national income. D) the marginal propensity to spend. E) the average propensity to save.

D 107)

Consider a simple macro model with a constant price level. If the AE function is horizontal, then we know the simple multiplier is A) less than zero. B) zero. C) between zero and one. D) exactly one. E) greater than one.

D 111)

Suppose the price level is constant, output is demand-determined, and the economy is closed with no government. If the consumption function is C = (2/3)Y, then the simple multiplier is A) 2/3. B) 1. C) 2. D) 3. E) insufficient information to know.

D 114)

Refer to Figure 21-2. If disposable income is $3000, desired consumption expenditure is equal to A) $1500. B) $0. C) $500. D) $2000. E) $1000.

D 19)

Disposable Income Desired Consumption 0 10 30 34 70 66 130 114 TABLE 21-7 30) Refer to Table 21-7. The marginal propensity to save is equal to A) 0.8. B) 0.67. C) 0.4. D) 0.2. E) 0.6.

D 31)

In the simple macroeconomic model, "autonomous expenditures" are A) dependent on national income. B) induced expenditures. C) those which are constant. D) not dependent on national income. E) non-domestic expenditures.

D 4)

Total desired saving divided by total income is called the average propensity to consume. a) total propensity to save. b) average propensity to spend. c) average propensity to save. d) marginal propensity to save.

D 44)

The marginal propensity to save refers to the A) change in saving divided by total income. B) additional saving that occurs out of an additional dollar of investment. C) total saving divided by a change in income. D) additional saving that occurs out of an additional dollar of income. E) additional saving that occurs over time.

D 45)

Desired investment expenditure will generally fall as a result of which of the following changes? A) a decrease in interest rates. B) an increase in government purchases. C) an increase in business confidence. D) a decrease in business confidence. E) an increase in sales volume.

D 48)

In the simple macro model, desired investment is assumed to be autonomous with respect to national income. Which of the following will cause a shift of the investment function? A) a decrease in interest rates B) an expectation of a downturn in economic performance C) an increase in firms' optimism about the economy D) all of the above E) none of the above

D 49)

Undesired or unplanned inventory accumulation is likely to occur when A) desired aggregate expenditure exceeds actual aggregate expenditure. B) consumption exceeds investment. C) investment exceeds consumption. D) actual aggregate expenditure exceeds desired aggregate expenditure. E) autonomous expenditure exceeds induced expenditure.

D 5)

Refer to Figure 21-3. If national income is Y1 and the aggregate expenditure function is AE1, A) the economy is in equilibrium. B) there is unintended inventory accumulation and income will rise. C) there is unintended inventory accumulation and income will fall. D) there is unintended inventory decumulation and income will rise. E) there is unintended inventory decumulation and income will fall.

D 64)

Refer to Table 21-1. At the equilibrium level of national income, desired consumption expenditure will be A) $ 30. B) $ 70. C) $110. D) $240.

D 68)

Consider a simple macro model with a constant price level and demand-determined output. If the simple multiplier is 3 and there is a $2 million increase in autonomous investment spending, then the equilibrium level of income will increase by A) $1.2 million. B) $2 million C) $3 million. D) $6 million. E) $4.5 million.

D 86)

Refer to Figure 21-3. A shift in the aggregate expenditure function downward from AE1 to AE0 could be caused by A) a rise in the multiplier. B) a fall in the marginal propensity to consume. C) a decrease in autonomous desired saving. D) an increase in autonomous desired saving. E) a rise in the marginal propensity to consume.

D 91)

Refer to Figure 21-3. The simple multiplier could be measured by the ratio A) Y1/0A. B) BA/Y1. C) 1/(Y2 - Y1). D) Y1Y2/AB. E) Y2/0B.

D 92)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend in such a model is between zero and one, the simple multiplier is A) zero. B) a positive number between zero and one. C) one. D) a positive number greater than one but less than infinity. E) infinitely large.

D 99)

During the financial crisis that began in 2008 the Bank of Canada took actions to increase the amount of reserves in the banking system. (They were "injecting liquidity.") However, the money supply (M2+) did not increase as predictably as it would have at other times. Why not? A) The banks formally increased their target reserve ratios to over 40% due to the increased risks in the Canadian economy. B) The panic in the world's financial sector led to a massive reduction in all types of lending from financial institutions. C) The banks formally increased their target reserve ratios to 20% due to the increased risks in the Canadian economy. D) The large and sudden increase in excess reserves at the commercial banks led to a significant increase in lending and a subsequent reduction in M2+. E) The panic in the world's financial sector led to a massive increase in all types of lending from financial institutions.

During the period of economic recovery between 1983 and 1987, the main challenge for the Bank of Canada was to A) accommodate the recovery, and the associated growth in money demand, without increasing the money supply so much as to refuel inflation. B) decrease the money supply to dampen inflationary expectations. C) increase the money supply so that only a mild form of inflation would reappear. D) stabilize the exchange rate between the U.S. and Canadian dollars. E) stabilize the unemployment rate.

The aggregate consumption function is based on a number of assumptions. Given these assumptions, which of the following statements is true? A) The MPC and APC are always less than unity. B) Below a certain level of income, APC > 1 and MPC < 0. C) As income rises, the MPC falls and the APC rises. D) The APC is greater than zero and less than one, and the MPC falls as income rises. E) The MPC is greater than zero and less than one, and the APC falls as income rises.

E 38)

Consider a simple macro model with demand-determined output. In such a model, the larger the marginal propensity to spend, the A) smaller the simple multiplier. B) smaller the MPS. C) larger the MPC. D) greater is investment. E) larger the simple multiplier.

E 104)

Suppose the price level is constant, output is demand-determined, and the economy is closed with no government. If the marginal propensity to spend is 0.7, the simple multiplier is A) 0.33. B) 0.70. C) 1.00. D) 1.42. E) 3.33.

E 113)

Refer to Table 21-4. This economy's equilibrium level of national income is A) 500. B) 600. C) 750. D) 1 000.

E 122)

Refer to Table 21-4. The simple multiplier in this economy is E) 1 500. A) 2.0. B) 2.5. C) 3.0. D) 4.0. E) 5.0.

E 123)

Refer to Figure 21-1. The marginal propensity to consume is equal to E) DE. A) EF/DF. B) EF/Y2Y3. C) ED/Y2Y3. D) ED/CF.

E 14)

Refer to Figure 21-1. The marginal propensity to save is given by E) Y2Y3. A) FE/Y2Y3. B) FE/Y1Y3. C) DF/Y2Y3. D) DE/Y1Y3. E) DE/Y2Y3.

E 16)

1) With respect to consumption, investment, government purchases and net exports, the national-income and product accounts measure A) the flow of saving at any income. B) desired expenditures in each of the categories. C) neither actual nor desired expenditures. D) both actual and desired expenditures, since actual expenditure must equal desired expenditure in each category. E) actual expenditures in each of the categories.

E 2)

Refer to Figure 21-2. The amount of desired consumption expenditure that is unrelated to the level of disposable income is A) $1000. B) $2000. C) $0. D) $1500. E) $500.

E 24)

For firms or individual households, desired expenditure is A) always greater than planned expenditure. B) not really relevant because human wants are unlimited. C) always greater than actual expenditure. D) not a useful concept because it cannot be measured. E) what they plan on spending, given the resources at their command.

E 3)

Other things being equal, higher real interest rates tend to A) reduce every component of desired investment expenditure except inventories. B) reduce every component of desired investment expenditure except residential housing. C) increase every component of desired investment expenditure. D) reduce every component of desired investment expenditure except plant and equipment. E) reduce every component of desired investment expenditure.

E 53)

If national income is demand-determined, the condition for national income to be in equilibrium can be statedas: A) desired saving equals actual investment. B) unemployment must equal the natural unemployment rate. C) actual saving equals actual investment. D) AE must be greater than Y. E) desired aggregate expenditure equals the actual level of national income.

E 78)

Consider an exogenous increase in the real interest rate in the simple macro model. This will tend to cause ________ in desired consumption and ________ in desired investment. A) an increase; an increase B) an increase; a decrease C) a decrease; no change D) a decrease; an increase E) a decrease; a decrease

E 87)

The simple multiplier applies to short-run situations in which the price level is constant. The simple multiplier can be defined as A) the change in national income resulting from a change in saving. B) a change in aggregate expenditures multiplied by the equilibrium level of national income. C) the change in national income resulting from a change in expenditure, multiplied by the number of years since the initial change. D) national income divided by aggregate expenditure. E) the change in equilibrium national income divided by the initial change in autonomous expenditure that brought it about.

E 95)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend in such a model is one, the simple multiplier is A) zero. B) a positive number between zero and one. C) one. D) a positive number greater than one but less than infinity. E) infinitely large.

E 98)

Fiscal policies typically affect the short-run level of GDP because they cause shifts in the ________ but they will not generally have any long-run effects on real GDP unless they affect ________. a. AS curve; factor-utilization rates b. AS curve; factor supplies or factor productivity c. AD curve; factor-utilization rates d. AD curve; the unemployment rate e. AD curve; the level of potential output

Fiscal policy refers to the a. Government's attempts to maintain a vertical AS curve so as to stabilize output. b. Government's use of spending and taxing policies to influence equilibrium real GDP. c. Government's use of trade-related policy tools to influence the net export function, thereby influencing GDP. d. Business sector's influence on investment and GDP. e. Households' attempts to change saving to encourage growth.

How does net domestic income differ from gross domestic product? Net domestic income is GDP minus a. That part of it not actually paid to households, plus transfer payments to households. b. That part of it not actually paid to households, minus personal income taxes paid by households. c. That part of it not actually paid to households, plus transfer payments to households, minus personal taxes paid by households. d. Replacement investment. e. The sum of corporate, personal and sales taxes paid to the government.

How does the Bank of Canada communicate its target for the overnight interest rate to the public? a. Monthly announcements at fixed announcement dates (FADs) b. In its quarterly publication, "Monetary Policy Report" c. Announcements made 8 times per year at pre-specified fixed announcement dates (FADs) d. The target is communicated to the minister of finance for approval and then released to the public on a quarterly basis e. The target is communicated to the Prime Minister for approval and then released to the public at 8 pre-specified fixed announcement dates (FADs)

How does the Bank of Canada set in motion the monetary transmission mechanism? a. By altering its target for the overnight interest rate b. By altering the price level c. By influencing the demand for money directly d. By influencing the exchange rate directly e. By influencing aggregate supply directly

How is Canada's unemployment rate determined? a. The rate is determined by Canada Census data. b. The rate is determined by a survey of Canadian employers. c. The federal government department HRSDC (Human Resources and Skills Development Canada) conducts a monthly survey of the labour force. d. Statistics Canada conducts a Labour Force Survey each month. e. An estimate is produced by HRSDC based on the previous month's unemployment rate adjusted by the current month's job losses and job gains.

If a country is experiencing inflation, the change in the nominal national product will a. Equal the change in the real national product. b. Overstate the inflation rate. c. Overstate the change in the real value of production. d. Understate the value of national income. e. Be negative and will be falling faster than the rate of inflation.

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%. b. 3.3%. c. 4.5%. d. 6.7%. e. 7.1%.

If a country's labour force is 15 million people, and 1.35 million of those are unemployed, the country's unemployment rate is a. 2.5%. b. 3.3%. c. 4.5%. d. 6.7%. e. 9.0%.

If a firm's depreciation exceeds its gross investment, then its a. Capital stock will be shrinking. b. Capital stock will be growing. c. Gross investment will be negative. d. Net investment will be positive. e. Depreciation cannot exceed gross investment.

If a majority of Canadian households and businesses refused to accept Canadian dollars in exchange for goods and services, the value of the Canadian dollar would a. Fall. b. Rise since less would be in circulation. c. Stay constant since the value does not depend on its acceptability by people. d. Stay constant since its value is determined only by the Bank of Canada. e. Stay constant since its value is determined only by the Government of Canada.

If a person is holding money for the purchase of goods and services, this demand for money is known as a. Speculative demand. b. Precautionary demand. c. Transactions demand. d. Real balance demand. e. Nominal balance demand.

If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 5%, the maximum amount of deposits the banking system can support is a. $4 million. b. $40 million. c. $80 million. d. $100 million. e. $400 million.

If all the banks in the banking system collectively have $500 million in cash reserves, and have a target reserve ratio of 5%, the maximum amount of deposits the banking system can support is a. $10 million. b. $100 million. c. $25 billion. d. $100 billion. e. $10 billion.

If all the commercial banks in the banking system collectively have $300 million in cash reserves and are satisfying their target reserve ratio of 20%, what is the amount of deposits they have? a. $0 b. $60 million c. $600 million d. $1500 million e. $2000 million

If an economist supports targeting inflation as opposed to monetary fine-tuning, this economist probably believes that time lags in the implementation of monetary policy are A) short but predictable. B) short but unpredictable. C) long and unpredictable. D) long but predictable. E) predictable in their short-run effects but unpredictable in the long run.

If an economy is experiencing neither a recessionary gap nor an inflationary gap, the real output of the economy will be reflected by a. The aggregate supply curve shifting to the left. b. The aggregate demand curve shifting to the left. c. The aggregate expenditure curve shifting upward. d. The intersection of the AD and AS curves at potential output. e. A point to the right of the aggregate supply curve at potential GDP.

If constant-dollar national income decreased by $6 billion over a one-year period, then it must be true that a. Output of every product decreased. b. The price level decreased. c. Aggregate output decreased. d. Aggregate output decreased and the price level increased. e. Aggregate output increased and the price level decreased.

If desired investment spending is relatively sensitive to changes in interest rates, then monetary policy could be very useful because it would a. Be very effective in reducing expenditure during inflationary periods and very effective in expanding expenditure during recessionary periods. b. Be very effective in reducing expenditure during inflationary periods and ineffective in expanding expenditure during recessionary periods. c. Be very ineffective in reducing expenditure during inflationary periods and very effective in expanding expenditure during recessionary periods. d. Be very ineffective in reducing expenditure during inflationary periods and very ineffective in expanding expenditure during recessionary periods. e. Be somewhat effective in reducing expenditure during inflationary periods and very ineffective in expanding expenditure during recessionary periods.

If most individuals accept paper currency in transactions, and paper currency is convertible into gold, then banks can safely issue a. No more paper currency than the value of the gold they hold. b. More paper currency than the value of the gold they hold. c. As much paper currency as they please. d. Paper currency equal to a fraction of the gold they hold. e. Paper currency equal to the bank's commercial debt divided by their gold reserves.

If nominal GDP in some year is $3800 and the GDP deflator for the same year is 152, then the real GDP for that year is a. $2280. b. $2500. c. $3500. d. $3800. e. $5776.

If the Bank of Canada chooses to expand M2 by exactly $1 million, it could do so by a. Buying $1 million worth of government securities on the open market. b. Selling $1 million worth of government securities on the open market. c. Increasing reserves at the commercial banks by $1 million. d. Decreasing reserves at the commercial banks by $1 million. e. None of the above - the Bank of Canada cannot precisely control the money supply.

If the Bank of Canada chooses to expand the money supply directly, it could a. Sell government securities on the open market. b. Sell some of its foreign currency assets. c. Reduce its deposits at commercial banks. d. Buy government securities on the open market. e. Change the price level.

If the Bank of Canada enters the open market and purchases $1000 of government securities, what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system? a. Decrease of $1000 b. Decrease of $5000 c. Decrease of $10 000 d. Increase of $5000 e. Increase of $10 000

If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system and a 10% cash drain? a. Decrease of $1000 b. Decrease of $5000 c. Decrease of $10 000 d. Increase of $5000 e. Increase of $10 000

If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply if commercial banks lend out all excess reserves and they have a 2.5% target reserve ratio? a. Decrease of $40 000 b. Decrease of $4000 c. Increase of $40 000 d. Increase of $4000 e. Decrease of $25 000

If the Bank of Canada wants to influence real economic variables in the short run, it uses a. Policy instruments such as the exchange rate and investment to influence the economy. b. Its only policy instrument—the overnight interest rate target—to influence aggregate demand. c. Policy variables such as the exchange rate and investment to influence aggregate demand. d. Policy variables such as open-market operations to influence aggregate demand. e. Policy variables such as the money supply to influence investment and aggregate supply.

If the Bank of Canada were required to gain approval for all changes in monetary policy from Parliament before implementing them, this would result in A) higher inflation in the long run. B) longer time lags in monetary policy. C) permanently higher unemployment. D) permanently higher exchange rates for the Canadian dollar. E) temporary reductions in the interest rate.

If the Bank of Canada were to reduce the money supply, other things being equal, we would expect the aggregate expenditure curve to shift a. Upward and the aggregate demand curve to shift to the right. b. Upward and the aggregate demand curve to shift to the left. c. Downward and the aggregate demand curve to shift to the right. d. Downward and the aggregate demand curve to shift to the left. e. Downward but the aggregate demand curve will remain unchanged.

If the Canadian dollar exchange rate increases, the a. Canadian dollar depreciates relative to foreign currencies. b. Internal value of the dollar falls. c. Canadian dollar appreciates relative to foreign currencies. d. Internal value of the dollar rises. e. External value remains unaffected.

If the economy in the short run is experiencing a recessionary gap, we are likely to see a. Severe and widespread labour shortages. b. Quickly rising output prices. c. An increase in the number of workers receiving employment-insurance benefits. d. The number of employment-insurance recipients the lowest ever. e. Consumers optimistic about the future.

If the economy is currently in monetary equilibrium, an increase in the money supply will a. Not change the equilibrium conditions. b. Cause a reduction in the demand for money, leading to a higher rate of interest. c. Cause an excess demand for money and a decrease in the rate of interest. d. Cause an increase in the demand for money, leading to a lower rate of interest. e. Lead to a movement down the money demand curve to a lower rate of interest.

If the economy is experiencing an inflationary output gap, the adjustment process operates as follows: a. Wages do not adjust, but the AD curve shifts to the right. b. Wages fall, unit costs fall, and the AD curve shifts rightward. c. Wages rise, unit costs rise, and the AS curve shifts leftward. d. Wages rise, unit costs rise, and the AS curve shifts rightward. e. Wages fall, unit costs fall, and the AS curve shifts rightward.

If the economy is experiencing an undesired inflationary gap, the Bank of Canada could a. Increase the supply of money, lowering interest rates, which would shift the AD curve inward. b. Decrease the demand for money, lowering interest rates, which would shift the AD curve outward. c. Decrease the supply of money, raising interest rates, which would shift the AD curve inward. d. Increase the supply of money, lowering interest rates, which would shift the AD curve outward. e. Shift the investment demand curve to the right by lowering interest rates, which would shift the AD curve outward.

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand decreases, we expect the AE function to shift to a a. Higher level and stay there. b. Higher level, but then shift part of the way down to its original position as the price level falls. c. Higher level but then return to its original position as the price level falls. d. Lower level and stay there. e. Lower level, but then return to its original position as the price level falls.

If the economy is in macroeconomic equilibrium with a vertical AS curve, and then aggregate demand increases, we expect the AE function to shift to a a. Higher level and stay there. b. Higher level, but then shift part of the way down to its original position as the price level rises. c. Higher level but then return to its original position as the price level rises. d. Lower level and stay there. e. Lower level, but then return to its original position as the price level rises.

If the economy's AS curve is upward sloping, a positive aggregate demand shock will result in a. An increase in prices but not output. b. An increase in output but not prices. c. An increase in both output and prices. d. A decrease in both output and prices. e. A decrease in output and an increase in prices.

If the economy's AS curve is vertical, the multiplier in the AD/AS model is a. Infinitely large. b. Equal to the simple multiplier. c. Smaller than the simple multiplier. d. Zero. e. Negative.

If the economy's AS curve is very steep and there is a negative aggregate demand shock, the result will be a. An increase in the price level and a decrease in real national income. b. An increase in both the price level and real national income. c. A decrease in the price level with almost no change in real national income. d. A decrease in the price level and an increase in real national income. e. No change in either price level or output.

If the general price level were to increase, other things being equal, the money demand function would a. Not be affected. b. Shift to the left. c. Shift to the right. d. Shift, but the direction of the shift cannot be predicted. e. Become steeper but not shift.

If the short-run macroeconomic equilibrium occurs with real GDP greater than potential output, the economy is a. At its full-employment level of output. b. Experiencing a recessionary output gap. c. Experiencing an inflationary output gap. d. Threatened with a demand shock. e. Operating at full capacity.

If the target reserve ratio in the banking system is 1%, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an expansion of the money supply of a. $0.01. b. $1.10. c. $1.00. d. $10.00. e. $100.00.

If we observe a small decrease in the actual overnight interest rate over a several-day period, we can definitely conclude that the a. Bank of Canada has implemented an expansionary monetary policy. b. Bank of Canada has implemented a contractionary monetary policy. c. Bank of Canada has abandoned its inflation target. d. Government of Canada has reduced the money supply. e. It is not possible to conclude any of the above.

If we observe a small increase in the actual overnight interest rate over a several-day period, we can definitely conclude that the a. Bank of Canada has implemented an expansionary monetary policy. b. Bank of Canada has implemented a contractionary monetary policy. c. Bank of Canada has abandoned its inflation target. d. Government of Canada has reduced the money supply. e. It is not possible to conclude any of the above.

If we observe that the bank rate has increased, we can conclude that the a. Bank of Canada has implemented an expansionary monetary policy. b. Bank of Canada has implemented a contractionary monetary policy. c. Bank of Canada has abandoned its inflation target. d. Government of Canada has reduced the money supply. e. Bank of Canada has adjusted the rate it pays on Treasury bills.

In 1994, Gordon Thiessen was appointed as the new governor of the Bank of Canada. Governor Thiessen proceeded to A) continue the tough and unpopular contractionary monetary policy of his predecessor. B) continue the popular low overnight lending policy of his predecessor. C) abandon the tough and unpopular contractionary monetary policy of his predecessor in favour of a policy designed to depreciate the Canadian dollar. D) abandon the tough and unpopular contractionary monetary policy of his predecessor in favour of a low-interest-rate policy. E) increase the overnight lending rate in order to stabilize the Canadian-U.S. exchange rate.

In 2007 and 2008, Canada was affected by the global financial crisis that had begun with the U.S. housing collapse. By 2009, the Canadian economy had entered a recession, largely due to a reduction in investment and a ________. The policy objective for the Bank of Canada and the government at this time was to ________. A) fall in net exports; shift the AD curve to the right to close the recessionary output gap B) fall in consumption; shift the AD curve to the right to close the inflationary output gap C) fall in consumption; shift the AD curve to the left to close the recessionary output gap D) fall in net exports; shift the AS curve to close the inflationary output gap E) fall in housing starts; shift the AD curve to the left to close the recessionary output gap

In 2007 and 2008, Canada was affected by the global financial crisis that had begun with the U.S. housing collapse. By early 2009, the Canadian economy was in a recession with Y < Y*. What economic policies were implemented to close the output gap? A) expansionary monetary policy B) expansionary fiscal policy C) contractionary monetary policy and contractionary fiscal policy D) contractionary monetary policy and expansionary fiscal policy E) expansionary monetary policy and expansionary fiscal policy

In 2007 and 2008, Canada was affected by the global financial crisis that had begun with the U.S. housing collapse. By the spring of 2009, the Bank of Canada had reached a practical minimum for its nominal policy interest rate of ________%. A) 0 B) 0.25 C) 0.50 D) 0.75 E) 1.00

In 2007 and 2008, Canada was affected by the global financial crisis that had begun with the U.S. housing collapse. What actions did the Bank of Canada take between the fall of 2007 and the end of 2008 in an attempt to maintain the level of economic activity in Canada? The Bank of Canada A) maintained its target for the overnight rate and made short-term loans to financial institutions more accessible. B) implemented a large fiscal stimulus program to counteract the sharp rise in interest rates that had occurred. C) reduced its target for the overnight rate by over 3.5 percentage points and made short-term loans to financial institutions more accessible. D) reduced its target for the overnight rate by over 5 percentage points and purchased "toxic" assets from Canadian commercial banks. E) purchased "toxic" assets from Canadian commercial banks and implemented a large fiscal stimulus program.

In Canada, open-market operations are a. Government actions aimed at creating competition within the banking industry. b. Loans made by the Bank of Canada to the commercial banks. c. Conducted to enforce the reserve requirements of commercial banks. d. No longer carried out. e. The buying and selling of government securities by the Bank of Canada.

In Canada, the measurement of national income and national product is conducted by a. The Department of Finance. b. The Bank of Canada. c. The Treasury Board. d. Statisticians in universities. e. Statistics Canada.

In Lumberville, the lumberjack cuts trees and sells them to the local mill for $500. The local mill processes these trees into wood planks and sells them to the carpenter for $800. Finally, the carpenter uses these wood planks to make tables which he sells for $1400 to Lumberville's residents. If we allowed double counting, the total value of Lumberville's output would be calculated as ________. But if we correctly compute the total value added, the value of the total output in Lumberville would be ________. a. $1400; $1400 b. $2200; $2700 c. $2200; $4200 d. $2700; $1400 e. $4200; $2700

In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of shoes. The value added by the tanner is a. $0. b. $300. c. $400. d. $500. e. $1200.

In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of shoes. The value added from these transactions is a. $800. b. $1000. c. $1200. d. $2300. e. $2500.

In a competitive financial market, the equilibrium price of an asset will equal the a. Present value of the asset. b. Future value of the asset. c. Sum of present value of the asset multiplied by the interest rate. d. Future value of the asset multiplied by the interest rate. e. Issue price of the asset.

In a macro model with a constant price level, an increase in autonomous desired consumption will cause the AE curve to shift a. Downward and the AD curve to shift to the left. b. Downward and the AD curve to shift to the right. c. Upward and the AD curve to shift to the left. d. Upward and the AD curve to shift to the right. e. Upward and a movement to the right along the AD curve.

In an effort to maintain inflation at its targeted level the Bank of Canada designs its policies, in the short run, to a. Eliminate all unemployment. b. Keep real GDP close to potential output. c. Minimize the growth of the money supply. d. Allow the aggregate supply curve to close any output gaps. e. Eliminate all negative shocks to the economy.

In building a macro model with an AS curve, it is assumed that producers will a. Increase prices without changing their output. b. Decrease their prices without changing output. c. Decrease their prices when they expand output. d. Produce as much as possible at the existing price level. e. Produce more output only if prices rise.

In general, if a central bank chooses to target the interest rate in its implementation of monetary policy, then a. It is more difficult to communicate this policy to the public than a change in money supply. b. The central bank can more easily control the process of deposit creation by the commercial banks. c. The money supply is determined by the Minister of Finance. d. The implementation of policy is more straightforward because the central bank knows precisely the slope and position of the money demand curve. e. It conducts the necessary open-market operations to accommodate the resulting change in money demand.

In general, if a central bank chooses to target the money supply in its implementation of monetary policy, then a. The interest rate is determined by monetary equilibrium, and cannot be precisely predicted because of possible shocks to money demand. b. The interest rate can be more carefully controlled. c. Implementation of policy is more straightforward because money supply is more easily controlled than the interest rate. d. The interest rate is determined by the Minister of Finance. e. The implementation of policy is more straightforward because the central bank can control the process of deposit creation.

In general, productivity is a measure of a. The economy's ability to increase real GDP per capita. b. The amount of output that the economy produces per unit of input. c. Real GDP as a function of total employment. d. The total amount of output that the economy is capable of producing. e. Potential output.

In macroeconomic analysis, the assumption that potential output (Y*) is changing is a characteristic of a. The short run. b. The adjustment process. c. The national accounts model. d. The long run. e. The business cycle model.

In macroeconomics, if the value of the national product increases, there is a. An even larger increase in the value of income claims on that output, due to value added. b. A decrease in value of income claims on that output, due to taxation. c. A decrease in the value of income claims on that output, due to importing. d. A decrease in the value of income claims on that output, due to household saving. e. An equal increase in the value of income claims on that output.

In macroeconomics, what is the output gap? a. The measure of output that could have been produced if the economy were fully employed b. The dead-weight loss of inflation c. The difference between nominal and real output d. The percentage change in real GDP e. The difference between Y and Y*

In national-income accounting, "double counting" a. Occurs when the value of some output is omitted in the calculation of national income. b. Means that pre-tax and after-tax GDP will be different. c. Occurs when the value of output is counted more than once in the calculation of national income. d. Means that consumption will always be less than GDP. e. Leads to an underestimation of GDP in any given period.

In national-income accounting, changes in inventories are a. Classified as part of current actual investment. b. Included under actual consumption expenditures. c. Referred to as intermediate goods. d. Described as actual fixed investment. e. Not included in the national accounts.

In national-income accounting, government expenditures on the salaries of civil servants are included at a. Their imputed market value. b. The market value of the goods and services they produce. c. Their after-tax salaries. d. Their pre-tax salaries, or factor incomes. e. Opportunity cost.

In national-income accounting, replacement investment is the investment that a. Is used in the calculation of GDP from the expenditure side. b. Maintains the existing capital stock at a constant level. c. Is equal to all existing capital stock in the country. d. When added to gross investment is equal to total saving. e. Is done by the government.

In national-income accounting, the concept of net domestic income is useful because it a. Does not include inventory investment. b. Includes government transfer payments. c. Includes all goods produced but not exchanged in markets. d. Excludes the value of output that is used as replacement investment. e. Represents national income plus depreciation.

In national-income accounting, the term "fixed investment" refers to a. Total gross investment minus depreciation. b. The existing capital stock. c. The creation of new plant and equipment. d. Investment in stocks and bonds. e. Capital stock that has been repaired.

In national-income accounting, the value of intermediate products a. Should always be counted as part of GDP in the expenditure approach. b. Should be subtracted from the value of final goods in determining a firm's total value added. c. Should be added to the value of other inputs in determining a firm's contribution to GDP. d. Must equal the value added by the firm. e. Is counted as factor income in the calculation of GDP from the income side.

In national-income accounting, what does the term Ia represent? a. Actual net investment b. Actual net investment minus depreciation c. Actual gross investment (including depreciation) d. Actual inventory investment e. Actual fixed investment minus depreciation

In national-income accounting, which of the following transactions by households is considered to be an investment expenditure? a. The purchase of an iPhone b. The purchase of a government bond c. The purchase of a Guaranteed Investment Certificate (GIC) d. Payment for the construction of a custom-built new home e. The purchase of an imported car

In order for money to be successfully used as a medium of exchange, it must - Be readily acceptable; - Be easily divisible; - Have a high value-weight ratio. a. 1 only b. 2 only c. 3 only d. 1 and 2 e. 1, 2, and 3

In order to calculate the present value of the sum of future payments due from a bond, we use the interest rate to ________ those future payments. a. Adjust b. Correct c. Discount d. Inflate e. Maximize

In our macro model, the level of aggregate output is determined in the short run by ________ but in the long run by the level of ________. a. The output gap; factor productivity b. The AD curve; interest rates c. The AS curve; potential output d. The AD and AS curves; Y* e. The AD and AS curves; factor utilization

In practice, it is not possible for the Bank of Canada to control the money supply because a. The resulting effects on the value of the Canadian dollar are difficult to predict. b. It cannot control the process of deposit creation carried out by the commercial banks. c. It cannot control the amount of cash reserves that are injected into or withdrawn from the banking system. d. It does not have the legal power to do so. e. None of the above—the Bank of Canada could control the money supply if it chose to do so.

In practice, the Bank of Canada implements its monetary policy by a. Directly influencing the overnight interest rate. b. Directly influencing the excess reserves in the commercial banking system. c. Setting the money supply. d. Directly influencing the price level. e. Influencing the slope of the money demand curve.

In reality, the reserve ratio for Canadian commercial banks is approximately ________%, which means that the deposit creation process is ________. a. 0.1; extremely powerful b. 1.5; powerful c. 20; similar to that discussed in the text d. 50; weak e. 100; very weak

In the basic AD/AS macro model, permanent increases in real GDP are possible only if a. Potential output is increasing. b. The correct fiscal policy is implemented. c. The economy's automatic stabilizers are allowed to operate. d. The aggregate supply curve is vertical. e. Aggregate demand responds positively to demand shocks.

In the basic AD/AS macro model, the "paradox of thrift" is only a short-run phenomenon because a. Consumers exhibit cyclical consumption behaviour. b. In the long run output is determined by potential output. c. Savings are transformed into expenditures in the long run. d. The marginal propensity to consume is fixed in the long run. e. Consumers base their consumption expenditures only on their lifetime income.

In the basic AD/AS macro model, which of the following events could cause a negative AS shock? a. A large decrease in wages b. A large increase in business confidence c. A large decrease in the net tax rate d. A widespread outbreak of a serious infectious disease e. A large increase in labour productivity

In the basic AD/AS macro model, which of the following events would cause stagflation? a. A large decrease in wages b. A large increase in business confidence c. A large increase in the net tax rate d. A large increase in the price of raw materials e. A large increase in labour productivity

In the basic AD/AS model, the effect of an aggregate demand shock is divided between a change in output and a change in the price level. How the effect is divided depends on the a. Amount of inflation in the economy. b. Position of the AE curve. c. Size of the simple multiplier. d. Slope of the AD curve. e. Slope of the AS curve.

In the basic AD/AS model, which of the following is a defining assumption of the adjustment process that takes the economy from the short run to the long run? a. Factor supplies are assumed to be varying b. Technology used in production is endogenous c. The level of potential output is changing d. Factor prices respond to output gaps e. Firms cannot operate near their normal capacity

In the early 1980s, the Bank of Canada contracted the rate of growth of the money supply in an attempt to reduce inflation. One problem with this policy was that A) an unexpected increase in the demand for money caused the policy to be more contractionary than necessary, leading to a recession. B) an unexpected increase in the demand for money caused the policy to be more expansionary than necessary, leading to further inflation. C) the demand for money dropped at the same time, causing the policy to be more contractionary than necessary, leading to an undesirable boom. D) the demand for money dropped at the same time, causing the policy to be more expansionary than necessary, leading to further inflation. E) it proved completely ineffective in influencing either real GDP or the price level.

In the early 1980s, when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply, an unplanned surge in ________ led to an unintended tight monetary policy which caused ________. A) money demand; decreased inflation and a serious recession B) money supply; a drop in the overnight lending rate and increased investment C) desired investment; inflation to increase D) desired investment; the Bank of Canada to adopt a core inflation targeting policy E) money supply; the Bank of Canada to apologize to the public for its policy error

In the event of a sudden loss in confidence in the ability of the commercial banks to redeem deposits, the Bank of Canada would probably a. Take over the operation of any banks in severe difficulties. b. Lend reserves to the commercial banks. c. Offer to sell government bonds to the chartered banks. d. Suspend operation of the banking system until the panic subsided. e. Impose severe financial penalties on the commercial banks by charging them interest at higher than the Bank rate.

In the long run in the AD/AS macro model we can say that a. Both real GDP and the price level are determined by aggregate demand. b. Both real GDP and the price level are determined by Y*. c. Long-run real GDP is determined by Y* and the long-run price level by the AD curve. d. Real GDP is determined by aggregate demand and the price level by Y*. e. Long-run real GDP is determined by aggregate demand and the price level is determined solely by the AS curve.

Inflation targeting a. Is irrelevant to the stability of the economy because of the long-run neutrality of money. b. Is a destabilizing policy because it requires the Bank of Canada to engage in inappropriate policy responses. c. Is a stabilizing policy because the Bank of Canada's policy adjustments act to stabilize real GDP growth. d. Should be replaced with fiscal policy targeting because of the long-run neutrality of money. e. Creates output gaps that must be then offset with fiscal policy stabilizers.

Inflation that is fully anticipated by workers, firms, and consumers a. Leads to reductions in real incomes for all workers. b. Is hard to predict. c. Improves the efficiency of the price system. d. Does not impact the purchasing power of individuals whose incomes are fully indexed to inflation. e. Has no real or nominal effects in the economy.

Inflation, the rate of change of average prices in the economy, generally a. Benefits creditors if it is unanticipated. b. Has no real effects if it is unanticipated. c. Increases the purchasing power of money. d. Reduces the real value of existing nominal debt. e. Increases the real value of fixed money incomes.

Loans from the Bank of Canada are a. Made only to the Canadian federal government and to provincial governments. b. Made to commercial banks at the bank rate. c. Made to commercial banks at the prime rate and are short-term in nature. d. Made to large non-bank corporations. e. The Bank's major policy instrument.

Measures of GDP may understate the economic well-being of people in developing countries if those countries tend to a. Import much more than they export. b. Have a high degree of foreign direct investment. c. Emphasize agricultural and resource-based production. d. Have very high rates of pollution. e. Have a large share of nonmarket activities.

Monetary equilibrium occurs when the a. Growth in the money supply is zero. b. Existing supply of money is willingly held by households and firms in the economy at the current rate of interest. c. Nominal rate of interest equals the real rate of interest. d. The money supply is growing at a constant rate. e. Supply and demand for all goods in the economy are equal at the current rate of interest.

Money is commonly defined as a. A generally accepted medium of exchange. b. Gold. c. Foreign-exchange reserves. d. Paper currency. e. The Canadian dollar.

Most Canadians accept Canadian dollars in payment for goods and services in Canada because they have confidence that the dollar a. Will be accepted in the future. b. Is fully convertible into gold. c. Is accepted by foreigners as more stable than their own currency. d. Is fully convertible into American dollars at a set exchange rate. e. Is fully backed by the British pound sterling.

Most central banks accept that, in the long run, monetary policy has an effect on a. The level of aggregate demand. b. The price level and the inflation rate only. c. The level of investment demand. d. All real economic variables. e. Real GDP and the price level.

Most central banks in the developed countries focus their attention on a. The elimination of output gaps. b. Reducing unemployment. c. The reduction and control of inflation. d. Alleviating the harmful effects of inflation. e. The growth of potential output.

Most central banks, including the Bank of Canada, implement monetary policy by a. Controlling the money supply directly. b. Influencing a short-term interest rate directly. c. Influencing investment demand directly. d. Influencing the demand for money directly. e. Controlling the process of deposit creation in the commercial banking system.

Most economists now accept the proposition that 1) to reduce the long-run rate of inflation there must be a sustained monetary contraction; 2) monetary policy should be aimed at controlling the inflation rate in the long run, with a short-run focus on reducing output gaps; 3) high inflation, even if it is largely expected, can generate significant costs for the economy. A) 1 only B) 2 only C) 3 only D) 2 and 3 E) 1, 2 and 3

One advantage of using expansionary fiscal policy rather than relying on automatic adjustment to recover from a recessionary gap is that a. The economy will overshoot potential GDP and a boom will be underway. b. Inflation will not be as stimulated. c. Price level will rise higher than otherwise. d. The recovery may be more rapid. e. The recovery will be slower, thereby causing less disruption.

One major reason that GDP is an inaccurate measure of the true level of economic activity is that a. People frequently buy things they do not want. b. It is statistically very inaccurate. c. It does not include non-market activities. d. It cannot be adjusted for changes in prices. e. It includes net exports.

One of the reasons why the aggregate demand (AD) curve slopes downward is that a. Aggregate expenditure increases as the price level rises. b. Decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption. c. Increased production results in lower production costs. d. When the price level falls firms must be more competitive when output increases. e. When the price level falls consumers increase their saving rate.

One of the reasons why the aggregate demand (AD) curve slopes downward is that a. Aggregate expenditure increases as the price level rises. b. Increases in the price level cause consumers to substitute foreign goods for domestic goods. c. Increased production results in lower production costs. d. When the price level falls firms must be more competitive when output increases. e. When the price level falls consumers increase their saving rate.

One problem with focusing on the CPI when conducting monetary policy is that a. Many elements in the CPI change for reasons unrelated to the state of the Canadian economy. b. It is closely related to the value of M2. c. Changes in monetary policy have little effect on the CPI, especially in the long run. d. The CPI is too stable to accurately reflect the changes occurring in the Canadian economy. e. The CPI distorts the value of commercial bank reserves.

One reason that real GDP tends to overstate the economic well-being of the country's residents is that it ignores a. The costs of increased leisure time. b. The market-based activity done from the home. c. The economic "bads" associated with production, such as pollution. b. Non-market activities, such as teenaged-babysitting services. e. Illegal activities, such as the drug trade.

One reason that the Bank of Canada does not try to influence the money supply directly is that a. The Bank of Canada has many other policy tools with which it can influence aggregate demand. b. The Bank of Canada does not have the mandate to change the money supply. c. Because the money demand curve is almost horizontal, changes in the money supply would have little or no effect on the interest rate. d. Because the investment demand curve is almost vertical, any change in the interest rate resulting from a change in money supply would have little or no effect on desired investment expenditure. e. The slope of the money demand curve is not precisely known, and so the effect on the interest rate of a change in money supply is uncertain.

Other things being equal, a closed economy will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an open economy with foreign trade. a. Lower; flatter b. Higher; flatter c. Higher; steeper d. Lower; rightward shift of the e. Lower; leftward shift of the

Other things being equal, a decrease in the money supply will lead to ________ in real interest rates and, in the short run, ________ in real GDP because ________. a. An increase; an increase; more money is available for investing in bonds from abroad b. An increase; a decrease; of the decrease in desired investment c. A decrease; an increase; of the increase in desired investment d. A decrease; a decrease; of the decrease in desired investment e. A decrease; a decrease, of the decrease in net exports

Other things being equal, a fall in the domestic price level leads to a rise in private-sector wealth and thus a. An increase in the average propensity to save. b. An increase in autonomous desired consumption. c. A downward shift in the AE curve. d. A downward shift in net exports. e. Domestic goods appearing less attractive to foreigners.

Other things being equal, a higher marginal propensity to spend will lead to a ________ AD curve. a. Flatter b. Steeper c. Rightward shift of the d. Leftward shift of the

Other things being equal, a reduction in the money supply will lead to a a. Fall in the rate of interest and an increase in desired investment expenditure. b. Rise in the rate of interest and in increase in desired investment expenditure. c. Fall in the rate of interest and a decrease in desired investment expenditure. d. Rise in the rate of interest and a decrease in desired investment expenditure. e. Rise in the rate of interest and no change in desired investment expenditure.

Other things being equal, a rise in the domestic price level a. Causes a decrease in real saving. b. Lowers the real value of all assets denominated in money units. c. Makes domestic goods more attractive to foreigners. d. Makes foreign goods less attractive to domestic residents. e. Raises the real burden of repaying a fixed money value debt.

Other things being equal, a rise in the price level will a. Increase the value of money. b. Decrease the purchasing power of money. c. Stabilize the value of money. d. Increase the purchasing power of money. e. Have no effect on the value of money.

Other things being equal, a rise in the price level will imply ________ in wealth for the bondholder and ________ in the wealth of the issuer of the bond. a. A decline; an increase b. A decline; a decline c. A decline; no change d. An increase; a decline e. An increase; an increase

Other things being equal, an economy with a higher net tax rate will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an economy with a lower net tax rate. a. Lower; steeper b. Higher; flatter c. Higher; steeper d. Lower; rightward shift of the e. Lower; leftward shift of the

Other things being equal, an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to a. Decrease. b. Increase. c. Not change since the changes in the wealth of bondholders and bond issuers offset each other. d. Either increase or decrease depending on other factors. e. Rise in nominal terms, but fall in real terms.

Other things being equal, an exogenous rise in the domestic price level will a. Have no effect on the level of desired real expenditure. b. Increase the level of desired real expenditure. c. Decrease desired real expenditure only if it is accompanied by a change in the current income of households. d. Decrease desired real expenditure because it will affect the real value of wealth. e. Cause net exports to rise.

Other things being equal, as the price level falls exogenously, the aggregate expenditure (AE) function shifts a. Down and the economy will move upward along the AD curve. b. Down and the economy will move downward along the AD curve. c. Upward and the economy moves upward along the AD curve. d. Upward and the economy moves downward along the AD curve. E. To the left, as does the AD curve.

Other things being equal, as the price level rises exogenously, the aggregate expenditure (AE) function shifts a. Down and the economy will move upward to the left along the AD curve. b. Down and the economy will move downward to the right along the AD curve. c. Upward and the economy moves upward to the left along the AD curve. d. Upward and the economy moves downward to the right along the AD curve. e. To the right and the AD curve will also shift to the right.

Other things being equal, bond prices a. Are unaffected by changes in the demand for money. b. Are unaffected by interest-rate changes. c. Vary directly with interest rates. d. Vary inversely with interest rates. e. Vary proportionally with interest rates.

Other things being equal, the economy's AS curve will shift downward if there is a. A decrease in labour productivity. b. A decrease in the cost of capital inputs. c. A decrease in the price level. d. An increase in the price level. e. An increase in nominal wages.

Other things being equal, the economy's AS curve will shift upward in the short run if there is a. An increase in the cost of capital. b. A decrease in the cost of capital. c. A decrease in nominal wages. d. A decrease in the price level. e. An improvement in technology.

Other things being equal, when the domestic price level falls exogenously, a. Canadian goods become more expensive relative to foreign goods. b. The net export function shifts upward. c. The aggregate expenditure function shifts downward. d. Imports of foreign goods rise. e. The net export function shifts downward.

Other things being equal, when the domestic price level rises exogenously, a. Canadian goods become more expensive relative to foreign goods. b. The net export function shifts upward. c. The aggregate expenditure function shifts upward. d. Imports of foreign goods fall. e. The desired investment function shifts upward.

Over the horizontal range of the economy's AS curve (assuming such a range exists), a rightward shift of the AD curve will result in a. An increase in prices and no change in real GDP. b. An increase in real GDP and no change in prices. c. An increase in both real GDP and prices. d. A decrease in both real GDP and prices. e. A decrease in real GDP but no change in prices.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is . Other things being equal, exogenous changes in the price level will cause a. Movement along the aggregate expenditure curve AE0 and shifts of the AD curve. b. Movement along the aggregate expenditure curve AE0 and movement along the aggregate demand curve AD0. c. Shifts of the AE curve and shifts of the AD curve. d. Shifts of the AE curve and movement along the aggregate demand curve AD0. e. No change in either the AE curve or the AD curve.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is . The corresponding point on the aggregate demand curve is point a. A. b. B. c. C. d. D. e. E.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is P0. Now, suppose the AE curve shifts to AE1 and we move to a new equilibrium level of GDP at Y1 and point A on AD0. A possible cause of this change in equilibrium is a. An exogenous rise in the price level. b. A decrease in desired investment. c. A decrease in autonomous consumption. d. A decrease in desired net exports. e. An increase in government purchases.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is P0. Now, suppose the AE curve shifts to AE1 and we move to a new equilibrium level of GDP at and point F on AD1. A possible cause of this change in equilibrium is a. An exogenous rise in the price level. b. An exogenous fall in the price level. c. An increase in autonomous consumption. d. A decrease in desired net exports. e. An increase in government purchases.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is P0. Now, suppose the AE curve shifts to AE2 and we move to a new equilibrium level of GDP at Y2 and point C on AD0. A possible cause of this change in equilibrium is a. An increase in autonomous consumption. b. An increase in desired investment. c. An exogenous fall in the price level. d. An exogenous rise in the price level. e. An increase in desired net exports.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is P0. Now, suppose the AE curve shifts to AE2 and we move to a new equilibrium level of GDP at Y2 and point E on AD2. A possible cause of this change in equilibrium is a. An increase in government purchases. b. An increase in the net tax rate. c. A decrease in desired investment. d. A decrease in desired net exports. e. An exogenous fall in the price level.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is P0. Now, suppose there is an exogenous rise in the price level to P1. Which of the following statements describes the likely macroeconomic effects? a. The AE curve shifts to AE1, a new equilibrium is established at point U, and the AD curve shifts from AD0 to AD1 and equilibrium from point B to point D. b. The AE curve shifts to AE2, a new equilibrium is established at point W, and the economy moves from point B to point C along AD0. c. The AE curve shifts to AE1, a new equilibrium is established at point U, and the economy moves from point B to point A along AD0. d. The AE curve shifts to AE2, a new equilibrium is established at point W, and the AD curve shifts from AD0 to AD1, and equilibrium moves from point B to point D.

Refer to Figure 23-1. Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V. The price level is P0. Now, suppose there is an increase in desired investment and no change in the price level. Which of the following statements describes the likely macroeconomic effects? a. The AE curve shifts up to AE2, the AD curve shifts to AD2, and a new equilibrium is established at point C, with real GDP at Y2. b. The AE curve shifts down to AE1, the AD curve shifts to AD1, and a new equilibrium is established at point F, with real GDP at Y1. c. The AE curve shifts to AE1, the AD curve shifts to AD1, and a new equilibrium is established at point E, with real GDP at Y2. d. The AE curve shifts to AE2, the AD curve shifts to AD1, and a new equilibrium is established at point F, with real GDP at Y2. e. The AE curve shifts to AE2, the AD curve shifts to AD2, and a new equilibrium is established at point E, with real GDP at Y2.

Refer to Figure 23-2. The shift from to shown in the diagram is referred to as a(n) a. Increase in aggregate supply. b. Increase in unit costs. c. Negative aggregate supply shock. d. Positive aggregate supply shock. e. Decrease in unit costs.

Refer to Figure 23-2. Which of the following events could cause the upward shift of the AS curve? a. A decrease in the price of raw materials b. A decrease in the world supply of oil as a result of a major hurricane c. Improved quality of the national education system d. Rapid technological advances in mass production e. An increase in consumption

Refer to Figure 23-2. Which of the following events could cause the upward shift of the AS curve? a. Improvements in communications technology b. A decrease in business confidence that reduces desired investment c. A recession in the U.S. that reduces our net exports d. A major discovery of new oil reserves that will increase the world supply e. A massive drought that reduces agricultural output

Refer to Figure 23-3. Suppose the price level in Economy A is above . Which of the following statements describes what would occur? a. The AD curve would shift to the right until macro equilibrium is reached. b. Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at . c. The amount of output supplied by firms is greater than total desired expenditure; excess supply will put downward pressure on the price level until it reaches macro equilibrium at . d. Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium. e. The AS curve would shift to the left until macro equilibrium is reached.

Refer to Figure 23-3. Which of the following statements best describes the supply side of Economy A in its current equilibrium position? a. Unit costs are rising, but firms can produce more output by employing standby capacity and overtime labour, for example, with no increase in the price level. b. Firms are producing well below their capacity and are willing to produce more only if prices rise. c. Unit costs are rising rapidly as firms are producing beyond their capacity. Firms will produce more only if prices increase. d. Firms are producing well below their capacity and are willing to produce more output with no increase in price. e. Unit costs are rising, but firms are able to produce more output because there is excess capacity in the economy.

Refer to Figure 23-3. Which of the following statements best describes the supply side of Economy B? a. Unit costs are rising rapidly, but firms can produce more output by employing standby capacity and overtime labour, for example, with no increase in the price level. b. Firms are producing well below their capacity and are willing to produce more only if prices rise. c. Unit costs are rising rapidly as firms are producing beyond their capacity. Firms will produce more only if prices increase. d. Firms are producing well below their capacity and are willing to produce more output with no increase in price. e. Firms are not able to produce more output because there is no excess capacity in the economy.

Refer to Figure 23-3. Which of the following statements correctly describes the difference between the multipliers (in response to an increase in autonomous expenditure) in Economy A and Economy B? The multiplier in Economy A is ________ while the multiplier in Economy B is ________. a. Very small; equal to one b. Very small; equal to the simple multiplier c. Equal to the simple multiplier; almost zero d. Equal to one; almost zero e. Equal to one; equal to the simple multiplier

Refer to Figure 23-3. Which of the two economies, A or B, will experience more volatile fluctuations in national income in response to aggregate demand shocks? a. Economies A and B will experience similar volatility because the slopes of the AD curves are the same. b. Economy A because the large fluctuations in the price level lead to large fluctuations in national income. c. Economy A because the multiplier is much larger than in Economy B. d. Economy B because the multiplier is much smaller than in Economy A. e. Economy B because output is purely demand determined, and there is no offsetting effect from a price level increase.

Refer to Figure 23-4. Suppose the Canadian economy is initially in equilibrium at point A. An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B. Which of the following events could cause such a shock? a. An increase in the net tax rate b. A decrease in firms' desired investment expenditures c. An increase in factor prices d. A decrease in labour productivity e. A decrease in the world price of oil

Refer to Figure 23-5. Suppose that an increase in autonomous investment by 40 causes the AD curve to shift to the right, as shown. The simple multiplier is ________ and the multiplier is ________. a. 6; 1.2 b. 2.8; 1.2 c. 4; 1.2 d. 5; 1.5 e. 4; 3.2

Refer to Figure 23-5. Suppose that an increase in autonomous investment caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 4, then how much was the increase in investment? a. 30 b. 40 c. 50 d. 12

Refer to Figure 23-5. Suppose that an increase in autonomous investment caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then what is the value of the multiplier? a. 1.2 b. 1.5 c. 4.0 d. 5.0 e. Not enough information to know

Refer to Figure 23-5. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right, as shown. The simple multiplier is ________ and the multiplier is ________. a. 6; 1.2 b. 2.8; 1.2 c. 4; 1.2 d. 4; 2.8 e. 4; 3.2

Refer to Figure 23-5. Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 4, then what is the value of the multiplier? a. 1.2 b. 1.4 c. 4 d. 2.8 e. 3.2

Refer to Figure 23-5. Suppose that an increase in government purchases caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then how much was the increase in government purchases? a. 30 b. 40 c. 50 d. 12

Refer to Figure 24-1. If the economy is currently in a short-run equilibrium at Y0, the economy is experiencing a. A recessionary output gap. b. An inflationary output gap. c. A labour shortage. d. A long-run equilibrium. e. Potential output growth.

Refer to Figure 24-1. If the economy is currently producing output of Y0 and the government initiates an expansionary fiscal policy adequate to close the output gap, the result is intended to be a. The vertical line at Y* will shift to the left, intersecting the AS and AD curves at Y0. b. No change in either price level or output, since expansionary fiscal policy is ineffective. c. That the AS curve will shift to the right until point A is reached. d. That the AS curve and the AD curve will shift left simultaneously. e. That the AD curve will shift to the right until point B is reached.

Refer to Figure 24-1. If the economy is currently producing output of Y0 and wages are sticky downwards, then the a. Economy will eventually move to point B. b. Economy will move only slowly toward point A as wages slowly adjust. c. Economy will quickly move to point A. d. Level of output will decrease below Y0. e. AD curve will eventually shift to the right and return the economy to its full-employment level of output.

Refer to Figure 24-1. If the economy is currently producing output of Y0, the economy's automatic adjustment process will have the a. AS curve shifting to the right until point A is reached. b. Vertical line at Y* shifting to the left until it gets to Y0. c. AD curve shifting to the right until point B is reached. d. Economy remaining where it is. e. Level of potential output falling.

Refer to Figure 24-1. Suppose the economy is currently in a short-run equilibrium with output of Y0. An appropriate fiscal policy response, to attain potential output (Y*), is a. An increase in personal income taxes. b. A reduction in government purchases of goods and services. c. An increase in corporate income taxes. d. An increase in government purchases. e. An increase in interest rates to encourage increased saving.

Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. A contractionary fiscal policy would restore the economy to potential output (Y*) by shifting the a. AS curve to the left to intersect AD at C. b. AS curve to the right. c. Potential GDP and the AS curve to the left. d. AD curve to the right. e. AD to the left to intersect AS at point A.

Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. An appropriate fiscal policy for attaining potential output (Y*) is a(n) a. Increase in personal and corporate tax rates. b. Increase in government spending. c. Increase in current consumption. d. Decrease in personal and corporate taxes. e. Decrease in current imports.

Refer to Figure 24-3. A negative shock to the economy shifts the AD curve from to . At the new short-run equilibrium, the price level is ________ and real GDP is ________. a 90; 900 b. 110; 800 c. 60; 1000 d. 60; 700 e. 90; 1250

Refer to Figure 24-3. After the negative aggregate demand shock shown in the diagram (from AD1 to AD2), which of the following describes the adjustment process that would return the economy to its long-run equilibrium? a. Wages would eventually fall, causing the AD curve to shift to the right, returning to the original equilibrium at point A. b. Wages would eventually fall, causing the AS curve to shift slowly to the right, reaching a new equilibrium at point E. c. Wages would increase, causing the AS curve to shift to the right, reaching a new equilibrium at point E. d. Wages would increase, causing the AD curve to shift to the right, returning to the original equilibrium at point A. e. Potential output would decrease from 1000 to 900 and a new long-run equilibrium would be established at point D.

Refer to Figure 24-3. Following the negative AD shock shown in the diagram (from AD1 to AD2 ), the adjustment process will take the economy to a long-run equilibrium where the price level is ________ and real GDP is ________. a. 110; 1000 b. 60; 1000 c. 90; 900 d. 110; 800 e. 90; 1250

Refer to Figure 24-3. Which of the following events could have shifted the AD curve from AD1 to AD2? a. An increase in net exports b. An increase in government purchases c. An increase in desired investment d. An increase in autonomous household saving e. An increase in autonomous consumption

Refer to Figure 24-4. After the positive aggregate supply shock shown in the diagram, which of the following would shift the AS curve leftward during the economy's adjustment process? a. An increase in factor supplies b. An increase in the unemployment rate c. A decrease in wages and other factor prices d. An increase in labour productivity e. An increase in wages and other factor prices

Refer to Figure 24-4. Following the positive AS shock shown in the diagram, the adjustment process will take the economy to a long-run equilibrium where the price level is ________ and real GDP is ________. a. 60; 1000 b. 60; 1300 c. 90; 750 d. 90; 1200 e. 110; 1000

Refer to Figure 24-4. The initial effect of the positive AS shock shown in the diagram results in a. A recessionary output gap of 250. b. A recessionary output gap of 450. c. An inflationary output gap of 200. d. An inflationary output gap of 300. e. An inflationary output gap of 550.

Refer to Figure 24-4. The positive aggregate supply shock shown in the diagram results in a new short-run equilibrium where the price level is ________ and real GDP is ________. a. 60; 1000 b. 60; 1300 c. 90; 750 d. 90; 1200 e. 110; 1300

Refer to Figure 24-5. Following a positive demand shock that takes the economy from E0 to E1, the movement of the economy from E1 to E2 indicates that a. A demand shock can keep real GDP above potential output permanently. b. An increase in the price level causes the AS curve to shift to the left. c. An increase in the price level causes the AD curve to shift to the left. d. The economy cannot return to potential output without government intervention. e. The output effect of a demand shock will be reversed in the long run when wages and prices are fully adjusted.

Refer to Figure 24-5. If the economy is currently in equilibrium at E3, the concept of asymmetrical adjustment of the AS curve suggests that a. The economy will attain potential output faster if there is no intervention by the government. b. A decrease in the price level will induce a rightward shift of AS. c. The return of the economy to potential output may be very slow without government intervention. d. The economy will never return to potential output. e. The price level is constant regardless of the level of equilibrium income.

Refer to Figure 24-5. The economy is not in long-run equilibrium at E1 because the a. AD1 curve will shift back to AD0 due to an increase in the price level. b. AD1 curve will shift back to the left due to a fall in current consumption. c. AS will shift to the left due to an increase in wages. d. AS will shift to the left due to an increase in the price level. e. AS will shift to the right due to a decrease in the price level.

Refer to Figure 24-6. If the government takes no action to change the short-run macro equilibrium in this economy, then a. The AD curve will shift downward until it intersects with the AS curve at point E. b. The AD curve will shift upward until it intersects with the AS curve at point C. c. The AS curve will shift to the left until it intersects with the AD curve at point D. d. The AS curve will shift to the right until it intersects with the AD curve at point B. e. The AS curve can either shift to the right or left depending on the fiscal policy.

Refer to Figure 24-6. In the initial short-run equilibrium, there is ________ output gap of ________ but this gap could be closed by a ________. a. A recessionary; 100; fiscal contraction b. A recessionary; 200; fiscal expansion c. A recessionary; 200; fiscal contraction d. An inflationary; 100; fiscal contraction e. An inflationary; 200; fiscal expansion

Refer to Figure 24-6. The government could close the existing output gap by a. Increasing the net tax rate. b. Decreasing the net tax rate. c. Decreasing government purchases. d. Decreasing government transfer payments. e. Implementing a contractionary fiscal policy.

Refer to Figure 24-7. If the government takes no action to close the existing output gap, then a. The AD curve will shift down until it intersects with the AS curve at point D. b. The AD curve will shift up until it intersects with the AS curve at point B. c. The AS curve will shift to the left until it intersects with the AD curve at point C. d. The AS curve will shift to the right until it intersects with the AD curve at point E. e. The AS curve can either shift to the right or left depending on the fiscal policy.

Refer to Figure 24-7. The government could close the existing output gap by a. Increasing the net tax rate. b. Decreasing the net tax rate. c. Increasing government purchases. d. Decreasing government transfer payments. e. Implementing an expansionary fiscal policy.

Refer to Figure 27-1. A leftward shift in the money demand curve can be caused by by a. An increase in the rate of interest. b. A decrease in the rate of interest. c. An increase in the price level. d. A decrease in real GDP. e. An increase in real GDP.

Refer to Figure 27-1. A rightward shift of the money demand curve can be caused by a. An increase in the price level. b. A decrease in the price level. c. A decrease in real GDP. d. An increase in the rate of interest. e. A decrease in the rate of interest.

Refer to Figure 27-1. Given the money demand curve, , a decrease in the quantity of money demanded from can be caused by a. An increase in the price level. b. A decrease in the price level. c. An increase in real GDP. d. An increase in the rate of interest. e. A decrease in the rate of interest.

Refer to Figure 27-1. Given the money demand curve, , an increase in the quantity of money demanded from to can be caused by a. An increase in the price level. b. A decrease in the price level. c. An increase in real GDP. d. An increase in the rate of interest. e. A decrease in the rate of interest.

Refer to Figure 27-2. If the interest rate is i1, the subsequent adjustment in the money market is as follows: a. Excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise. b. The MS curve will shift to the left so as to maintain the interest rate at i2. c. The interest rate will remain at i1 because the money market is in equilibrium at this interest rate. d. Excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall. e. Excess demand for money leads to a purchase of bonds, which in turn causes the interest rate to rise.

Refer to Figure 27-2. If the interest rate is i2, the subsequent adjustment in the money market is as follows: a. Excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise. b. MS curve will shift to the left as to maintain the interest rate at i2. c. The interest rate will remain at i2, because the money market is in equilibrium at this interest rate. d. Excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall to i0. e. Excess supply of money leads to the sale of bonds, which in turn causes the interest rate to fall.

Refer to Figure 27-2. Starting at equilibrium E0, an increase in real GDP will lead to a a. Shift of the MS curve to the left and an increase in the interest rate. b. Shift of the MS curve to the right and a fall in the interest rate. c. Downward movement along the MD curve and a lower interest rate. d. Shift of the MD curve to the left and a fall in the interest rate. e. Shift of the MD curve to the right and an increase in the interest rate.

Refer to Figure 27-2. Starting at equilibrium E0, an increase in the supply of money will result in the a. Shift of the MS curve to the left and an increase in the interest rate. b. Shift of the MS curve to the right and a fall in the interest rate. c. Downward movement along the MD curve and a higher interest rate. d. Shift of the MD curve to the left and a fall in the interest rate. e. Upward movement along the curve and a lower interest rate.

Refer to Figure 27-2. Suppose the market interest rate is . The situation in this market is as follows: a. Firms and households are attempting to increase their money holdings by selling bonds. b. Firms and households are attempting to decrease their money holdings by selling bonds. c. Firms and households are attempting to increase their money holdings by buying bonds. d. Firms and households are attempting to decrease their money holdings by buying bonds. e. The market is in equilibrium and no change will occur.

Refer to Figure 27-2. Suppose the market interest rate is i1. The situation in this market is as follows: a. Firms and households are attempting to increase their money holdings by selling bonds. b. Firms and households are attempting to decrease their money holdings by selling bonds. c. Firms and households are attempting to increase their money holdings by buying bonds. d. Firms and households are attempting to decrease their money holdings by buying bonds. e. The market is in equilibrium and no change will occur.

Refer to Figure 27-3. Part (i) of the figure shows the money market and the effect of an increase in the supply of money. The corresponding sequence of events in the bond market is as follows: The ________ of money at leads firms and households to ________ bonds, which leads to a(n) ________ in the price of bonds and a decrease in the interest rate. a. Excess demand; buy; increase b. Excess demand; sell; decrease c. Excess supply; buy; decrease d. Excess supply; sell; decrease e. Excess supply; buy; increase

Refer to Figure 27-3. The increase in desired investment expenditure, as shown by the movement from point A to point B, occurs because of a. A fiscal policy designed to encourage investment. b. An increase in the money supply. c. A change in sales, which increases inventory investment. d. An improvement in business confidence. e. A tax-rate induced change in desired investment.

Refer to Figure 27-3. The increase in the money supply from MS0 to MS1 shifts the monetary equilibrium from E0 to E1. The result is a. A decrease in the interest rate and an increase in desired investment. b. An increase in the interest rate and a decrease in desired investment. c. Sustained monetary disequilibrium. d. A shift of the investment demand curve to the right. e. A shift of the investment demand curve to the left.

Refer to Figure 27-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. The initial effect is a. A shift of the AD curve to AD1 and an increase in real GDP to Y1. b. A shift of the AS curve to AS1 and a decrease in real GDP to Y2. c. A shift of the AD curve to AD1, and then a shift back to AD0 to restore equilibrium at E0. d. A simultaneous shift of AD to AD1 and AS to AS1, resulting in a new equilibrium at E2. e. No change in the short-run equilibrium or level of real GDP.

Refer to Figure 27-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. What is the adjustment toward the new long-run equilibrium? a. The AD curve shifts to AD1. The inflationary gap causes prices to rise, AS shifts to AS1 and equilibrium is restored at E3. b. The AD curve shifts to AD1. The inflationary gap causes wages to rise, AS shifts to AS1 and equilibrium is restored at E2. c. The AS curve shifts to AS1 which causes the AD curve to shift to AD1, resulting in a new equilibrium at E2. d. The AD curve shifts to AD1. The increased money supply causes an increase in potential output and a new long-run equilibrium at E1. e. The AD and AS curves shift to AD1 and AS1 simultaneously. The increased price level pushes them back to AD0 and AS0 and equilibrium is restored at E0.

Refer to Figure 27-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. What is the long-run effect of this change? a. A higher price level b. A higher price level and higher real GDP c. Higher real GDP d. Lower real GDP e. No change in price level or real GDP

Refer to Figure 27-5. This economy begins in equilibrium with , and real GDP equal to potential GDP (with and ). At this initial equilibrium, the money supply is ________, the interest rate is ________, the price level is ________, and real GDP is ________. a. $500 billion; 2%; 104; $800 billion b. $500 billion; 2%; 102; $805 billion c. $500 billion; 4%; 100; $800 billion d. $540 billion; 3%; 100; $800 billion e. $540 billion; 4%; 104; $805 billion

Refer to Figure 27-5. This economy begins in equilibrium with , and real GDP equal to potential GDP (with and ). Now suppose there is an increase in the money supply to $540 billion. The initial response in this economy is a. An increase in the demand for money, causing a shift of the money demand curve to , and a fall in interest rate to 3%. b. An increase in the demand for money, causing a shift of the money demand curve to , and a fall in the interest rate to 2%. c. The AD and AS curves shift up simultaneously. d. A movement down along the money demand curve to a lower interest rate at 2%. e. An increase in the demand for money, causing a shift of the money demand curve to and the interest rate remains at 4%.

Refer to Figure 27-5. This economy begins in equilibrium with M0S, M0D and real GDP equal to potential GDP (with and ). Now suppose there is an increase in the money supply to $540 billion. After the initial effect on the interest rate, the next response in this economy is as follows: a. The lower interest rate stimulates investment demand, which causes the AD curve to shift to . Real GDP rises to $805 billion and the price level rises to 102. b. The lower interest rate stimulates an increase in the demand for money, which causes the MD curve to shift to . The interest rate rises to 3%. c. The lower interest rate causes wages and other factor prices to rise, which causes the AS curve to shift to . Real GDP falls to $795 billion and the price level rises to 102. d. The higher interest rate causes wages and other factor prices to rise, which causes the AS curve to shift to . Real GDP falls to $795 billion and the price level rises to 102.

Refer to Figure 27-5. This economy begins in equilibrium with M0S, M0D and real GDP equal to potential GDP (with and ). Now suppose there is an increase in the money supply to $540 billion. The short-run effects of this increase lead to the opening of a(n) ________ gap of ________. a. Recessionary; $5 billion b. Recessionary; $10 billion c. Inflationary; $5 billion d. Inflationary; $10 billion e. There is no output gap.

Refer to Figure 28-1. If the Bank of Canada pursues a(n) ________ monetary policy and raises the target interest rate from 2% to 3%, then the quantity of money demanded will ________. a. Contractionary; rise b. Contractionary; fall c. Expansionary; not change d. Expansionary; rise e. Expansionary; fall

Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as shown in part (i), then it must accommodate the resulting ________ in quantity of money demanded by ________ in financial markets. a. Increase; selling government securities b. Decrease; selling government securities c. Increase; buying government securities d. Decrease; buying government securities

Refer to Figure 28-1. If the Bank of Canada's goal is to increase the target interest rate from 2% to 3%, then the most effective approach is to a. Reduce the money supply to , as shown in part (ii), and then let the interest rate adjust to 3%. b. Increase the money supply to , as shown in part (ii), and then let the interest rate adjust to 3%. c. Allow the money supply to shift to by market forces, which will cause the interest rate to rise to 3%. d. Raise the interest rate to 3%, as shown in part (i), and then buy government securities in financial markets to accommodate the decline in the quantity of money demanded. e. Raise the interest rate to 3%, as shown in part (i), and then sell government securities in financial markets to accommodate the decline in the quantity of money demanded.

Refer to Figure 28-1. One advantage of implementing monetary policy by targeting the interest rate as shown in part (i), rather than targeting the money supply as shown in part (ii), is that a. It is easier to get political support for changes in interest rates than for changes in the money supply. b. It is almost impossible to change the money supply without passing new legislation. c. The overall change in interest rates, and thus on aggregate demand, is more certain. d. Changes in interest rates have a stronger impact on aggregate demand than do changes in the money supply. e. The position and slope of the money demand curve are known with certainty.

Refer to Figure 28-1. The Bank of Canada must be able to easily communicate its monetary policy actions to the public. Which approach is more amenable to this requirement, and why? a. Part (ii) - targeting the money supply: because an announcement of a 1% decrease in the money supply is more easily understood than an increase in the interest rate. b. Part (i) - targeting the interest rate: because the Bank of Canada can more easily instruct the commercial banks to raise their interest rates. c. Part (ii) - targeting the money supply: because the public can more easily understand that a decrease in reserves in the banking system makes it more difficult to get a loan or mortgage. d. Part (i) - targeting the interest rate: because changes in the interest rate are much more meaningful and understandable to the public than changes in the money supply.

Refer to Table 20-1. What is the value of GDP, as calculated from the expenditure side? a. $1982.60 b. $1986.00 c. $2010.00 d. $2285.20 e. $2584.40

Refer to Table 20-2. What is the value of GDP, as calculated from the expenditure side? a. $3936 b. $3904 c. $3866 d. $3784 e. $3708

Refer to Table 20-2. What is the value of GDP, as calculated from the income side? a. $3866 b. $3590 c. $3968 d. $3784 e. $3708

Refer to Table 20-2. What is the value of net domestic income at factor cost? a. $3626 b. $3869 c. $3936 d. $3728 e. $3904

Refer to Table 20-3. What is the value of GDP, as calculated from the expenditure side? a. $12 134 b. $11 482 c. $11 208 d. $10 605 e. $9244

Refer to Table 20-3. What is the value of GDP, as calculated from the income side? a. $9494 b. $11 094 c. $9244 d. $8819 e. $10 606

Refer to Table 20-3. What is the value of net domestic income at factor cost? a. $9244 b. $9494 c. $8292 d. $8331 e. $8167

Refer to Table 20-4. What is the value of GDP, as calculated from the income side? a. $1982.60 b. $1986.00 c. $2010.00 d. $2285.20 e. $2584.40

Refer to Table 20-4. What is the value of net domestic income at factor cost? a. $1711.60 b. $1811.40 c. $1840.40 d. $1910.80 e. $2004.80

Refer to Table 20-4. When calculating GDP from the income side, we need to add together the following items from the data provided: a. Interest and investment income, business profits, depreciation, indirect taxes less subsidies. b. Wages and salaries, business profits, indirect taxes less subsidies. c. Investment expenditure, consumption expenditure, net exports. d. Interest and investment income, business profits, depreciation. e. Wages and salaries, interest and investment income, business profits, depreciation, indirect taxes less subsidies.

Refer to Table 20-5. Assume the output of all three goods is consumed in the country, and there are no imported goods and services. If 2015 is used as the base year, then the consumer price index (CPI) in 2016 was approximately a. 102. b. 180. c. 179. d. 193. e. 418.

Refer to Table 20-6. What is the real GDP for 2015 if 2005 is the base year? a. $6750 b. $7975 c. $9000 d. $10 500 e. $20 100

Refer to Table 20-7. The growth rate of real output from 2014 to 2015 is a. 1.03%. b. 1.84%. c. 3.25%. d. 3.41%. e. 4.27%.

Refer to Table 20-7. The implicit GDP deflator for 2015 is approximately a. 94. b. 107. c. 108. d. 109. e. 110.

Refer to Table 20-8. The implicit GDP deflator in 2015 (using 2014 as the base year) is a. 71.59. b. 100. c. 103.4. d. 114.6. e. 139.7.

Refer to Table 20-8. The implicit GDP deflator in 2015 (using 2015 as the base year) is a. 71.59. b. 100. c. 103.4. d. 114.6. e. 139.7.

Refer to Table 20-8. The nominal Gross Domestic Product in 2015 was a. $1760. b. $1500. c. $1300. d. $1260. e. $410.

Refer to Table 20-8. The real GDP in 2015, expressed in 2014 prices, was a. $1760. b. $1500. c. $1300. d. $1260. e. $410.

Refer to Table 24-1. Consider Economy E. Which of the following best describes the positions of the aggregate demand and aggregate supply curves in this economy? a. The AD curve has shifted to the right and the economy is in a short-run disequilibrium position. b. The AS curve has shifted to the left and the economy is in a short-run disequilibrium position. c. The intersection of the AD and AS curves is to the right of Y*. d. The intersection of the AD and AS curves is to the left of Y*. e. The intersection of the AD and AS curves coincide with the long-run aggregate supply curve.

Refer to Table 24-1. How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E? a. The size of the output gap is the same in Economies A and E, but wages are rising in A and falling in E. b. The output gap is larger in Economy A, yet wages are changing more slowly. c. The output gap is much larger in Economy E, so wages are changing at a faster rate. d. The size of the output gap is the same in Economies A and E but wages are falling more slowly in A than they are rising in E. e. There is insufficient data with which to observe the adjustment asymmetry.

Refer to Table 24-1. In which economy is there the most unused capacity? a. Economy A b. Economy B c. Economy C d. Economy D e. Economy E

Refer to Table 24-1. Which of the economies are experiencing an inflationary gap? a. Economies A and B b. Economies B and C c. Economies C and D d. Economies D and E e. None of the economies

Refer to Table 24-1. Which of the economies is operating at its long-run equilibrium? a. Economy A b. Economy B c. Economy C d. Economy D e. Economy E

Refer to Table 24-1. Which of the following statements best describes the situation facing Economy B? a. There is a recessionary gap of $40 billion and wages are falling slowly. b. There is an inflationary gap of $40 billion and wages are rising. c. There is a recessionary gap of $20 billion and wages are falling slowly. d. There is no output gap and wages are stable. e. There is an output gap of $20 billion and wages are rapidly adjusting.

Refer to Table 24-1. Which of the following statements explains why wages are rising in Economy E? a. The inflationary gap generates lower profits for firms because workers are demanding higher wages. b. The inflationary gap generates excess demand for labour, which causes wages to rise. c. The aggregate supply curve is shifting to the right, which is causing wages to rise. d. The aggregate demand curve is shifting to the right, causing wages to rise. e. Potential output is rising, putting upward pressure on wages.

Refer to Table 26-1. What are the total assets on the balance sheet of this commercial bank? a. 2410 b. 2520 c. 2810 d. 2960 e. 3160

Refer to Table 26-1. What are the total liabilities on the balance sheet of this commercial bank? a. 2410 b. 2520 c. 2810 d. 2960 e. 3160

Refer to Table 26-2. Assume that Bank North is operating at its target reserve ratio and has no excess reserves, and that all commercial banks have the same target reserve ratio. If a new deposit to the Canadian banking system of $400 is deposited at Bank North, the total new deposits created in the banking system can be calculated as follows: a. 300/0.136 = $2205.88. b. 400/0.15 = $2666.67. c. 400/0.12 = $3333.33. d. 700/0.12 = $5833.33. e. Not enough information to determine.

Refer to Table 26-2. Assume that Bank North is operating at its target reserve ratio and has no excess reserves. If Bank North receives a new deposit of $400, it can immediately expand its loans by ________ while maintaining its target reserve ratio. a. $260 b. $272 c. $340 d. $400 e. $700

Refer to Table 26-2. Assume that Bank North is operating with no excess reserves. What is their actual reserve ratio? a. 12% b. 13.67% c. 15% d. 20% e. 25%

Refer to Table 26-2. If Bank North receives a new deposit of $400, its actual reserve ratio immediately becomes a. 7%. b. 15%. c. 25%. d. 29%. e. 35%.

Refer to Table 26-2. What are the income-earning assets for Bank North? a. Reserves b. Loans c. Deposits d. Capital e. Liabilities

Refer to Table 26-3. Assume that Bank West is operating at its target reserve ratio and has no excess reserves, and that all commercial banks have the same target reserve ratio. If a new deposit to the Canadian banking system of $1500 is deposited at Bank West, the total new deposits created in the banking system can be calculated as follows: a. 1500/0.06 = $25 000. b. 1500/0.025 = $60 000. c. 1500/0.024 = $62 500. d. 2000/0.025 = $80 000. e. 2000/0.06 = $33 333.

Refer to Table 26-3. Assume that Bank West is operating at its target reserve ratio and has no excess reserves. If Bank West receives a new deposit of $1500, it can immediately expand its loans by ________ while maintaining its target reserve ratio. a. $1387.50 b. $1410 c. $1462.50 d. $1464 e. $1500

Refer to Table 26-3. Assume that Bank West is operating with no excess reserves. What is its actual reserve ratio? a. 2.5% b. 2.4% c. 5.7% d. 6% e. 10%

Refer to Table 26-3. If Bank West receives a new deposit of $1500, its actual reserve ratio immediately becomes a. 6%. b. 7.5%. c. 10%. d. 12.6%. e. 33.3%.

Refer to Table 26-3. What are the reserves held by Bank West? a. $500 b. $700 c. $1200 d. $19 800 e. $21 000

Refer to Table 26-4. Bank XYZ is immediately in a position to expand its loans by a. $1.25 million. b. $3.75 million. c. $5 million. d. $15 million. e. $20 million.

Refer to Table 26-4. If Bank XYZ increases its loans to the maximum extent possible with its new excess reserves, the second-generation banks will be able to expand their loans by a. $0.94 million. b. $1.00 million. c. $1.50 million. d. $2.81 million. e. $3.75 million.

Refer to Table 26-4. Suppose the public decides to hold 15% of their deposits in cash — that is, there is now a cash drain of 15%. As a result of the new deposit, the money supply would eventually a. Increase by $3.75 million. b. Increase by $12.50 million. c. Decrease by $12.50 million. d. Decrease by $20.00 million. e. Not change.

Refer to Table 26-5. Bank XYZ is immediately in a position to a. Decrease its loans by $100 million. b. Decrease its loans by $10 million. c. Decrease its loans by $9 million. d. Increase loans by $9 million. e. Increase loans by $10 million

Refer to Table 26-6. Assume that Northern Bank's target reserve ratio is 10%. In order to achieve its target reserve ratio, Northern Bank must ________ and ________. a. Increase its reserves by $200; decrease its deposits by $200 b. Increase its reserves by $400; decrease its deposits by $400 c. Not change its reserves; not change its deposits d. Increase its reserves by $200; decrease its loans by $200 e. Increase its reserves by $400; increase its loans by $800

Refer to Table 26-6. Assume that Northern Bank's target reserve ratio is 10%. What is it's actual reserve ratio? a. 6.67% b. 7.1% c. 8.0% d. 9.1% e. 10.0%

Refer to Table 26-6. Assume that Northern Bank's target reserve ratio is 10%. What is its current level of excess reserves? a. - $320 b. - $200 c. $0 d. $320 e. $200

Refer to Table 26-6. Northern Bank holds cash in its vault and has some deposits in its account at the central bank. Under which category on its balance sheet are these funds included? a. Reserves b. Loans c. Liabilities d. Deposits e. Capital

Refer to Table 26-6. Owners of Northern Bank contributed money to start the bank. Under which category of it's balance sheet do these funds fall? a. Reserves b. Loans c. Assets d. Deposits e. Capital

Since 1960, in Canada the price level has ________, while the rate of inflation has ________. a. Fluctuated widely; been relatively stable b. Fluctuated widely; also fluctuated widely c. Been rising steadily; been quite volatile d. Been rising steadily; been relatively stable e. Been quite volatile; been rising steadily

Speculative demand for money arises from the desire by individuals and firms to hold cash balances a. For speculative equity purchases. b. In anticipation of changes in interest rates and bond prices. c. To meet unforeseen business expenses. d. In anticipation of investing in capital purchases for the firm. e. To maintain adequate cash flow in case of inflation.

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 $250. b. Leave the value of national product unchanged. c. Increase the value of national product by $150. d. Decrease the value of national product by $100. e. There is insufficient information to know.

Suppose Bank ABC has a target reserve ratio of 10%. If Bank ABC receives a new deposit of $100 000 it will immediately find itself with a. No excess cash reserves. b. Excess cash reserves of $10 000. c. Excess cash reserves of $90 000. d. Excess cash reserves of $100 000. e. Excess cash reserves equal to 10% of its deposits.

Suppose Bank ABC has a target reserve ratio of 2%. If Bank ABC receives a new deposit of $50 million it will immediately find itself with a. No excess cash reserves. b. Excess cash reserves of $1 million. c. Excess cash reserves of $10 million. d. Excess cash reserves of $49 million. e. Excess cash reserves of $49.5 million.

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is a decrease in the Canadian price of all imported raw materials. In the short run, ________. In the long run, ________. a. Real GDP and the price level both fall; real GDP is below its original level with a lower price level b. Real GDP and the price level both rise; real GDP is above its original level with a higher price level c. Real GDP and the price level both rise; real GDP returns to its original level with a higher price level d. Real GDP rises and the price level falls; real GDP and the price level return to their original levels e. Real GDP falls and the price level rises; real GDP is below its original level with a higher price level

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is an increase in the Canadian-dollar price of all imported raw materials. In the short run, ________. In the long run, ________. a. Real GDP and the price level both fall; real GDP is below its original level with a lower price level b. Price level both rise; real GDP is above its original level with a higher price level c. Real GDP and the price level both rise; real GDP returns to its original level with a higher price level d. Real GDP rises and the price level falls; real GDP returns to its original level with a lower price level e. Real GDP falls and the price level rises; real GDP and the price level return to their original levels

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is an increase in world demand for Canada's goods. In the short run, ________. In the long run, ________. a. Real GDP and the price level both fall; real GDP is below its original level with a lower price level b. Real GDP and the price level both rise; real GDP is above its original level with a higher price level c. Real GDP and the price level both rise; real GDP returns to its original level with a higher price level d. Real GDP rises and the price level falls; real GDP returns to its original level with a lower price level e. Real GDP falls and the price level rises; real GDP is below its original level with a higher price level

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output. Now suppose there is an unexpected and sharp reduction in desired business investment expenditure. In the short run, ________. In the long run, ________. a. Real GDP and the price level both fall; real GDP is at its original level with a lower price level b. Real GDP and the price level both fall; real GDP is above its original level with a higher price level c. Real GDP and the price level both rise; real GDP returns to its original level with a higher price level d. Real GDP rises and the price level falls; real GDP returns to its original level with a lower price level e. Real GDP falls and the price level rises; real GDP is below its original level with a higher price level

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; more b. Appreciation; fewer c. Depreciation; more d. Depreciation; fewer

Suppose Canada's exchange rate with the U.S. dollar increases from 1.14 to 1.22. Which of the following is likely to happen? a. More Canadians will cross the border to shop in the U.S. b. It is less expensive for Canadians to shop online from U.S. retailers. c. Fewer Canadians will cross the border to shop in the U.S. d. The Canadian dollar value of Canada's imports from the U.S. will fall. e. The Canadian dollar value of Canada's exports to the U.S. will fall.

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. Appreciation; fewer c. Depreciation; more d. Depreciation; fewer

Suppose Canadian real GDP is currently equal to potential GDP. Then the Canadian dollar depreciates due to the reduced demand by European producers to purchase Canadian-made raw materials. If the Bank of Canada is committed to its inflation target then it should a. Implement an expansionary monetary policy by increasing its target for the overnight interest rate. b. Implement an expansionary monetary policy by decreasing its target for the overnight interest rate. c. Not intervene in the economy at all since this shock will not have any real effects in the short run. d. Implement a contractionary monetary policy by increasing its target for the overnight interest rate. e. Implement a contractionary monetary policy by decreasing its target for the overnight interest rate.

Suppose Canadian real GDP is currently equal to potential GDP. Then, because of events elsewhere in the world, European investors decide to hold fewer Canadian financial assets, which leads to a sustained depreciation of the Canadian dollar. If the Bank of Canada is committed to its inflation target then it should a. Implement an expansionary monetary policy by increasing its target for the overnight interest rate. b. Implement an expansionary monetary policy by decreasing its target for the overnight interest rate. c. Not intervene in the economy at all since this shock will not have any real effects in the short run. d. Implement a contractionary monetary policy by increasing its target for the overnight interest rate. e. Implement a contractionary monetary policy by decreasing its target for the overnight interest rate.

Suppose Canadian real GDP is equal to potential GDP. A significant and sustained appreciation of the Canadian dollar on the foreign-exchange market then requires the Bank of Canada to a. Engage in expansionary monetary policy to counter the rise in the dollar. b. Engage in contractionary monetary policy to counter the rise in the dollar. c. Identify the cause of the change in the exchange rate before taking any action to adjust policy. d. Increase the target band for the inflation rate. e. Increase the target band for the overnight lending rate.

Suppose Canadian real GDP is equal to potential GDP. A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in a contractionary monetary policy if the Bank's policy experts traced the cause of the appreciation to a. A decrease in the overnight lending rate. b. An increase in the desire of non-residents to purchase Canadian financial assets. c. An increase in the desire of non-residents to purchase more Canadian goods and services. d. A reduction in Canada's core inflation rate. e. A recession in Canada.

Suppose Canadian real GDP is equal to potential GDP. A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in an expansionary monetary policy if the Bank's policy experts traced the cause of the appreciation to a. A decrease in the overnight lending rate. b. An increase in the desire of non-residents to purchase Canadian financial assets. c. An increase in the desire of non-residents to purchase more Canadian goods and services. d. A reduction in Canada's core inflation rate. e. A recession in Canada.

Suppose Canadian real GDP is equal to potential GDP. An appreciation of the Canadian dollar then implies that the Bank of Canada should engage in a. A loosening of monetary policy because of the excess demand for Canadian products that is creating the appreciation. b. A tightening of monetary policy because of the excess demand for Canadian products that is creating the appreciation. c. No change in monetary policy because the exchange rate is always allowed to float freely. d. An increase in inflation because of the higher cost of imports. e. Either a contractionary or an expansionary policy, depending on the cause of the appreciation.

Suppose a Canadian firm imports $1000 worth of bananas and sells them for $2000. The effect on Canadian GDP would be a. To decrease the value of GDP by $3000. b. To increase the value of GDP by $3000. c. To increase the value of GDP by $2000. d. To increase the value of GDP by $1000. e. No effect on GDP since the bananas were produced outside Canada.

Suppose a Canadian firm imports $5000 worth of frisbees from China and sells them for $10 000. The effect on GDP would be a. To decrease the value of GDP by $15 000. b. To increase the value of GDP by $15 000. c. To increase the value of GDP by $10 000. d. To increase the value of GDP by $5000. e. No effect on GDP since the frisbees were produced outside of Canada.

Suppose a Government of Canada bond is being offered in financial markets at a price that is higher than its present value. We can expect that a. The price of the bond will rise further. b. The face value of the bond will be adjusted to a lower value. c. The relatively high demand for the bond will cause its present value to rise. d. The lack of demand for this bond will cause its price to fall. e. The face value of the bond will be adjusted to a lower value.

Suppose a Government of Canada bond is being offered in financial markets at a price that is lower than its present value. We can expect that a. The lack of demand for this bond will cause its present value to fall. b. The price of the bond will fall further. c. The relatively high demand for this bond will cause its price to rise. d. The face value of the bond will be adjusted to a lower value. e. The face value of the bond will be adjusted to a higher value.

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million. This bank's ________ is/are $75 million. a. Profits b. Fractional reserves c. Excess reserves d. Reserve ratio e. Cash drain

Suppose a commercial bank has a target reserve ratio of 1%, but has an actual reserve ratio of 0.8%. This bank will likely a. Expand its portfolio of loans. b. Contract its portfolio of loans. c. Maintain its new, higher reserve ratio because it is more profitable. d. Buy government securities from the Bank of Canada. e. Allow fewer cash withdrawals by the bank's customers.

Suppose an economic analyst suggests that investors should now hold cash instead of stocks or bonds. The analyst is probably encouraging an increase in money balances for which reason? a. Transaction demand b. Precautionary demand c. Speculative demand d. Present value demand e. Portfolio demand

Suppose an economy has two types of money — gold and silver coins — that are both legal tender but have different non-monetary values. Gresham's law has come into effect when a. People refuse to use the coins of lesser value. b. The value of the coins is in the same ratio as their non-monetary values. c. The lower-valued coin is taken out of circulation. d. The higher-valued coin is taken out of circulation. e. People use the higher-valued coins for exchange and the lower-valued for savings.

Suppose firms are currently producing output at a level beyond their normal capacity. In this situation, the AS curve will be relatively ________ and a positive AD shock will result in ________. a. Steep; an increase in the price level with a small increase in real GDP b. Flat; an equal increase in the price level and in real GDP c. Flat; a very small increase in prices but a large increase in real GDP d. Flat; a very small decrease in the price level and a decrease in real GDP e. Steep; a decrease in the price level and a very small decrease in real GDP

Suppose national accounting was done by adding up the market values of all outputs of all firms. This approach would a. Accurately reflect the value of production in the economy. b. Obtain gross domestic product. c. Obtain gross national product. d. Underestimate the value of production in the economy. e. Overestimate the value of production in the economy.

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%. b. 3.3%. c. 4.5%. d. 6.7%. e. 9.0%.

Suppose that at a given interest rate and money supply, all firms and households simultaneously try to add to their money balances. They do this by trying to ________, which causes an excess ________, which causes a(n) ________, and finally a(n) ________ in the interest rate. a. Sell bonds; supply of bonds; increase in the price of bonds; decrease b. Buy bonds; supply of bonds; decrease in the price of bonds; increase c. Sell bonds; demand for bonds; increase in the price of bonds; decrease d. Buy bonds; demand for bonds; increase in the price of bonds; decrease e. Sell bonds; supply of bonds; decrease in the price of bonds; increase

Suppose that at a given interest rate and money supply, all firms and households simultaneously try to reduce their money balances. They do this by trying to ________, which causes an excess ________, which causes a(n) ________, and finally a(n) ________ in the interest rate. a. Sell bonds; supply of bonds; increase in the price of bonds; decrease b. Buy bonds; supply of bonds; decrease in the price of bonds; increase c. Sell bonds; demand for bonds; increase in the price of bonds; decrease d. Buy bonds; demand for bonds; increase in the price of bonds; decrease e. Sell bonds; supply of bonds; decrease in the price of bonds; increase

Suppose that in 2015, ABC Corporation produced $6 million worth of natural gas pipes but was able to sell only $5 million worth. Is the remaining $1 million of unsold pipes part of GDP for 2015? a. Yes, since changes in inventories are part of consumption expenditures. b. Yes, since they are part of the economy's output in 2015. c. No, since changes in inventories are part of actual investment. d. No, since they are part of the economy's output only when sold. e. No, since they are added to existing inventories.

Suppose that in 2015, Canada Cars Corporation produced $20 million worth of cars and trucks but was able to sell only $16 million worth. Is the remaining $4 million increase in inventories part of GDP for 2015? - Yes, since changes in inventories are part of consumption expenditures. - Yes, since they are part of the economy's output in 2015. - Yes, since changes in inventories are part of actual investment. a. 1 only b. 2 only c. 3 only d. Both 1 and 2 e. Both 2 and 3

Suppose that nominal national income in some country fell from $100 billion to $95 billion during the year. Over the same period, inflation was 5%. Therefore the real national income in this country a. Fell by 10%. b. Fell by 5%. c. Was unaffected. d. Rose by 5%. e. Rose by 10%.

Suppose that nominal national income in some country increased by 10% during the year, when inflation was 5%. Therefore the real national income a. Fell by 10%. b. Fell by 5%. c. Was unaffected. d. Rose by 5%. e. Rose by 10%.

Suppose that the cash drain in the banking system increases during holiday periods. As a result, a. The capacity of the banking system to create deposit money is dampened during holiday periods. b. The capacity of the banking system to create deposit money is increased during holiday periods. c. Commercial banks decrease their target reserve ratios. d. Changes in reserves will result in no change in deposits during holiday periods. e. The money supply will automatically increase.

Suppose that the economy is initially in a long-run macroeconomic equilibrium. A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases. We can conclude that ________ has increased and there is now a(n) ________ gap. a. Aggregate supply; inflationary b. Aggregate demand; recessionary c. Aggregate supply; recessionary d. Aggregate demand; inflationary

Suppose that the economy is initially in a long-run macroeconomic equilibrium. A shock then hits the economy and we observe that the unemployment rate increases and the price level decreases. We can conclude that ________ has decreased and there is now a(n) ________ gap. a. Aggregate supply; inflationary b. Aggregate demand; recessionary c. Aggregate supply; recessionary d. Aggregate demand; inflationary

Suppose that the economy is initially in a long-run macroeconomic equilibrium. A shock then hits the economy and we observe that the unemployment rate increases and the price level increases. We can conclude that ________ has decreased and there is now a(n) ________ gap. a. Aggregate supply; inflationary b. Aggregate demand; recessionary c. Aggregate supply; recessionary d. Aggregate demand; inflationary

Suppose the Bank of Canada announces its target for the overnight interest rate at 2.75%. What is the Bank's target range for the overnight interest rate? a. 1.75 - 3.75% b. 2.25 - 3.25% c. 2.5 - 3.00% d. 2.7 - 2.8% e. 2.74 - 2.76%

Suppose the Bank of Canada increases its target for the overnight interest rate by 0.25 percentage points. In this situation, the Bank will likely need to accommodate the resulting change in the demand for money by a. Increasing the supply of money by buying government securities on the open market. b. Increasing the supply of money by selling government securities on the open market. c. Decreasing the supply of money by buying government securities on the open market. d. Decreasing the supply of money by selling government securities on the open market. e. Maintaining the current supply of money which will increase the effectiveness of the change in the overnight interest rate.

Suppose the Bank of Canada is criticized for implementing a contractionary monetary policy at a time when the inflation rate is at or near its target level. One explanation for this policy decision is likely that A) the Bank regularly maintains a contractionary policy stance in order to keep inflation at or near its target. B) it is extremely difficult to predict future events and a contractionary policy is the safest policy choice. C) the Bank anticipates a decrease in Canadian net exports and is acting now because of the unavoidable time lags. D) the Bank anticipates a decrease in investment spending and is acting now because of the unavoidable time lags. E) the Bank anticipates a rise in inflation and is acting now because of the unavoidable time lags.

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term interest rates in the market fall as a result. When this occurs, the commercial banks respond to a. An increase in the demand for loans by buying government securities from the Bank of Canada, against which they can extend new loans. b. An increase in the demand for loans by selling government securities to the Bank of Canada in exchange for cash, with which they can extend new loans. c. A decrease in the demand for loans by selling government securities to the Bank of Canada and calling in existing loans. d. A decrease in the demand for loans by buying government securities from the Bank of Canada in exchange for cash, and calling in existing loans. e. An increase in the demand for loans by borrowing cash from the Bank of Canada with which they can extend new loans.

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term rates in the market fall as a result. Households' and firms' demand for new loans from the commercial banks would ________. In order to make the new loans, the commercial banks require more ________. a. Rise; government securities b. Fall; currency c. Rise; cash reserves d. Remain stable; excess reserves e. Fall; excess reserves

Suppose the Bank of Canada raises its target for the overnight interest rate and longer-term rates in the market rise as a result. Households' and firms' demand for loans from the commercial banks would ________. In order to accommodate this change, the commercial banks require ________. a. Rise; more government securities b. Fall; more cash reserves c. Rise; more currency d. Remain stable; no change to their reserves e. Fall; fewer cash reserves

Suppose the Bank of Canada reduces its target for the overnight interest rate by 0.50 percentage points. In this situation, the Bank will likely need to accommodate the eventual resulting change in the demand for money by a. Increasing the supply of money by buying government securities on the open market. b. Increasing the supply of money by selling government securities on the open market. c. Decreasing the supply of money by buying government securities on the open market. d. Decreasing the supply of money by selling government securities on the open market. e. Maintaining the current supply of money which will increase the effectiveness of the change in the overnight interest rate.

Suppose the Bank of Canada were to implement an expansionary monetary policy by buying government securities on the open market, thereby increasing cash reserves in the banking system. If the commercial banks do not expand their lending in response, then - There would be no change in the money supply at all; - The Bank of Canada could force the commercial banks to expand their lending, based on regulations in the Bank Act; - The increase in the overall money supply would be smaller than the Bank of Canada may have intended. a. 1 only b. 2 only c. 3 only d. 1 or 2 e. 2 or 3

Suppose the Bank of Canada's announced target for the overnight interest rate is 2.75%. Why should we expect commercial banks to borrow and lend overnight funds at a rate very close to this target? a. Because the Bank of Canada Act requires that commercial banks borrow from each other at a rate no higher than 0.25% above the target rate. b. Because commercial banks know that they can borrow from the Bank of Canada at 3.00%, and lend to the Bank at 2.50% so the rate they charge each other will stay within that range. c. Because the Bank of Canada chooses its target rate based on the anticipated borrowing needs of the commercial banks. d. Because it is not legal for commercial banks to transact between each other at any rate outside of the Bank of Canada's target range. e. Because commercial banks face regulatory obstacles if they borrow from each other at any rate outside of the Bank of Canada's target range.

Suppose the Bank of Montreal wants a 4% real rate of return on all its loans, and anticipates an annual inflation rate of 6%. It should therefore lend its money at a nominal interest rate of a. 10%. b. 9%. c. 5%. d. 4%. e. 1%.

Suppose the Bank of Montreal wants a 5% real rate of return on all its loans, and anticipates an annual inflation rate of 4%. It should therefore lend its money at a nominal interest rate of a. 10%. b. 9%. c. 5%. d. 4%. e. 1%.

Suppose the Canadian banking system jointly has $20 million in reserves (cash and deposits at the Bank of Canada), all banks have a target reserve ratio of 20%, and there are no excess reserves. What is the amount of deposits in the banking system? a. $4 million b. $40 million c. $80 million d. $100 million e. $120 million

Suppose the Canadian economy had a recessionary gap. To increase the level of desired aggregate expenditure, the Bank of Canada could a. Raise the bank rate. b. Increase its spending. c. Increase the reserve requirements of the commercial banks. d. Sell securities in the open market. e. Reduce its target for the overnight interest rate.

Suppose the Canadian economy had an inflationary gap. To decrease the level of aggregate desired investment, the Bank of Canada could a. Buy securities in the open market. b. Lower short-term interest rates. c. Reduce its spending. d. Raise its target for the overnight interest rate. e. Raise the price level.

Suppose the actual overnight interest rate is 3.5%. If the Bank of Canada raises its target for the overnight interest rate to 4%, and longer-term interest rates in the market rise as a result, a. The demand for loans from commercial banks falls, the commercial banks sell government securities to the Bank of Canada, and the money supply falls. b. The demand for loans from commercial banks rises, the commercial banks buy government securities from the Bank of Canada, and the money supply falls. c. The demand for loans from commercial banks rises, the commercial banks sell government securities to the Bank of Canada, and the money supply rises. d. The demand for loans from commercial banks falls, the commercial banks buy government securities from the Bank of Canada, and the money supply falls. e. The demand for loans from commercial banks rises the commercial banks buy government securities from the Bank of Canada, and the money supply rises.

Suppose the actual overnight interest rate is 4%. If the Bank of Canada lowers its target for the overnight rate to 3.75%, the money supply will eventually a. Increase as a result of open-market operations. b. Increase as a result of an increase in excess reserves in the banking system. c. Decrease as a result of an increase in excess reserves in the banking system. d. Decrease as a result of open-market operations. e. Decrease as a result of a decrease in the demand for new loans.

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. 30 000 b. 420 000 c. 425 000 d. 445 000 e. 450 000

Suppose the economy begins in a long-run equilibrium with Y = Y*. A permanent increase in aggregate demand will have its short-run effect on real GDP reversed in the long run with a ________ shift of ________. a. Rightward; the aggregate supply curve b. Rightward; the aggregate demand curve c. Leftward; the aggregate supply curve d. Leftward; the aggregate demand curve e. Rightward; Y*

Suppose the economy has a high level of unemployment and a low level of aggregate output. Which of the following policies could the government implement to alleviate these conditions? a. An expansionary fiscal policy that increases tax rates b. A contractionary fiscal policy that increases government purchases c. Automatic fiscal stabilizers d. A contractionary fiscal policy that increases tax rates e. An expansionary fiscal policy that increases government purchases

Suppose the economy is experiencing a significant recessionary gap, but it has taken the government six months to determine that it will change fiscal policy. This is an example of a. An execution lag. b. Fine tuning. c. Gross tuning. d. A decision lag. e. Automatic fiscal stabilizers.

Suppose the economy is experiencing an inflationary gap in the short run. The advantage of using a contractionary fiscal policy rather than allowing the economy's natural adjustment process to operate is that a. It will reduce the upward pressure on the price level that would otherwise occur. b. If private-sector expenditures increase on their own, the policy will stabilize real GDP. c. It will shorten what might otherwise be a long recession. d. It will reduce the downward pressure on the price level that would otherwise occur. e. It will close the output gap.

Suppose the economy is experiencing an inflationary gap. Which of the following describes a likely policy response by the Bank of Canada? a. A contractionary monetary policy which leads to a lower interest rate, reduced investment demand, and a shift to the left of the AD curve. b. An expansionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve. c. An expansionary monetary policy which leads to a decrease in investment demand, and a shift to the left of the AD curve. d. A contractionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve. e. A contractionary monetary policy which leads to a reduction in investment demand, and a shift to the left of the AD curve.

Suppose the economy is hit by a shock and we observe that the price level has decreased whereas real GDP has increased. We can conclude that this shock was a. A positive AD shock. b. A negative AD shock. c. A positive AS shock. d. A negative AS shock. e. A negative technology shock.

Suppose the economy is in macroeconomic equilibrium with real GDP equal to Y*. If the government then implements an expansionary fiscal policy by increasing government purchases, what are the long-run effects on potential output? a. The growth rate of potential output may be reduced due to the crowding out of private investment. b. Potential output will adjust to the new higher level achieved with the expansionary fiscal policy. c. Potential output will drop below its starting point because of the crowding out of investment. d. The growth rate of potential output will rise due to the higher level of aggregate demand. e. The level of potential output is fixed and will not be affected by fiscal policy.

Suppose the economy is initially in a long-run macroeconomic equilibrium. A shock then hits the economy and we observe that the unemployment rate decreases and the price level increases. We can conclude that ________ has increased and there is now a(n) ________ gap. a. Aggregate supply; inflationary b. Aggregate demand; recessionary c. Aggregate supply; recessionary d. Aggregate demand; inflationary

Suppose the excess reserves in Toronto Dominion Bank increase by $700. Given a target reserve ratio of 1.0% and no cash drain, the maximum change in deposits for the entire banking system would be a. $682.50. b. $700.00. c. $17 500.00. d. $28 000.00. e. $70 000.00.

Suppose the following conditions are present in the economy: - Firms are facing lower-than normal sales and have reduced output - There is an excess supply of labour and firms are starting to reduce their workforces Which of the following statements describes the adjustment that will happen in the AD/AS macro model? a. Output is below potential; aggregate demand will fall, causing the AD curve to shift to the left. The price level will fall until equilibrium is restored at Y*. b. The economy is in equilibrium at Y*, but wages are falling. The AS curve will shift to the right until a new equilibrium is reached at a lower price level. c. Output is below potential; wages will eventually fall; the AS curve will slowly shift to the right until equilibrium is restored at Y*. d. Output is above potential; wages will fall, causing the AS curve to shift to the right until equilibrium is restored at Y*. e. Output is above potential; aggregate demand will fall, causing the AD curve to shift to the left until equilibrium is restored at Y*.

Suppose the following conditions are present in the economy: - firms are increasing output to meet strong demand for their goods - workers are able to demand higher wages as firms try to bid workers away from other firms Which of the following statements describes the adjustment that will happen in the AD/AS macro model? a. There is an inflationary output gap; aggregate demand will continue to increase, causing the AD curve to shift to the right. The price level will rise until equilibrium is restored at Y*. b. The economy is in equilibrium at Y*, but wages are rising. The AS curve will shift to the left until a new equilibrium is reached at a higher price level. c. There is a recessionary output gap; wages and other factor prices will rise; the AS curve will shift to the left until equilibrium is restored at Y*. d. There is an inflationary output gap; wages and other factor prices will rise; the AS curve will shift to the left until equilibrium is restored at Y*. e. There is a recessionary output gap; aggregate demand will rise, causing the AD curve to shift to the right until equilibrium is restored at Y*.

Suppose the government embarks on an infrastructure program, spending $8 billion on the construction of new roads and bridges. What is the size of the multiplier if the AS curve is vertical? a. 0 b. Greater than 1 c. Less than 1 d. Infinity e. Insufficient information to solve

Suppose the government had made a decision to change fiscal policy, but it then took nine months to implement a tax reduction. This is an example of a. A decision lag. b. Fine tuning. c. Gross tuning. d. Automatic fiscal stabilizers. e. An execution lag.

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP. One disadvantage of this policy is that a. The effect of economic shocks on government revenues becomes more volatile, while the economy becomes more stable. b. Further reductions in the net tax rate will be required to maintain the effectiveness of the tax rate as an automatic stabilizer. c. Private investment is crowded out, which may reduce the future growth rate of potential output. d. The effect of the automatic stabilizer is reduced and the economy will be more unstable. e. Both C and D are correct.

Suppose the market interest rate falls from 3% to 2%. This will lead to ________ in bond prices and ________ in bond yields. a. A fall; a fall b. A fall; a rise c. A rise; a fall d. A rise; a rise e. No change; no change

Suppose the market interest rate is stable at 4% and we see a decline in bond prices (and thus a rise in bond yields). One explanation for this is that a. Bond issuers are facing an excess demand for their bonds. b. Bond purchasers perceive a reduction in riskiness and thus a higher expected present value from those bonds. c. There is no causal relationship between market interest rates and bond prices. d. Bond purchasers perceive an increase in riskiness and thus a lower expected present value from those bonds. e. There is a positive relationship between interest rates and bond prices.

Suppose the market interest rate rises from 3% to 4%. This will lead to ________ in bond prices and ________ in bond yields. a. A fall; a fall b. A fall; a rise c. A rise; a fall d. A rise; a rise e. No change; no change

Suppose the rare event occurs that a major Canadian commercial bank is on the verge of insolvency and collapse due to volatile world credit markets. The likely initial response is a. A bankruptcy filing overseen by the Superintendent of Financial Institutions. b. The adoption of all of the bank's liabilities by the Bank of Canada as the "lender of last resort." c. The sale of the bank's assets to the remaining commercial banks. d. The provision of funds by the World Bank as the "lender of last resort." e. The provision of funds by the Bank of Canada as the "lender of last resort."

Suppose there is a drop in the price of an important factor input. What will be the effect on the aggregate supply curve? a. There will be movement to the left, along the AS curve. b. The AS curve will shift to the left. c. There will be movement to the right, along the AS curve. d. The AS curve will shift to the right. e. There will be no change in the AS curve.

Suppose there is an exogenous increase in the domestic price level. Which of the individuals listed below would experience an increase in wealth? a. A person with a 25-year home mortgage b. A person with cash under the mattress c. A person with deposits in a bank savings account d. A person with a government bond that promises to pay the holder $1000, 5 years hence e. A person with a corporate bond that promises to repay the face value of the bond in the future

Suppose you come into possession of two "silver" dollars, one minted in the 1950s which contains a lot of silver, the other minted in the 2000s which contains no silver at all. The legal exchange rate between the coins is fixed at one for one. According to Gresham's law, the 1950s silver dollar a. Is considered "bad" money. b. Will drive out of circulation the 1990s silver dollar. c. Is more likely to be used as a medium of exchange. d. Is less likely to be used as a medium of exchange. e. Is less likely to be used as a store of value because it will appear old fashioned.

Suppose you found a $100 bill that was lost for many years under your grandmother's mattress and you decided to deposit this money in a commercial bank. If the target reserve ratio were 20% and all excess reserves were lent out, your new deposit of $100 would lead to an eventual expansion of the money supply of a. $120. b. $200. c. $500. d. $1200. e. $2000.

Suppose you found a $100 bill that was lost for many years under your grandmother's mattress. If the banking system has a cash drain of 5%, its target reserve ratio is 20%, and all excess reserves were lent out, your new deposit of the $100 bill would lead to an eventual expansion of the money supply of a. $20. b. $25. c. $200. d. $400. e. $500.

The "long-run aggregate supply curve," vertical at Y*, shows that a. Potential output will rise as prices rise. b. Potential output will fall as prices rise. c. Potential output is compatible with any price level. d. Potential output is compatible with one particular price level. e. Prices will always rise in the long run.

The "paradox of thrift" refers to the understandable tendency of people who are worried about their economic situation to ________ their saving, but in aggregate this behaviour causes a ________ recession. a. Decrease; more severe b. Decrease; less severe c. Increase; more severe d. Increase; less severe e. Increase; shorter

The "precautionary demand" for money arises from the a. Fear that interest rates will fall. b. Fear that interest rates will rise. c. Need to make predictable purchases of goods and services. d. Uncertainty about when some expenditures will be necessary. e. Desire to avoid paying interest on credit purchases.

The "transactions demand" for money arises from the fact that a. There is uncertainty in the receipts of income. b. There is uncertainty about the movement of interest rates. c. Households wish to have all their wealth in the form of money. d. Households decide to hold money in order to make purchases of goods and services. e. Households want to keep cash on had to buy bonds if bond prices drop.

The "value added" for an individual firm can be calculated by a. Adding the cost of the intermediate goods used by the firm. b. Subtracting the payments made to the factors of production used by the firm from the firm's revenue. c. Calculating the revenue generated by the firm. d. Calculating the profit generated by the firm. e. Adding up the payments made to the factors of production used by the firm.

The AD curve relates the price level to which of the following? a. Desired aggregate expenditure b. Desired consumption c. The level of real GDP where desired AE equals actual national income d. The level of nominal GDP where desired AE equals actual national income e. Equilibrium savings and wealth.

The AD curve shows the relationship between a. The price level and the equilibrium level of demand-determined national income. b. AS and real national income. c. Real national income and AE. d. AS and AE. e. The price level and desired consumption.

The Bank of Canada chooses to influence interest rates directly rather than influencing the money supply directly because a. The former method does not require knowledge of the position of the money demand curve. b. The deposit creation mechanism in the banking system is outside the full control of the Bank of Canada. c. It is easier to communicate policy actions to the public by setting the interest rate. d. The former method does not require knowledge of the slope of the money demand curve. e. All of the above.

The Bank of Canada establishes a rate at which they will lend to commercial banks and a rate at which they will borrow from commercial banks. By doing so, a. The Bank of Canada can ensure that the actual overnight interest rate will never fall below 2%. b. The Bank of Canada can ensure that the commercial banks will not be earning excess profits. c. The Bank of Canada can ensure that money demand remains at the level necessary for monetary equilibrium. d. The Bank of Canada establishes a spread, into which all interest rates in the economy fall. e. The Bank of Canada can ensure that the actual overnight interest rate will fall between these two interest rates.

The Bank of Canada initially implements an expansionary monetary policy by a. Directly increasing the money supply. b. Selling government securities on the open market. c. Buying government securities on the open market. d. Reducing its target for the overnight interest rate. e. Raising its target for the overnight interest rate.

The Bank of Canada's formal policy target is ________. It's current target is to keep the annual inflation rate close to ________%. a. Core inflation; 1 b. Core inflation; 0 c. The money supply; 2 d. CPI inflation; 2 e. The money supply; 1

The Bank of Canada's purchases and sales of government securities, when they occur, are referred to as a. Increases and decreases in government expenditure. b. Margin requirements. c. Open-market operations. d. Reserve requirements. e. The setting of the bank rate.

The Canada Deposit Insurance Corporation (CDIC) was set up to protect a. Member financial institutions in case of non-payment of loans from borrowers. b. Member financial institutions in case of non payment of loans from the government. c. Depositors with Canadian dollar accounts in member institutions for up to a maximum of $100 000 per eligible deposit. d. Depositors with Canadian dollar accounts in any Canadian financial institution for up to a maximum of $100 000 per institution. e. Depositors of any currency in any Canadian financial institution for up to a maximum of $100 000 per institution.

The Canadian banking system is a a. Gold-reserve system. b. Fractional-reserve system. c. Target-reserve system. d. Asset-backed reserve system. e. Treasury-bill reserve system.

The Canadian exchange rate is defined to be the a. Number of Canadian dollars needed to buy one unit of foreign currency. b. Number of ounces of gold it takes to buy one hundred Canadian dollars. c. System of quotas imposed on the international exchange of goods. d. Term for foreign currencies or claims on foreign currencies. e. Value of one Canadian dollar in terms of foreign currencies.

The M2 and M2+ definitions of the money supply concentrate on the ________ function of money. a. Store of value b. Unit of account c. Medium-of-exchange d. Accounting e. Deposit-creation

The M2++ and M3 definitions of the money supply include financial assets a. That serve the store-of-value function and are convertible into a medium of exchange. b. Such as deposits at credit unions and caisses populaires. c. Such as deposits at non-bank financial institutions. d. Such as a credit card. e. Such as a government Treasury bill.

The best description of the cause-and-effect chain of a contractionary monetary policy in the short run is that it will a. Lower the interest rate, increase investment spending, and increase real GDP. b. Raise the interest rate, decrease investment spending, and decrease real GDP. c. Lower the interest rate, lower investment spending, and decrease real GDP. d. Raise the interest rate, decrease investment spending, and increase real GDP. e. Raise the interest rate, increase investment spending, and decrease real GDP.

The best description of the cause-and-effect chain of an expansionary monetary policy is that it will a. Lower the interest rate, raise investment spending, and increase real GDP. b. Raise the interest rate, decrease investment spending, and increase real GDP. c. Raise the interest rate, increase investment spending, and increase real GDP. d. Lower the interest rate, increase investment spending, and reduce real GDP. e. Raise the interest rate, decrease investment spending, and decrease real GDP.

The biggest disadvantage of a barter system compared to one that uses money is that a. It is difficult to find goods to trade in a barter system that satisfy the needs of society. b. A standardized unit of account cannot exist in a barter system. c. All commodities are difficult to transport and therefore inefficient for exchange. d. Each trade requires a double coincidence of wants. e. Commodities are difficult to use as a store of value.

The concept of "demand-determined output" requires ________ to remain constant as output increases. a. Technology of production b. Government purchases c. Firms' unit costs d. Labour productivity e. The ratio of price setters to price takers

The concept of "near money" refers to a. Money substitutes such as credit cards. b. Cheques on demand deposits. c. Financial assets whose capital values are too unstable for them to be classified as money. d. Assets that fulfill the temporary store-of-value function but not the medium-of-exchange function. e. Assets that fulfill the medium-of-exchange function but not the store of value function.

The currency that is in circulation in Canada today is a. Fully backed by gold held at the central bank. b. Backed by the U.S. dollar. c. Backed by the euro. d. Fractionally backed by gold. e. Not officially backed by anything.

The curve that is sometimes called the "long-run aggregate supply curve" (vertical Y*) relates the aggregate price level to real GDP a. In the short run. b. When wages are in adjustment but prices are unstable. c. When national income is at less than potential income. d. When technology is allowed to change. e. After factor prices have fully adjusted to eliminate output gaps.

The economy's aggregate supply (AS) curve shows the relationship between the price level and the total a. Investment that firms wish to make, with input prices given. b. Investment that firms wish to make, as input prices vary. c. Output that firms wish to produce and sell, with input prices given. d. Output that firms wish to produce and sell, as input prices vary. e. Wealth accumulated by households, with national income given.

The economy's aggregate supply curve is drawn under two main assumptions. They are a. Firms' unit costs are constant; prices of all factors of production are constant. b. Firms' unit costs are constant; the state of technology is constant. c. Firms will produce more output only if prices rise; technology improves only if prices rise. d. The prices of all factors of production are constant; the state of technology is constant. e. The prices of all factors of production are constant; productivity improves as the price level rises.

The economy's investment demand function describes the a. Positive relationship between desired investment, the rate of interest, and aggregate expenditure. b. Positive relationship between desired investment and the rate of interest. c. Negative relationship between the demand for money and the interest rate. d. Negative relationship between desired investment and aggregate expenditure. e. Negative relationship between the interest rate and desired investment.

The economy's output gap is defined as the a. Difference between actual GDP and potential GDP. b. Level of total output that would be produced if capacity utilization is at its normal rate. c. Difference between actual national income and desired aggregate expenditure. d. Result of economic growth. e. Difference between nominal GDP and real GDP.

The expansion of deposits resulting from an injection of new cash to the banking system can be calculated as follows. The change in deposits is equal to a. The change in loans divided by the sum of the target reserve ratio. b. The change in reserves divided by the cash-deposit ratio. c. The change in reserves divided by the target reserve ratio. d. The change in reserves divided by the sum of the target reserve ratio and the cash-deposit ratio. e. The change in reserves divided by the sum of excess reserves and cash drain.

The growth rate of potential output might be decreased by an expansionary fiscal policy if a. The budget deficits are persistent. b. The simple multiplier is small. c. The policy crowds out private investment. d. Public investment has high productivity. e. The composition of output is not altered.

The largest element of the Canadian money supply today is a. Coins. b. Paper money. c. Bank deposits. d. Gold. e. The debt of the federal government.

The linkage between changes in monetary equilibrium and changes in aggregate demand is called the a. Monetary transmission mechanism. b. Simple multiplier. c. Equilibrium mechanism. d. Transactions mechanism. e. Liquidity preference function.

The long-run target currently used by the Bank of Canada is to set a. M2 = real GDP/M1. b. a long-run target range for the overnight lending rate. c. a long-run target range for the Canadian-U.S. exchange rate. d. a long-run target range for the 5-year mortgage rate. e. a long-run target range for the inflation rate.

The major problem of a currency that is fractionally backed and convertible into a precious metal is that of a. Cipping, which debases the metal coins. b. Counterfeiting. c. Maintaining its convertability into the metal. d. Paper money being less durable than gold. e. Perennial shortages of paper currency.

The monetary transmission mechanism can be set in motion when a rise in the price level causes a. An increased demand for money balances, leading people to sell bonds, which in turn raises the interest rate. b. An increased demand for money balances, leading people to sell bonds, which in turn decreases the interest rate. c. An increased demand for money balances, leading people to buy bonds, which in turn decreases the interest rate. d. A decreased demand for money balances, leading people to buy bonds, which in turn decreases the interest rate. e. A decreased demand for money balances, leading people to sell bonds, which in turn raises the interest rate.

The monetary transmission mechanism describes how changes in the the money market (possibly caused by monetary policy) cause changes in the interest rate, which then cause changes in - Aggregate demand and real GDP; - Desired investment and net exports; - The price level. a. 1 only b. 2 only c. 3 only d. 1 and 2 e. 1, 2, and 3

The monetary transmission mechanism describes the process by which changes in a. Personal consumption affect real GDP. b. Business investment influence real GDP. c. Monetary equilibrium influence real GDP through changes in desired investment. d. Monetary equilibrium influence the interest rate. e. Interest rate affect the demand for money.

The money supply in Canada is measured using M1, M2, M2+, and M3. The reason there are so many measures of the money supply is that a. The Bank of Canada wants to confuse the general public. b. Different kinds of bank accounts represent different functions of money, and so the various measures are used to reflect these different functions. c. The money supply is too large to have only one measurement. d. Only the newer and broader measurements are correct but the older measurements are still used so that historical comparisons are possible. e. It is a convenient way for provincial and federal governments to hide their budgetary surpluses.

The paradox of thrift does not exist in the long run because a. Not everyone increases saving in the long run. b. Aggregate supply has an impact on real GDP only in the short run. c. Everyone increases consumption in the long run. d. Changes in aggregate demand have no impact on real GDP in the long run. e. Potential output is determined by changes in the price level.

The present value of a bond is determined by the a. Face value and the date of maturity. b. Rate of inflation. c. Market rate of interest only. d. Market rate of interest, the date of maturity, and the face value. e. Marginal rate of income tax.

The present value of a financial asset is a. The most someone would be willing to pay upon maturity of the asset. b.The most someone would be willing to pay today for the asset. c. Equivalent to the face value of the asset. d. The amount someone would pay in the future to have the asset today. e. The amount someone would pay in the future for the current stream of payments from the asset.

Time lags in the conduct of monetary policy can cause A) monetary policy to work in the opposite direction to what was initially predicted by economists. B) an expansionary policy to have a smaller effect than what was expected by policymakers. C) monetary expansions to work very quickly but cause monetary contractions to work very slowly. D) difficulty in the timing of appropriate policy and can even lead to destabilization. E) short-term monetary policy to work more effectively than long-term targeting.

To calculate GDP from the income side, one must add together wages, a. Consumption and depreciation. b. Interest, rent, depreciation, profits and indirect taxes net of subsidies. c. Investment, rent, depreciation, profits and indirect taxes net of subsidies. d. Government income, interest, and profits. e. Net exports, depreciation, and profits.

Using GDP as a measure of the economic well-being of a country can be criticized for ignoring non-market and other activities. However, it remains useful because a. GDP is the best measure we have of the effects of economic "bads" on the well-being of the country. b. The change in GDP from one year to the next is a good indication of what rates of inflation and unemployment will be. c. It provides a good indication of household income distribution when measured from the income side. d. The change that is measured in GDP from one year to the next is a good indication of the change in economic activity. e. It is simply not possible to reform the current measure of GDP.

What economists sometimes call the "long-run aggregate supply curve" is a. Vertical. b. Horizontal. c. Nonlinear. d. Negatively sloped. e. Positively sloped.

What is a bank run? a. A situation where a commercial bank is holding zero reserves. b. A panic situation where many depositors rush simultaneously to withdraw their deposit money in the form of cash. c. A situation where all commercial banks in the system are simultaneously short of reserves. d. The collapse of a non-commercial bank as a result of non-payment of loans. e. The collapse of a commercial banks as a result of the devaluation of their assets.

What is meant by the term "stagflation"? a. The combination of falling real GDP and a rising price level b. A persistent inflationary gap c. A persistent recessionary gap d. The sluggish downward wage adjustment in response to a recessionary gap e. The combination of inflation and rising real GDP

What is sometimes called the "long-run aggregate supply curve" shows the relationship between the price level and aggregate supply over a time period long enough to permit a. Changes in the capital stock. b. Wages and other factor prices to adjust. c. Changes in technology to occur. d. Changes in the size of the resource base to occur. e. Population to increase.

What is the "bank rate"? a. The interest rate at which the Bank of Canada will lend funds to the Canadian government. b. The interest rate at which the Bank of Canada will lend funds to commercial banks. c. The interest rate that commercial banks charge their best customers. d. The interest rate that the Bank of Canada pays on deposits from the commercial banks. e. It is the same as a margin requirement.

What is the approximate measure (2014 data) of Canada's productivity in terms of real GDP per hour worked (expressed in 2007 dollars)? a. $10 b. $92 c. $200 d. $475 e. $45

What is the policy response by the Bank of Canada to an inflationary gap in one region of Canada (e.g. the West) when at the same time a recessionary gap exists in another region of Canada (e.g. Ontario)? A) Each regional office of the Bank of Canada implements the appropriate monetary policy for that region. B) The Bank of Canada implements monetary policy in each region of Canada as required. C) There are automatic stabilizers inherent in monetary policy that allow the policy to adjust to close the output gap. D) The Bank of Canada consults with the commercial banks on the appropriate level of deposit creation for each region of the country. E) The Bank of Canada responds to the average level of inflation in the country and implements a single monetary policy.

What is the present value of a bond that pays $121.00 one year from today if the interest rate is 10% per year? a. $100.00 b. $110.00 c. $121.00 d. $133.10 e. $221.00

When Janet expects interest rates to rise in the near future, she will probably be willing to a. Buy bonds now, and hold less money. b. Buy bonds now, but only if their price falls. c. Sell bonds now, and hold more money. d. Put her money under her mattress rather than in a bank account. e. Maintain only the current holding of bonds.

When adding up the value of all goods produced in the economy, double counting can be avoided if only the ________ is included. a. Value of final good and services b. Value of intermediate goods and services c. Cost of intermediate goods and services d. Revenue of all goods and services e. Revenue of intermediate goods and services

When an economy experiences sustained growth in real GDP, a. Actual GDP is greater than potential GDP. b. Actual GDP is less than potential GDP. c. Potential GDP is likely to be increasing. d. Factor prices are likely to be decreasing. e. Wage rates will decrease slowly as factor-utilization rates decrease.

When calculating GDP from the expenditure side, "actual consumption expenditures" includes a. A tractor purchased by an Ontario farmer. b. Fees paid by Google Canada to a Toronto law firm. c. Robotic paint equipment purchased by Bombardier. d. Snow-plow equipment purchased by the City of Montreal. e. Canadian fashion designs purchased by a Swiss department store.

When calculating GDP from the expenditure side, "actual consumption expenditures" includes a. The purchase of a new house. b. American tourists travelling to and spending in Canada. c. Increases in automobile inventories. d. The construction of an apartment building. e. The monthly rental of an apartment.

When calculating GDP from the expenditure side, which of the following is true of the investment component, Ia? a. It excludes expansions of existing factories b. It only includes business fixed investment c. It includes the transfer of houses between individuals d. It includes changes in inventories e. It only includes decumulation of inventories

When calculating GDP from the income side, which of the following is included in non-factor payments? a. Wages and salaries b. GST c. Income tax d. Bond interest e. Business profits

When discussing the banking system, a cash drain of 5% means that a. 5% of an initial new deposit to the banking system is paid in banking fees and is therefore not available for the creation of new deposit money. b. Depositors wish to hold 5% of the value of their deposits in cash. c. 5% of an initial new deposit to the banking system is payable as a financial services tax. d. 95% of an initial new deposit is maintained as cash reserves by the commercial bank. e. Depositors wish to hold 95% of the value of their deposits in cash.

On a graph of a consumption function, what is the significance of the 45-degree line? A) It shows the slope of the average consumption function, against which we measure other consumption functions. B) It connects all points where desired consumption equals desired expenditure. C) It connects all points where desired consumption equals actual disposable income. D) Desired consumption is zero at all points along the 45-degree line. E) It connects all points where desired consumption equals desired saving.

C 26)

Jean Brisbois' disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600. It can be concluded that his A) average propensity to save decreased from 0.950 to 0.943. B) marginal propensity to consume is 0.050. C) average propensity to consume decreased from 0.950 to 0.943. D) marginal propensity to consume increased from 0.050 to 0.058. E) marginal propensity to save is 0.80.

C 40)

Consider a simple macro model with a constant price level and demand-determined output. If the marginal propensity to spend in such a model is zero, the simple multiplier is A) zero. B) a positive number between zero and one. C) one. D) a positive number greater than one but less than infinity. E) infinitely large.

C 97)

Consider the basic AD/AS model. If there is a decrease in the cost of non-labour inputs to production, the result will be to a. Shift the AD curve to the left. b. Shift the AD curve to the right. c. Shift the AS curve to the left. d. Shift the AS curve to the right. e. Cause a movement to the left along the AS curve.

Consider the basic AD/AS model. Suppose that a rising percentage of high-school graduates are illiterate, resulting in a decrease in average labour productivity. This change will a. Shift the AD curve to the left. b. Shift the AD curve to the right. c. Shift the AS curve to the left. d. Shift the AS curve to the right. e. Cause a movement to the right along the AS curve.

Canada's unemployment rate has been as low as ________ in the 1960s and as high as ________ during the recession in the early 1980s. a. 4.6; 14 b. 2.0; 15 c. 5.5; 17 d. 2.4; 10 e. 3.4; 12

Canadian commercial banks maintain their reserves in the form of a. Cash in their bank vaults and deposits at the Bank of Canada. b. Cash in their bank vaults. c. Gold in their bank vaults. d. Deposits at other commercial banks that are immediately accessible. e. Cash and foreign currency at the Bank of Canada.

Ceteris paribus, a rightward shift of the money demand curve could indicate which of the following: - An increase in demand for bonds; - An increase in the price level; - An increase in real GDP. a. 1 only b. 2 only c. 3 only d. 1 and 2 only e. 2 and 3 only

Changes in monetary aggregates such as M2 and M2+ can be a poor guide to the stance of monetary policy if a. Commercial bank reserves are rising. b. Interest rates are changing rapidly. c. Interest rates are constant. d. Money demand is changing in unpredictable ways. e. Money demand is constant.

Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank). This fraction is known as a. The required reserve. b. The excess reserve ratio. c. The fractional reserve. d. The reserve ratio. e. The target reserve.

Commercial banks in Canada are prohibited by law from a. Accepting demand deposits. b. Issuing paper currency. c. Lending money to households and firms. d. Accepting term deposits. e. Settling inter-bank debts through a clearinghouse.

Suppose aggregate output is demand-determined. If the business community decreases its planned investment expenditures by $4 billion, causing equilibrium national income to fall by $12 billion, the marginal propensity to spend must be A) 2/5. B) 1/3. C) 1/2. D) 2/3. E) 4/5.

D 108)

Suppose the price level is constant, output is demand-determined, and the economy is closed with no government. If the saving function is S = -100 + (0.2)Y, the simple multiplier is A) 0.2. B) 1. C) 2.5. D) 5. E) insufficient information to know.

D 116)

Refer to Figure 21-1. If disposable income is equal to Y3, desired consumption expenditure is equal to A) Y3. B) Y3F. C) Y3E. D) Y3D.

D 13)

Refer to Figure 21-1. If disposable income is Y3, the level of desired saving is E) DF/Y2Y3. A) Y3D. B) FD. C) Y3F. D) DE.

D 15)

Debit cards that are issued by commercial banks can be characterized as a. An example of near money. b. An electronic version of a cheque. c. Deposit money. d. Fiat money. e. A store of value.

Fiat money has value because it a. Can be manufactured at will by the issuing government. b. Has intrinsic value equal to its face value. c. Is fully backed by gold at a fixed ratio. d. Is only fractionally backed by gold. e. Is generally accepted.

Following any AD or AS shock, economists typically assume that the adjustment process continues until a. The AD and AS curves intersect each other at the correct price level. b. Real GDP returns to Y*. c. Factor prices have returned to their levels previous to the shock. d. Y* adjusts to its long-run equilibrium level. e. The output gap is at a stable level.

For a country to be on a "gold standard," it must a. Use gold coins as money. b. Use gold coins as money and promise never to debase its coins. c. Use gold as money, but not necessarily in the form of gold coins. d. Make its currency convertible into gold at a fixed rate of exchange. e. Use gold as fiat money.

Historically, when gold and silver coins were used as money, their debasement resulted in a. Deflation. b. An increase in the supply of money. c. An increase in the amount of gold bullion. d. An increase in the desire to store wealth by holding coins. e. A decrease in the money supply.

How does monetary equilibrium re-establish itself when there is an excess supply of money balances? a. The interest rate rises b. Individuals attempt to sell bonds c. The price of bonds falls d. The price of bonds increases e. The price level falls

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. 75. c. 1.0. d. 1.33. e. 1.25.

If 27 million people are employed and 3 million people are unemployed, what is the unemployment rate? a. 11% b. 89% c. 10% d. 90% e. Not able to determine from the information provided

If Robert expects interest rates to fall in the near future, he will probably be willing to a. Buy bonds now, and hold less money. b. Buy bonds now, but only if their price falls. c. Sell bonds now, and hold less money. d. Put his money under his mattress rather than buy bonds. e. Maintain only the current holding of bonds.

If one Canadian dollar can be exchanged for 0.5 euros, we say that the Canadian-euro exchange rate is a. 0.5. b. 2.0. c. 5.0. d. 20. e. 1.0.

If real GDP is greater than potential GDP, the output gap could be eliminated by - An increase in government purchases; - An upward shift in the AE curve; - A reduction in the money supply. a. 1 only b. 2 only c. 3 only d. 1 or 2 e. 1 or 2 or 3

If the AS curve is vertical and there is a decrease in aggregate demand, the result is a. A decrease in the price level with no change in real GDP. b. An equal decrease in national income. c. An increase in the price level. d. An increase in national income. e. No change in either price level or real GDP.

If the Bank of Canada were to increase the money supply, other things being equal, we would expect the aggregate expenditure curve to shift a. Upward and the aggregate demand curve to shift to the right. b. Upward and the aggregate demand curve to shift to the left. c. Downward and the aggregate demand curve to shift to the right. d. Downward and the aggregate demand curve to shift to the left. e. Downward but the aggregate demand curve will remain unchanged.

If the Consumer Price Index changes from 120 in the year 2012 to 126 in the year 2014, the average rate of inflation per year over this two-year period is approximately a. 6%. b. 5%. c. 3%. d. 2.5%. e. 1.5%.

If the annual interest rate is 10%, $5.00 received today has the same present value as a. $4.00 received one year from now. b. $4.50 received one year from now. c. $5.00 received one year from now. d. $5.50 received one year from now. e. $6.00 received one year form now.

If the annual interest rate is 3%, $10 000 received today has the same present value as ________ received one year from now. a. $10 000 b. $13 000 c. $300 d. $9707.74 e. $10 300

If the annual interest rate is 8%, an asset that promises to pay $160 after each of the next two years has a present value of a. $178.32. b. $285.32. c. $296.30. d. $300.00. e. $320.00.

If the annual market interest rate is 20%, the annual opportunity cost of having $50 cash in your pocket is a. $0. b. $2. c. $10. d. $50. e. $1000.

If the annual market rate of interest is 5%, an asset that promises to pay $100 after each of the next two years has a present value of a. $90.70. b. $95.24. c. $181.40. d. $185.94. e. $200.00.

If the current market price of a bond is less than the present value of the income stream the bond will produce, the price will ________ due to excess ________ of/for the bond. a. Rise; supply b. Fall; supply c. Rise; demand d. Fall; demand

If the economy's AS curve is completely horizontal, the multiplier in the AD/AS model is a. Infinitely large. b. Equal to the simple multiplier. c. Smaller than the simple multiplier. d. Is zero. e. Negative.

If the economy's AS curve is upward sloping, a negative shock to aggregate demand will result in a. An increase in prices and no change in real GDP. b. A decrease in prices but no change in real GDP. c. An increase in real GDP and no change in prices. d. An increase in both real GDP and prices. e. A decrease in both real GDP and prices.

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 ) × 100. b. ( P2 / P1 ) × 100. c. ( P1 / P2 ) × 100. d. [ ( P2 - P1 ) / P1 ] × 100. e. [ ( P1 - P2 ) / P2 ] × 100.

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 ) × ( 100 / 2 ). b. [ ( P2 - P1 ) / P1 ] × 100. c. [ ( P2 - P1 ) / P1 ] × [ 100 / 2 ]. d. [ ( P1 - P2 ) / P2 ] × 100. e. [ ( P1 - P2 ) / P2 ] × [ 100/2 ].

If the short-run macroeconomic equilibrium occurs with real GDP less than Y*, the economy is a. At its full-employment level of output. b. Experiencing a recessionary gap. c. Experiencing an inflationary gap. d. Threatened with an acceleration of inflation. e. Operating at full capacity.

If the target reserve ratio in the banking system is 10%, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of a. $0.01. b. $0.10. c. $1.00. d. $10.00. e. $100.00.

If the target reserve ratio in the banking system is 20%, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of a. $0.20. b. $1.20. c. $2.00. d. $5.00. e. $20.00.

If there are just two assets, bonds and money, then an equilibrium between the quantity demanded of money and the quantity supplied of money implies a. An excess supply of bonds. b. An excess demand for bonds. c. Equilibrium in the bond market. d. An indeterminant equilibrium in the bond market. e. Nothing about conditions of demand for the other financial asset.

If there are just two assets, bonds and money, then an excess demand for money implies a. An excess supply of bonds. b. An excess demand for bonds. c. Equilibrium in the bond market. d. An indeterminate equilibrium in the bond market. e. Nothing about conditions of demand for the other financial asset.

If there were a large and persistent recessionary gap, an appropriate monetary policy could include a. Increasing the bank rate. b. Increasing the overnight lending rate. c. Decreasing reserves available to the commercial banks. d. The Bank of Canada reducing its target for the overnight interest rate. e. The Bank of Canada selling government securities to the public.

If wages rise faster than increases in labour productivity, then unit labour costs will a. Fall and the AS curve will shift left. b. Fall and the AS curve will shift right. c. Rise and the AS curve will shift left. d. Rise and the AS curve will shift right. e. Not change because only total labour costs change.

If we observe that short-term market interest rates have fallen, we can certainly conclude that the a. Bank of Canada has implemented an expansionary monetary policy. b. Bank of Canada has implemented a contractionary monetary policy. c. Bank of Canada has abandoned its inflation target. d. Government of Canada has reduced the money supply. e. It is not possible to conclude any of the above.

If we observe that the actual rate of CPI inflation has fallen, we can certainly conclude that the a. Bank of Canada has implemented an expansionary monetary policy. b. Bank of Canada has implemented a contractionary monetary policy. c. Bank of Canada has abandoned its inflation target. d. Government of Canada has reduced the money supply. e. It is not possible to conclude any of the above.

If we observe that the actual rate of CPI inflation has increased, we can certainly conclude that the a. Bank of Canada has implemented an expansionary monetary policy. b. Bank of Canada has implemented a contractionary monetary policy. c. Bank of Canada has abandoned its inflation target. d. Government of Canada has reduced the money supply. e. It is not possible to conclude any of the above.

If we observe that the bank rate has fallen, we can conclude that the a. Bank of Canada has implemented a contractionary monetary policy. b. Bank of Canada has abandoned its inflation target. c. Government of Canada has reduced the money supply. d. Bank of Canada has implemented an expansionary monetary policy. e. Bank of Canada has adjusted the rate it pays on Treasury bills.

In 1980, the annual inflation rate in Canada was A) over 12%. B) roughly 8%. C) roughly 6%. D) roughly 2%. E) roughly zero.

In a macro model with a constant price level, an increase in government purchases will cause the AE curve to shift a. Downward and the AD curve to shift to the right. b. Downward and the AD curve to shift to the left. c. Downward and a movement to the right along the AD curve. d. Upward and the AD curve to shift to the left. e. Upward and the AD curve to shift to the right.

In any decision about stimulating the economy with a fiscal expansion (increasing government purchases), the government must weigh the short-run benefits of ________ against the long-run costs of ________. a. A higher price level; unemployment b. Increased potential output; a higher price level c. A higher price level; lower real GDP d. Increased real GDP; higher economic growth e. Increased economic activity; lower economic growth

In practice, the Bank of Canada uses monetary policy to reduce undesirable fluctuations in real GDP by a. Controlling business investment expenditures directly. b. Controlling government spending. c. Influencing market interest rates through changes in its target for the overnight interest rate. d. Directly influencing the money supply which affects the interest rate and hence, consumption and investment. e. Targeting the money supply directly.

In recent years, the use of debit cards issued by commercial banks has skyrocketed. When you pay for a purchase at a store using a debit card, you are a. Authorizing the transfer of cash from your bank account to the merchant's bank account. b. Creating an electronic debt to the merchant. c. Authorizing an electronic transfer of a money substitute from you to the merchant. d. Authorizing an electronic transfer of deposit money from you to the merchant. e. Authorizing the transfer of bank notes from you to the merchant.

In the short run the Bank of Canada aims to ________, in an effort to ________. a. Enhance any positive shocks; keep inflation within its target band b. Reduce any positive or negative output gaps; keep inflation close to the official target c. Ignore any shocks as they are automatically adjusting; keep GDP growth constant d. Keep actual output within 1%-3% of potential output; keep the money supply growing at a constant rate e. Ignore any shocks as they are automatically adjusting; keep inflation within its target band

Jodie's Bakery generates a yearly revenue of $6000. Throughout the year Jodie spends $1500 on flour, $1000 on fruit, $500 on sugar & spices, $1500 on butter, and employs an assistant whom she pays $1000. Calculate the value of the annual output produced by Jodie's Bakery using the value added method. a. $1000 b. $1500 c. $4500 d. $5000 e. $6000

Most economists believe that the single largest cause of rising material living standards over long periods of time is a. Productivity growth. b. Rising employment. c. Growth in the capital stock. d. Real GDP growth. e. Rising real wages.

Real GDP is equivalent to a. The money value of all goods and services produced in an economy per year plus imports. b. The market value of all goods and services produced in an economy per year. c. Personal disposable income plus depreciation. d. The value added of all goods and services produced in an economy per year adjusted for price changes. e. The nominal value of all goods and services in an economy per year.

Refer to Figure 20-1. Nominal GDP increased by approximately ________% between 2000 and 2005. a. 20 b. 45 c. 65 d. 85 e. 100

Refer to Figure 20-1. Real GDP increased by approximately ________% between 2000 and 2005. a. 9 b. 17 c. 35 d. 52 e. 75

Refer to Figure 20-1. Which of the following years was used as the base year for constructing real GDP? a. 1995 b. 2000 c. 2005 d. 2008 e. 2010

Refer to Figure 24-2. Suppose the economy is in equilibrium at Y1. The economy's automatic adjustment process will restore potential output, Y*, through a. Wage increases and a leftward shift of the AS curve. b. Wage increases and a rightward shift in the AS curve. c. Wage decreases and a rightward shift of the AD curve. d. An increase in potential GDP to intersect both the AD and AS curves at B. e. A leftward shift of the AD to intersect both the AS and potential GDP at A.

Refer to Figure 24-3. A negative shock to the economy shifts the AD curve from AD1 to AD2. The initial effect is a. A recessionary output gap of 100. b. A recessionary output gap of 300. c. A recessionary output gap of 550. d. An inflationary output gap of 200. e. An inflationary output gap of 100.

Refer to Table 20-5. If 2015 is the base year, the GDP deflator in 2015 was a. 100. b. 102. c. 180. d. 193. e. 1000.

Refer to Table 20-5. The implicit GDP deflator in 2016, when 2015 is used as the base year, was approximately a. 105. b. 160. c. 180. d. 193. e. 203.

Refer to Table 20-5. The nominal Gross Domestic Product in 2016 was a. $700. b. $840. c. $980. d. $1740. e. $1820.

Refer to Table 20-5. The real GDP in 2016, expressed in 2015 prices, was a. $700. b. $840. c. $970. d. $1010. e. $1740.

Refer to Table 20-6. If 2005 is the base year, the GDP deflator in 2015 was a. 59.1. b. 85.7. c. 100. d. 131.67. e. 159.1.

Refer to Table 20-6. What is the real GDP for 2005 if 2015 is the base year? a. $6750 b. $7975 c. $9000 d. $10 500 e. $20 100

Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. An appropriate fiscal policy for closing the output gap is a. A decrease in personal income taxes. b. A decrease in government purchases. c. An increase in current interest rates. d. An increase in government purchases. e. A decrease in corporate income-tax rates.

Refer to Table 20-7. The growth rate of nominal output from 2013 to 2014 is a. 2.76%. b. 3.36%. c. 4.09%. d. 4.27%. e. 5.00%.

Refer to Table 20-7. The nominal Gross Domestic Product in 2013 was a. $700 000. b. $724 000. c. $774 000. d. $798 000. e. $820 000.

Refer to Table 20-7. The real GDP in 2014, expressed in 2007 prices, was a. $773 585. b. $798 000. c. $800 000. d. $869 200. e. $900 000.

Refer to Table 26-4. Suppose the public decides to hold 5% of their deposits in cash — that is, there is now a cash drain of 5%. As a result of the new deposit, the money supply would eventually a. Increase by $16.67 million. b. Increase by $20 million. c. Decrease by $20 million. d. Decrease by $16.67 million. e. Decrease by $8.33 million.

Refer to Table 26-4. The maximum creation of new deposits by the banking system, including the dealer's original deposit at Bank XYZ, is a. $25 million. b. $22.5 million. c. $20 million. d. $15 million. e. $5 million.

Refer to Table 26-5. As a result of this withdrawal from the banking system, the Canadian banking system would eventually a. Decrease its loans by $100 million. b. Decrease its loans by $90 million. c. Decrease its loans by $10 million. d. Increase loans by $90 million. e. Increase loans by $100 million.

Refer to Table 26-5. Assume that Bank XYZ has decreased its loans and re-established its target reserve ratio. The second-generation banks in this scenario will a. Decrease their loans by $9.0 million. b. Decrease their loans by $8.1 million. c. Not have to change their loan positions. d. Increase their loans by $8.1 million. e. Increase their loans by $9.0 million.

Most economists now accept the proposition that a. An ideal monetary policy would allow the money supply to grow at a constant rate. b. To reduce the long-run rate of inflation there must be a sustained monetary contraction. c. Monetary policy leaves real GDP and the overnight lending rate unaffected in the short run. d. Lowering the Bank Rate will have no effect on desired investment in the short run but will have a direct effect on core inflation. e. Monetary policy is the only policy tool available for influencing aggregate demand.

Other things being equal, when the price level rises, the real value of money holdings ________; when the domestic price level falls, the real value of money holdings ________. a. Rises; falls b. Falls; is not affected c. Falls; rises d. Is not affected; falls e. Is not affected; rises

Refer to Table 26-6. Northern Bank extends credit to its customers in the form of household mortgages and lines of credit. Under which category of the balance sheet do these fall? a. Reserves b. Loans c. Liabilities d. Deposits e. Capital

Suppose Bank ABC has a target reserve ratio of 10%, no excess reserves, and it receives a new deposit of $500 000. This bank will initially expand its loans by a. $50 000. b. $450 000. c. $500 000. d. $4.5 million. e. $5 million.

When the Bank of Canada increases the interest rate we call this a contractionary monetary policy. Why? a. The higher interest rate leads to an increase in the level of national saving. b. The higher interest rate causes a contraction of money demand. c. The higher interest rate causes the money demand curve to shift to the left. d. The higher interest rate leads to a leftward shift of the aggregate demand curve. e. The higher interest rate causes the money supply curve to shift to the right.

Suppose the Bank of Canada announces its target for the overnight interest rate at 2.5%. In that case, the Bank of Canada is willing to lend to commercial banks at ________% and is willing to pay ________% on deposits it receives from commercial banks. a. 2.25; 2.5 b. 2.5; 2.0 c. 2.5; 2.5 d. 2.75; 2.25 e. 3.5; 1.5

The Bank of Canada conducts its open-market operations directly in response to a. Changes in aggregate demand. b. Orders from Parliament. c. Its announced changes in the money supply. d. Changes in the price level. e. The changing demand for cash reserves from the commercial banks.

The Phillips curve describes the relationship between a. Aggregate expenditure and aggregate demand. b. The money supply and interest rates. c. Unemployment and the rate of change of wages. d. Inflation and interest rates. e. The output gap and potential GDP.

The Phillips curve provides a theoretical link between a. The liquidity preference and investment demand schedules. b. Labour markets and foreign-exchange markets. c. The goods market and productivity. d. The goods market and the labour market. e. Inflation and the demand for money.

When calculating GDP from the expenditure side, how do net exports enter the equation? a. They are NOT included because they do not represent an expenditure by Canadians. b. They may or may not be included depending on whether they are for final or intermediate goods. c. They are included as a separate category. d. They are included but as part of C, I, or G. e. They are included only if it is a positive number.

When calculating GDP from the expenditure side, which of the following is true of the government purchases component, Ga? a. It includes government subsidies to private firms b. It is based on the government's planned spending c. It includes employment insurance and employment benefits d. It excludes transfer payments e. It only includes federal government expenditures

When computing GDP from the expenditure side, which of the following items is excluded from the government component? a. Employment-insurance benefits b. Salaries to Canadian Forces officers c. Costs of Parliamentary Committees d. Rental of office space by the government e. Operating costs of the Canadian Coast Guard

When considering the present value of any financial asset that makes a stream of payments in the future, we know that if the market interest rate falls, a. The present value of the asset will rise. b. The future value of the asset will rise. c. The current value of the asset will fall. d. The present value of the asset will fall. e. The present value of the asset is unaffected.

When the Bank of Canada enters the open market and buys or sells government securities, we refer to this as a. Monetary policy. b. Commercial lending. c. Changing the target reserve ratio. d. Setting the target ratio. e. Open-market operations.

When you are estimating your monthly income and expenses, money is being used as a. A medium of exchange. b. A store of value. c. A unit of account. d. A standard unit of deferred payment. e. A money substitute.

The decision by the Bank of Canada and many other central banks to target the rate of inflation partly reflects the evidence of the A) long-run neutrality of money. B) link between the money supply and the exchange rate. C) power of the overnight lending rate to affect long-run investment. D) power of the overnight interest rate to affect consumer borrowing. E) link between the output gap and the money supply.

The demand for money (MD) function defines the relationship between a. Interest rates and bond prices. b. Inflation and bond prices. c. Interest rates and financial assets. d. The quantity of money demanded and the price level. e. The quantity of money demanded and the rate of interest.

The economic problems studied in macroeconomics include: - The level of economic activity; - Competition policy; - The rate of unemployment. a. 1 only b. 2 only c. 3 only d. 1 and 2 e. 1 and 3

The economic variables that the Bank of Canada tries to influence are ________ in the short run and ________ in the long run. a. The distribution of income; the unemployment rate b. Real GDP; the path of the price level c. The distribution of income; economic efficiency d. Real GDP; the exchange rate e. The exchange rate; the rate of inflation

The interest rate that commercial banks charge each other for the shortest period of borrowing or lending is called the a. Term interest rate. b. Prime rate. c. Overnight interest rate. d. Bank rate. e. Preferred lending rate.

The interest rate that the Bank of Canada charges commercial banks for loans is called the a. Term interest rate. b. Prime rate. c. Overnight interest rate. d. Bank rate. e. Preferred lending rate.

The largest component of the assets of the Bank of Canada is a. Government of Canada securities. b. Government of Canada deposits. c. Notes and coins in circulation. d. Loans to commercial banks. e. Loans to private individuals.

The largest component of the liabilities of the Bank of Canada is a. Government of Canada securities. b. Government of Canada deposits. c. Canadian currency in circulation. d. Deposits of commercial banks and other financial institutions. e. Loans to private individuals.

The main distinction between M2 and M2+ is that M2+ also includes a. Deposits at trust companies, caisse populaires and foreign-currency accounts. b. Coins in circulation. c. Money market mutual funds held by the Bank of Canada. d. Paper currency. e. Deposits at financial institutions other than the chartered banks.

The major advantage of using money rather than barter is that a. In the barter system there is no way to express values of commodities. b. Money is the only convenient way to store one's wealth. c. Money has more value than real goods. d. Money stays where you put it, whereas a cow often has to be fenced in. e. The use of money significantly reduces transactions costs.

The opportunity cost of holding money rather than bonds is a. The rate of interest earned on bonds. b. The price level. c. Forgone consumption. d. Forgone liquidity. e. Zero — there is no opportunity cost of holding money.

The overnight interest rate is crucial to the Bank of Canada when it implements its monetary policy because a. The Bank of Canada's first priority is to ensure the solvency of commercial banks. b. Its changes in the overnight interest rate generally lead to changes in longer-term interest rates. c. Overnight loans constitute a major source for open-market operations. d. The Bank of Canada has no ability to influence other interest rates. e. It is the result of the Bank of Canada's regular changes in the money supply.

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. Multiplied by the rate of inflation. d. Plus the risk ratio. e. Plus the price level.

The study of the long run in macroeconomics focuses a. On changes to actual GDP but not on changes in potential GDP. b. Equally on potential GDP and actual GDP. c. Primarily on changes to potential GDP. d. Primarily on changes to the output gap, with a constant level of potential output. e. Solely on the supply of factors of production.

The term "demand for money" usually refers to the a. Aggregate demand for money balances in the economy. b. Average person's desire to hold cash. c. Cash and deposits actually held by firms. d. Sum of all desired holdings of cash. e. Sum of all desired assets, including cash, bonds, and real property.

The term structure of interest rates refers to a. The general observation that the yield on 30-year government bonds is less than the yield on 90-day Treasury bills. b. The variance of the different interest rates available in the economy. c. The composition of the market interest rate. d. The variation of the market interest rate over the span of one year. e. The pattern of interest rates that corresponds to the varying terms to maturity of government securities.

Which of the following would cause a positive aggregate demand shock, but leave the aggregate supply curve unaffected? a. A free trade agreement between Canada and Europe that leads Canadian businesses to increase investment expenditures. b. A severe drought lasting for six months that destroys agricultural and forestry production. c. A medical report confirming that improved health for Canadian workers caused fewer lost days of production. d. An improvement in the computer literacy of workers. e. A substantial increase in world oil prices.

Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve? a. An increase in the business confidence of firms b. A reduction in government purchases c. An decrease in the MPC d. A decrease in the price level e. An increase in the price level

"Automatic fiscal stabilization" in the economy refers to a. The properties of government spending and taxation that cause the simple multiplier to be increased. b. The discretionary fiscal policies that are automatically undertaken by the government when there is a recessionary gap. c. The properties of government spending and taxation that cause the simple multiplier to be reduced. d. The discretionary fiscal policies that are automatically undertaken by the government when there is an inflationary gap. e. All discretionary fiscal policies.

"Excess reserves" for a commercial bank refer to a. Any surplus in the bank's supply of gold. b. Any surplus of chequable deposits. c. Any reserves (cash or deposits with the Bank of Canada) that the bank holds over and above its desired reserves. d. Reserves (cash or deposits with the Bank of Canada) that the Bank of Canada requires the bank to hold. e. Excess demand for money from that bank.

Refer to Figure 21-2. The slope of the consumption function in the figure is equal to A) 0.5 B) -0.5 C) 1.0 D) 0.67 E) -1.0

A 23)

A bank run is unlikely to occur in Canada today because a. If necessary, the central bank can provide all the reserves that are necessary to avoid this situation. b. The commercial banks are required by law to maintain 100% of their deposits in cash. c. There is relatively little demand for cash at present. d. Banking is done mostly electronically. e. The commercial banks hold enough government securities that are convertible into cash.

A central bank can "create" money by a. Selling some of its foreign-currency reserves for domestic currency. b. Selling government Treasury bills to the commercial banks. c. Increasing the rate of inflation. d. Issuing its own Central Bank bonds. e. Purchasing government securities on the open market.

A commercial bank's actual reserve ratio is the a. Fraction of its deposit liabilities that it actually holds as gold, other precious metal or cash in its own vaults. b. Fraction of its deposit liabilities that are backed by gold. c. Ratio of Canadian dollars to foreign currencies that it holds on its books. d. Ratio of chequable deposits to term deposits that it holds on its books. e. Fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada.

A commercial bank's target reserve ratio is the a. Fraction of its deposit liabilities that it wishes to holds as reserves, either as cash or as deposits with the Bank of Canada. b. Fraction of its deposit liabilities that it actually holds as cash in its own vaults. c. Fraction of its deposit liabilities that are backed by gold. d. Ratio of Canadian dollars to foreign currencies that the bank holds on its books. e. Ratio of chequable deposits to term deposits that the bank holds on its books.

A decrease in the money supply sets the monetary transmission mechanism in motion which results in a. A rise in the rate of interest, a rise in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. b. A fall in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. c. A fall in the rate of interest, a rise in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. d. A rise in the rate of interest, a fall in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. e. A rise in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve.

A desire by ________ has no effect on the ability of the banking system to create bank deposits, for a given amount of reserves in the banking system. a. Banks to delay making loans in expectation of higher future interest rates b. Households to increase the fraction of their money held in the form of currency c. Households to hold more money in safety-deposit boxes d. The government to increase its level of spending e. Firms to reduce their desired level of borrowing from banks

A farmer raises free-range chickens, which he sells to a company for $1000. That company sells the "processed" chickens to a grocery store for $1600, which in turn produces roasted chickens which are sold to the public for $2400. Based on this information, the value of total output is equal to a. $1400. b. $1600. c. $2400. d. $4000. e. $5000.

A firm that holds cash to avoid penalties associated with the late payment of bills is demonstrating which type of demand for money? a. Transactions demand b. Precautionary demand c. Speculative demand d. Present value demand e. Risk-return demand

A leftward shift in the aggregate demand (AD) curve could result from a rise in a. Autonomous exports. b. Autonomous government purchases. c. Government transfer payments to households. d. Desired investment. e. Autonomous desired savings.

Aggregate supply shocks cause the price level and real GDP to change in a. The same direction with price changing by more than output. b. The same direction and by the same amount. c. Opposite directions with price changing by less than output. d. Opposite directions but not necessarily by the same amount. e. Opposite directions but by the same amount.

All goods and services produced by one firm but used as inputs into a further stage of production are called a. Value added. b. Intermediate goods. c. National income goods. d. Final goods. e. Consumption goods.

All points on an economy's AD curve a. Correspond to a particular point on industry demand curves for a particular product. b. Relate a particular price level to the total demand for output at that price level. c. Show only changes in relative prices and quantities. d. Show the direct relationship between the price level and net exports. e. Show the direct relationship between the price level and the demand for consumer goods.

An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9400. The analyst should recommend a. Purchasing the bond because the purchase price is more than its present value and is therefore profitable. b. Purchasing the bond because the purchase price is less than its present value and is therefore profitable. c. Not purchasing the bond because the buyer could earn an additional $224 by investing the $9400 elsewhere. d. Not purchasing the bond because the buyer could earn an additional $376 by investing the $9400 elsewhere. e. Not purchasing the bond because the purchase price is less than its present value.

An increase in the money supply sets the monetary transmission mechanism in motion which results in a. A rise in the rate of interest, a rise in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. b. A fall in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve. c. A fall in the rate of interest, a rise in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. d. A rise in the rate of interest, a fall in the level of desired investment, an upward shift in the AE curve, and a rightward shift in the AD curve. e. A rise in the rate of interest, a fall in the level of desired investment, a downward shift in the AE curve, and a leftward shift in the AD curve.

An inflationary output gap implies that a. The demand for all factor services will be relatively low. b. The intersection of AD and AS occurs at real GDP below potential output. c. The economy's resources are being used beyond their normal capacity. d. There is a pressure for wages to decrease. e. There is excess supply of most factors of production.

An inflationary output gap is characterized by a. Falling prices. b. Constant prices. c. Real output that varies one-for-one with aggregate demand. d. Real GDP exceeding potential output. e. Real GDP falling below potential output.

An inflationary output gap occurs when a. Actual GDP exceeds potential GDP. b. Nominal GDP exceeds real GDP. c. Demand for labour services is very low. d. Equilibrium national income is below potential national income. e. Potential GDP exceeds actual GDP.

An inflationary output gap would generate which of the following conditions in the economy? a. Firms are making low profits. b. Workers have relatively more bargaining power with employers. c. There is an unusually small demand for labour. d. There is downward pressure on wages. e. There is much idle capacity.

Refer to Table 21-5. At the equilibrium level of national income, the level of desired saving will be A) $0 B) $25. C) $50. D) $375. E) equal to consumption expenditures.

B 83)

Consider a simple macro model with a constant price level and demand-determined output. In such a model, a downward shift of the saving function causes equilibrium national income to A) remain constant but consist of less consumption and more investment. B) rise because it shifts the AE function upward. C) remain constant because it does not affect desired aggregate expenditure. D) fall because it shifts the AE function downward. E) remain constant but consist of more consumption and less investment.

B 88)

Refer to Figure 21-3. In this demand-determined model of the macro economy, the price level is A) increasing as the economy moves from E0 to E1. B) measured by Y2/0B. C) measured by Y1Y2/AB. D) derived from the slope of the AE function. E) assumed to be constant.

E 61)

Developments in the financial industry in recent years have resulted in a multitude of types of deposits. For the purposes of studying the money supply, the most important distinction is between chequing and savings deposits which are ________ and term deposits and other financial assets which are ________. a. A store of value; not a store a value b. A unit of account; not a unit of account c. A component of the money supply; not a component of the money supply d. Media of exchange; not media of exchange e. Money substitutes; near money

Doug compares the unit price of chocolate bars in order to get the "best buy." This represents using money as a. A medium of exchange. b. A store of value. c. A unit of account. d. A unit of deferred payment.

Doug is saving money in order to purchase a new snowboard next winter. This represents using money as a. A medium of exchange. b. A store of value. c. A unit of account. d. A medium of deferred payment. e. Method of barter.

During a period of renewed inflation fears in 1988, the governor of the Bank of Canada, Mr. John Crow, announced that monetary policy would henceforth be guided more by A) exchange rate targets since depreciation of the Canadian dollar tends to be inflationary. B) real GDP growth. C) the goal of long-term "price stability." D) the level of real income growth and "price stability." E) unemployment levels and the level of prices.

During the 1970s, Canada experienced an unusual pattern of interest rates. During this period a. The nominal interest rate was less than the real interest rate. b. The inflation rate was negative, implying a real interest rate that was higher than the nominal 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 nominal interest rate higher than the real interest rate. e. The nominal and real interest rates were equal to each other.

Refer to Table 21-1. The equilibrium level of national income will be A) $ 70. B) $ 93. C) $120. D) $160. E) $280.

E 67)

Consider a simple macro model with demand-determined output. If desired aggregate expenditure is greater than actual national income, then A) inventories will likely begin to fall, causing firms to increase production. B) actual output must be less than the equilibrium level. C) inventories will likely begin to rise, causing firms to reduce production. D) actual output must be greater than the equilibrium level. E) both A and B are correct.

E 75)

Refer to Table 21-5. At the equilibrium level of national income, what is the level of desired consumption expenditures? A) $150 B) $375 C) $125 D) $50 E) $350

E 82)

Economic booms can cause problems as well as create benefits because they are often accompanied by a. Deflationary pressures. b. Excessive labour-force participation. c. Inflationary pressures. d. Pressure on the government budget deficit to rise. e. Rising real interest rates.

Economic theory argues that there will be fewer real effects from inflation as long as the a. Actual rate of inflation is less than 5%. b. Anticipated rate of inflation is more than the actual rate of inflation. c. Anticipated rate of inflation is less than the actual rate of inflation. d. Inflation is fully anticipated and no one changes their behaviour. e. Whole private sector is unaware that it is happening.

Economists at the Bank of Canada estimate that time lags in monetary policy imply that A) monetary policy is totally ineffective in changing overnight lending rates in the short run. B) monetary policy is totally ineffective in changing core inflation rates in the long run. C) monetary policy can cause changes in real GDP to occur in 9-12 months and changes in core inflation to occur in 18-24 months. D) monetary policy can cause changes in core inflation to occur in 9-12 months and changes in the exchange rate to occur in 18-24 months. E) monetary policy can cause changes in core inflation to occur in 9 to 12 months and changes in real GDP to occur in 18-24 months.

Given current limitations, fiscal policy as a macroeconomic stabilizer is more defensible the ________ the output gap being suffered, an argument supporting ________. a. Larger; fine tuning b. Larger; gross tuning c. Smaller; fine tuning d. Smaller; crowding out e. Larger; crowding out

Given its existing policy regime of "inflation targeting," the Bank of Canada would likely react to a large negative AD shock by a. Raising the bank rate. b. Selling bonds on the open market. c. Increasing its target for the overnight interest rate. d. Decreasing its target for the overnight interest rate. e. Ignoring the shock and allowing the economy to adjust.

Given its existing policy regime of "inflation targeting," the Bank of Canada would likely react to a large positive aggregate demand shock by a. Lowering the bank rate. b. Buying bonds from the open market. c. Increasing its target for the overnight interest rate. d. Decreasing its target for the overnight interest rate. e. Ignoring the shock and allowing the economy to adjust.

In order to be considered "money," paper currency must be a. Convertible into a precious metal. b. Impossible to counterfeit. c. Issued by a chartered bank. d. Issued by a government agency. e. Generally acceptable as a medium of exchange.

Gresham's law predicts that a. Good money drives out bad money. b. Debased money will circulate with undebased money. c. Undebased money will be driven from circulation. d. Debased money will be driven from circulation. e. Money is neutral in the long run.

Gross domestic product is the sum of factor incomes ________ indirect business taxes, ________ subsidies, ________ depreciation. a. Plus; plus; plus b. Plus; plus; minus c. Plus; minus; minus d. Plus; minus; plus e. Minus; plus; plus

High and uncertain inflation is damaging to the economy because a. The price system is no longer capable of effectively signalling changes in relative scarcity through changes in relative prices. b. Individuals who receive their incomes in fixed nominal terms are made worse off. c. There can be unexpected reallocations of real income between workers and firms. d. There can be unexpected reallocations of real income between borrowers and lenders. e. All of the above.

High inflation is costly to firms and individuals. Of the following, who is most adversely affected by high inflation? a. A homeowner with a 25-year fixed-rate mortgage b. A student with student loans repayable in nominal terms at a fixed rate of interest c. A student with student loans repayable on an indexed basis at a variable rate of interest d. A senior whose retirement income is an indexed pension plan e. A senior whose retirement income is fixed in dollar terms

Historically, nominal GDP has increased faster than real GDP because a. The general price level has fallen. b. Improvements in product quality have not been reflected in prices. c. Exports have risen more rapidly than imports. d. Imports have risen more rapidly than exports. e. The general price level has increased.

In the basic AD/AS macro model, it is assumed that, for any given interest rate, the demand for money depends on the a. Aggregate demand for goods and services. b. Level of government spending. c. Rate of growth of real GDP. d. Level of taxes. e. Level of real GDP and the price level.

In the long run, aggregate demand is ________ for determining real GDP, and the paradox of thrift ________. a. Not important; applies b. Not important; does not apply c. The only influence; applies d. The most important influence; does not apply e. Stable and important; applies

In the short run, the aggregate supply curve has a positive slope because, as the price level rises, producers can a. Accumulate inventories. b. Charge a higher price sufficient to cover their higher unit costs. c. Experience rising factor prices. d. Produce less in response to falling profits. e. Increase output at unchanged unit costs.

In the study of short-run fluctuations in national income, potential income (output) is usually assumed to be a. Falling at its average growth rate. b. Moving together with potential output in neighboring countries. c. Constant. d. Equal to actual income. e. Irrelevant, as the economy is rarely there.

Income taxes in Canada can be considered to be automatic stabilizers because tax a. Revenues increase when income increases, thereby offsetting some of the increase in aggregate demand. b. Revenues decrease when income increases, thereby intensifying the increase in aggregate demand. c. Structures can be changed when the Minister of Finance brings down a budget. d. Revenues are changed through discretionary fiscal policy to keep the budget balanced. e. Revenues are changed through discretionary fiscal policy to create surpluses in recessions.

It is important for policy makers to recognize that most macroeconomic variables are characterized by a. Long-run trends and short-run fluctuations. b. Gradual increases over long periods of time. c. Short-run fluctuations that need to be smoothed for a well-functioning economy. d. Long-run economic growth. e. The impacts of the business cycle.

It is widely accepted by economists that monetary policy is the most important determinant of a country's a. Level of real GDP. b. Level of potential output. c. Aggregate supply curve. d. Long-run rate of inflation. e. Long-run rate of economic growth.

It might take a while before the effects of changes in monetary policy are realized in the economy because it takes a while for A) the overnight interest rate and longer-term interest rates to adjust. B) investment expenditures and net exports to adjust. C) government purchases to adjust. D) monetary policy to be implemented via open-market operations. E) the exchange rate to adjust.

Macroeconomic equilibrium is described as the combination of a. Potential output and price level that is on both the AD curve and AS curve. b. Real GDP and price level that is on both the AD curve and 45-degree line. c. Real GDP and price level that is on both the AD curve and AS curve. d. All individual demand curves and all individual supply curves. e. All individual demand curves and potential GDP.

Macroeconomics is mainly concerned with the study of a. Individual households and how they deal with problems like inflation and unemployment. b. Large economic units such as General Motors or Molson Breweries. c. Fluctuations and trends in disaggregated data. d. Fluctuations and trends in aggregated data. e. Governments and their intervention in individual markets.

Many central banks have established formal targets for the rate of inflation because of the following fundamental observations about economic relationships: - There are high costs associated with inflation - High inflation causes high unemployment - Monetary policy is the cause of sustained inflation a. 1 only b. 2 only c. 3 only d. 1 and 3 only e. 1, 2, and 3

Many economists think discretionary fiscal policy is of limited effectiveness in stabilizing the economy because - The multiplier effects associated with fiscal policy take a long time; - Changes in government spending and taxation are too small in relation to the size of the economy to have much effect; - There are long and uncertain lags in implementing fiscal policy. a. 1 only b. 2 only c. 3 only d. 1 and 2 e. 1 and 3

Other things being equal, the purchasing power of money is a. Inversely related to the level of aggregate demand. b. Inversely related to the price level. c. Directly related to the price level. d. Directly related with the cost of living. e. Directly related to the level of aggregate demand.

Net tax revenues that rise with national income act as an automatic stabilizer by ________ the marginal propensity to spend and thereby causing the simple multiplier to ________. a. Increasing; increase b. Increasing; decrease c. Decreasing; equal one d. Decreasing; decrease e. Decreasing; increase

Other things being equal, the transactions demand for money tends to increase when a. Interest rates rise. b. Interest rates stop rising. c. National income rises. d. National income falls. e. The price level falls.

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. Business cycle. b. Distribution of income. c. Inflation rate. d. Path of potential output. e. Unemployment rate.

On a graph showing real national income on the vertical axis and time on the horizontal axis, the trend-line would probably be a good approximation of the a. Business cycle. b. Distribution of income. c. Inflation rate. d. Path of potential output. e. Unemployment rate.

On a graph that shows the derivation of the AD curve, an exogenous change in the price level causes a. A shift in the AE curve and a movement along the AD curve. b. A shift in both the AE and AD curves. c. A movement along the AE curve and a shift in the AD curve. d. A movement along the AE curve but not along the AD curve. e. A movement along both the AE and AD curves.

One major reason that GDP is an inaccurate measure of the "quality of life" is that a. People frequently buy things they do not want. b. It does not include the value of leisure. c. It is statistically very inaccurate. d. It cannot be adjusted for changes in prices. e. It includes net exports.

Refer to Figure 24-2. If the economy is currently in a short-run equilibrium at , the economy is experiencing a. Potential output growth. b. A long-run equilibrium. c. An excess supply of labour. d. An inflationary output gap. e. A recessionary output gap.

Statistics Canada excludes from GDP the value of goods and services exchanged "under the counter" because a. Statistics Canada is responsible for making an ethical decision about which activities to exclude from national income measures. b. Satisfactory methods for their measurement have not been developed. c. Their production has zero opportunity cost. d. These goods are all intermediate goods. e. These goods do not contribute to well-being.

Suppose output is at its potential level and then there is a sudden increase in food and energy prices. This increase a. Makes inflation targeting easier because it makes these problems less relevant. b. Makes inflation targeting harder because these are closely related to excess demand in the economy. c. Would be unlikely to lead to an immediate policy response because it would not appear in "core" inflation. d. Would be offset by a decline in the Canadian dollar, making these price increases irrelevant. e. Is closely related to changes in core inflation so the Bank of Canada uses these for targeting inflation.

The Bank of Canada determines the "bank rate" by setting it equal to the upper end of a 50 basis-point-range that the a. Government of Canada pays for short term loans to meet interest payments on the public debt. b. Bank of Canada announces as a target range for the overnight interest rate. c. Bank of Canada announces as a target range for the exchange rate between the Canadian Dollar and the US Dollar. d. Bank of Canada announces as the target range for the five-year mortgage rate. e. Bank of Canada announces as its target for the core rate of inflation.

The Bank of Canada initially implements a contractionary monetary policy by a. Directly decreasing the money supply. b. Raising its target for the overnight interest rate. c. Selling government securities on the open market. d. Buying government securities on the open market. e. Reducing its target for the overnight interest rate.

The aggregate supply (AS) curve is drawn with which variables on the axes of the graph? a. The price level on the vertical axis and MPC on the horizontal axis b. National income on the vertical axis and total desired consumption on the horizontal axis c. The price level on the vertical axis and real GDP on d. National income on the vertical axis and marginal cost on the horizontal axis e. The price level on the vertical axis and real disposable income on the horizontal axis

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because a. Of increasing factor prices. b. Of increasing productivity of the factors of production. c. Of diminishing marginal productivity of the factors of production. d. Of rising competition among price setters. e. Of excess capacity at higher levels of output.

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell, given the assumption that a. Technology and the prices of all factors of production remain constant. b. Unit costs remain constant. c. All firms are price takers. d. All firms are price setters. e. Technology and the prices of all factors of production do not remain constant.

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly. a. Equilibrium output; unit costs b. Profit-maximizing output; total costs c. Capacity; unit costs d. Equilibrium output; total costs e. Equilibrium output; average costs

The aggregate supply curve will shift as a result of a change in - 1) the wage rate; - 2) the price level; - 3) technology. a. 1 only b. 2 only c. 3 only d. 1 and 3 e. 2 and 3

The amount of currency in circulation in the Canadian economy is described as being endogenous to the system. This is because a. The process of deposit creation by the commercial banks is determined by the Bank of Canada. b. The commercial banks determine the currency in circulation in response to the Bank of Canada's changes to the money supply. c. The Bank of Canada conducts its open-market operations in response to the changing demand for cash from the commercial banks. d. The Bank of Canada targets the money supply directly. e. The Bank of Canada targets the currency in circulation directly.

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP. The underlying reasoning is that a. Consumer demand for most goods tends to be non-responsive to price when output is low. b. Consumer demand for most goods tends to be very responsive to price when output is low. c. At low levels of output, firms are faced with unused capacity and thus can increase output without significantly increasing their costs. d. The price level is constant. e. Profits are normally high in this section of the AS curve, so firms are willing to expand output.

The economy's AS curve will shift upward in the short a. An improvement in technology. b. A decrease in the cost of capital. c. An increase in the price level. d. A decrease in nominal wages. e. An increase in nominal wages.

The economy's aggregate supply (AS) curve is assumed to slope upward because a. Inputs become more expensive at higher levels of output. b. Inputs become less expensive at higher levels of output. c. Firms' unit costs rise as output increases. d. Firms' unit costs fall as output increases. e. Aggregate demand increases at higher levels of national income.

The economy's aggregate supply (AS) curve shows the relationship between the a. Equilibrium real GDP and marginal cost. b. Equilibrium real GDP and desired consumption. c. Price level and the marginal propensity to consume (MPC). d. Price level and the total output that firms wish to produce and sell, with technology and input prices held constant. e. Price level and the total output that firms wish to produce and sell, as technology and input prices vary.

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies. A crucial function that ceased to work smoothly during this time, and contributed to the global recession that began in 2008, was a. The acceptance of deposits from firms and households. b. The joint regulation of financial markets. c. The provision of credit to firms, households and other banks. d. Cheque clearing and collection. e. The clearing of electronic transfers.

The function of money in an economy is to serve as - A unit of account; - A store of value; - A medium of exchange. a. 1 and 2 b. 2 and 3 c. 1 and 3 d. 1, 2, and 3 e. 3 only

The functions of the Bank of Canada include a. Acting as the lender of last resort for the largest private corporations. b. Acting as banker for the commercial banks. c. Regulating both the money market and stock market. d. Setting the exchange rate for the Canadian dollar on world markets. e. Providing deposit insurance at Canadian commercial banks.

The monetary transmission mechanism in an OPEN economy is more complicated than it is in a closed economy because the effects of domestic monetary contraction or expansion are a. Strengthened because domestic interest rates must be equal to those in the rest of the world. b. Weakened because changes in autonomous expenditure cause monetary effects that influence interest rates in the rest of the world. c. Strengthened because changes in autonomous expenditure cause monetary effects that influence interest rates in the rest of the world. d. Strengthened because changes in the domestic money supply cause changes in the exchange rate, which then reinforce the changes in desired investment. e. Weakened because changes in the domestic money supply cause changes in the exchange rate which then offset the changes in desired investment.

The monetary transmission mechanism provides a partial explanation for the downward slope of the AD curve. For a given vertical MS curve, the explanation for the negative relationship between the price level and aggregate demand is as follows: A rise in the price level shifts the curve a. To the right, the interest rate rises and desired investment expenditure rises. b. To the left, the interest rate falls, and desired investment expenditure rises. c. To the right, the interest rate rises and desired investment expenditure falls. d. To the left, the interest rate rises and desired investment expenditure falls. e. To the right, the interest rate falls and desired investment expenditure falls.

The most common measure of productivity is ________, which can be measured as real GDP divided by ________. a. Indexed productivity; per capita output b. Factor productivity; the total number of factors employed in the economy c. Capital productivity; the number of units of capital employed in the economy d. Potential productivity; the total number of factors that would be employed in the economy at full employment e. Labour productivity; the number of units of work effort

The three main reasons that Canada's real GDP has increased steadily for many years are a. Rising employment, increasing levels of education of the labour force and the increase in the participation rate of women in the labour force. b. An increasing stock of physical capital, increasing exports and rising employment. c. The increase in life expectancy, the rise in employment and increasing productivity. d. Rising employment, increasing stock of physical capital and increasing productivity. e. Increasing productivity of labour, increasing productivity of land and increasing productivity of the capital stock.

The total investment that occurs in the economy is called gross investment. When calculating GDP using the expenditure approach, this investment component is equivalent to a. Net investment only. b. Net investment minus depreciation. c. Gross investment plus depreciation. d. Net investment plus depreciation. e. Fixed investment minus depreciation.

The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy. Under what circumstances might an increase in G cause the level of potential output ( ) to increase? a. If the increase in G crowds out private investment. b. If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a permanent rightward shift of the AD curve. c. If the increase in G is spent on public infrastructure that increases the productivity of private-sector production. d. If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. e. If the increase in G is offset by an equal decrease in C, I, and NX.

The use of money in an economy does which of the following? a. Creates the necessity for a double coincidence of wants b. Solves the problem of inflation c. Creates a problem of trading a portion of indivisible commodities such as a ship d. Promote specialization and the division of labour e. Promotes the use of barter

To raise short-term market interest rates, the Bank of Canada could a. Purchase government securities in the open market. b. Increase its target for the overnight rate. c. Increase the commercial banks' required reserves. d. Adjust the rate paid on Treasury bills. e. Lower the reserve requirement.

To reduce short-term market interest rates, the Bank of Canada could a. Reduce its target for the overnight rate. b. Decrease the commercial banks' reserves. c. Decrease the money supply directly. d. Adjust the rate paid on Treasury bills. e. Reduce the commercial banks' reserve requirements.

To remove a recessionary gap, the Bank of Canada would probably seek to a. Increase its target for the overnight interest rate. b. Increase the bank rate. c. Decrease its target for the overnight interest rate. d. Sell government securities through open-market operations. e. Decrease its target for the money supply.

To remove an inflationary gap, the Bank of Canada would probably seek to a. Increase its target for the money supply. b. Decrease its target for the overnight interest rate. c. Increase its target for the overnight interest rate. d. Decrease the bank rate. e. Buy government securities through open-market operations.

Total value added in an economy is equal to the value of a. All final goods produced. b. All final and intermediate goods produced. c. All inputs and outputs in the economy. d. All profits of all firms in the economy. e. The sum of the value of primary, intermediate and final goods.

Transfer payments are excluded from the government component in the calculation of GDP because a. They do not represent the purchase of a good or a service. b. They are not counted as income by any economic agent. c. They do not generate additional income in the economy. d. It is difficult to assess the market value of a transfer payment. e. They are small enough to ignore when computing the national accounts.

Until recently, and for many years, the common definition of the money supply used by the Bank of Canada was M1, which included currency in circulation plus a. Chequable deposits at the chartered banks. b. Chequable deposits and savings accounts at the chartered banks. c. Savings accounts and demand loans. d. Term deposits and money market funds. e. Chequable deposits at all financial institutions.

What do we mean in our current banking system when we say that a currency is "fractionally backed"? a. Banks have many more claims outstanding against them than they have reserves available to pay those claims. b. The currency is partially backed by the nation's supply of gold. c. A bank's currency is fractionally backed by its supply of gold. d. All paper currency is convertible to gold. e. Banks maintain a fixed fraction of their outstanding deposits as cash deposits with the central bank.

Which of the following entries would appear on the liabilities side of a commercial bank's balance sheet? a. Mortgage loans b. Government of Canada securities c. Cash reserves d. Foreign currency reserves e. Demand deposits

Which of the following statements about output gaps is true? a. When actual GDP is below potential GDP, there is upward pressure on wages. b. When actual GDP is below potential GDP, there is upward pressure on output prices. c. When actual GDP is above potential GDP, there is downward pressure on wages. d. When actual GDP is above potential GDP, there is downward pressure on output prices. e. When actual GDP is above potential GDP, there is upward pressure on wages.

Which one of the following statements best describes the monetary transmission mechanism? a. An increase in personal consumption leads to an upward shift in the AE curve and thereby increases real GDP. b. An increase in government spending causes the AE curve to shift upwards, leading to a higher GDP. c. A decrease in imports causes the AE curve to shift upwards, leading to a higher interest rate. d. An increase in the money supply leads to a lower interest rate, higher desired investment, an upward shift in the AE curve and a higher GDP. e. A decrease in the money supply leads to a lower interest rate, higher desired investment, an upward shift in the AE curve and a higher GDP.

Why are illegal activities, unreported activities, and non-market activities excluded from GDP? a. They do not contribute to human welfare. b. They do not have an opportunity cost. c. They are difficult to measure. d. The do not contribute to the true national output of goods and services. e. They are morally repugnant.

Why is real income for an average Canadian today so much higher than it was for an average Canadian 100 years ago? a. Because of the increase in the labour force due to rising population, immigration and the increase in female labour-force participation. b. Primarily because productivity per worker is so much higher today than in the past. c. Because inflation has been maintained at relatively low levels throughout that time. d. Because free-trade agreements have vastly increased real incomes. e. Because the life span of the average worker has increased from about 55 years to about 80 years over that time period.

A change in the Consumer Price Index measures a. A change in a specific absolute price. b. A change in quantities of commodities sold. c. A change in relative prices. d. A change in a broad average price over some particular time span. e. The change in gross domestic product.

A worker currently earning $3000 per month has negotiated a 4% wage increase in anticipation of a 4% inflation rate in the next year. Under what scenario will the worker have a higher purchasing power? a. If next year's inflation rate is 4% b. If next year's inflation rate is 3% c. If next year's inflation rate is 5% d. If next year some prices increase by only 4% e. If next year some prices increase by only 5%

A worker is considered unemployed if that worker has no job, is legally eligible to work, a. And is actively searching for employment. b. And is not collecting unemployment insurance. c. Whether the worker is looking for a job or is not looking for a job. d. But only if they previously held a job. e. But only if they were previously employed for at least three consecutive months.

An example of a topic outside the scope of macroeconomics is a. Changes in the price of a particular good in a specific market. b. Changes in the unemployment rate. c. The aggregate growth rate of the economy. d. The overall level of unemployment. e. The level of productivity, as compared with that in the United States.

An output gap with Y < Y* a. Is desirable because it keeps wage costs low. b. Represents a loss of output due to unemployed resources. c. Tends to force prices up. d. Occurs when there is excess demand. e. Is known as an inflationary boom.

An upward trend in real national income over an extended period of time is called a. An inflationary boom. b. Aggregate output. c. Constant-dollar national income. d. Potential national income. e. Economic growth.

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, software engineers are in increasing demand. These unemployed tellers would be classified as a. Cyclically unemployed. b. Frictionally unemployed. c. Naturally unemployed. d. Structurally unemployed. e. Underemployed.

Changes in productivity can be analyzed by looking at how GDP per employed worker changes over time or how GDP per hour worked changes over time. Why might one measure be more preferable than the other? a. GDP per hour worked is preferable because it eliminates the need to adjust for variations in productivity between employed workers. b. GDP per employed worker is more accurate because the data available on the number of employed workers is more accurate than the data available on the number of hours worked. c. GDP per hour worked is more accurate because the average number of hours worked per employed worker has changed over time. d. GDP per employed worker is preferable because the number of employed workers has risen significantly over time. e. Both measures are equally good.

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. 100 chickens plus 50 bags of corn plus 40 bushels of apples. b. 190 units of goods produced. c. $2100. d. $2470. e. Not determinable from the information provided.

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 hour worked = $200 b. Real GDP per employed worker = $200 000 c. Real GDP per hour worked = $400 d. Real GDP per employed worker = $400 000 e. Not able to determine from the information provided

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 hour worked = $20 b. Real GDP per employed worker = $20 c. Real GDP per hour worked = $200 d. Real GDP per employed worker = $200 e. Not able to determine from the information provided

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. Trough b. Recovery c. Peak d. Recession e. Slump

Consider the growth in Canada's labour force and employment. Over the last 50 years, a. The labour force has grown much more rapidly than employment. b. Both the labour force and employment have remained roughly constant. c. 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. d. The main trend of the economy has been one of growth in employment that roughly matches the growth in the labour force. e. The main trend of the economy has been to have employment grow more rapidly than the growth in output.

Cyclical unemployment is associated with which of the following? A) changes to the economy's industrial structure resulting from growth in some industries and decline in others b. An output level different from the economy's potential output c. Differences between the characteristics of the supply of labour and the demand for labour d. People entering the labour force typically take some time to find a job e. People quitting their present jobs to look for other jobs

Economists expect some unemployment to exist even at times of "full employment" for, among others, the following reasons: - Actual GDP is rarely equal to potential GDP; - As the economy changes, the structure of the existing labour force is not the same as the structure of labour demand; - People entering the labour force typically take some time to find a job. a. 1 only b. 2 only c. 3 only d. 2 and 3 e. 1 and 2

If a country's population is 15 million people, and 1 million of those are unemployed, the country's unemployment rate is a. 2.5%. b. 3.3%. d. 6.7%. d. 7.1% e. There is not enough information to know.

If nominal national income increased by 10% over a certain period of time while real national income increased by 20%, then a. Everybody in the economy became worse off. b. Inflation has occurred during this time period. c. The labour force increased by 10%. d. The price level has declined by about 10%. e. The price level has increased by approximately 10%.

If nominal national income increased by 20% over a certain period of time while real national income increased by 10%, then a. Everybody in the economy became worse off. b. Inflation has decreased during this time period. c. The labour force increased by 10%. d. The price level has declined by about 10%. e. The price level has increased by approximately 10%.

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. 22%. b. 20%. c. 2.0%. d. 1.67%. e. 0%.

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%. b. 12.5%. c. 20%. d. 25%. e. 30%.

If the cyclical unemployment rate is greater than zero, then the a. Economy is operating beyond full employment. b. Economy is operating at full employment. c. Economy is operating at less than full employment. d. Frictional unemployment rate is greater than the structural unemployment rate. e. Real-wage unemployment rate is negative.

If the cyclical unemployment rate is negative, then the e. Economy is operating beyond full employment. b. Economy is operating at less than full employment. c. Frictional unemployment rate is negative. d. Frictional unemployment rate is greater than the structural unemployment rate. e. Real-wage unemployment rate is negative.

In macroeconomics, the "output gap" is the difference between a. Output in the current year and output in the base year. b. Output and employment. c. Potential real national income and actual real national income. d. Real GNP and real GDP. e. Real and nominal national income.

In macroeconomics, the term "national income" refers to a. All sales of both current production and used goods. b. Only those sales of currently produced goods sold to other nations. c. The value of a nation's total wealth. d. The value of the income generated by the production of total output. e. Total current spending by all households.

In order to determine the economy's real GDP growth rate between two time periods, we should look at a. Nominal national income, because it compares actual output in each time period. b. Real national income in each time period, which is equal to nominal national income corrected for price- level changes. c. Potential national income, corrected for price-level changes. d. Real national income in each period, which is equal to nominal national income corrected for quantity changes. e. Only the real national product from the latest time period.

In some macroeconomic analyses, it is common to treat the level of productivity as roughly constant. This is a justifiable assumption in a. The long run. b. The short run. c. Both the long run and the short run. d. Neither the long run nor the short run. e. Macroeconomics but not microeconomics.

Real GDP measures a. The constant-dollar value of the potential output of the nation's economy over the period of one year. b. The quantity of total output produced by the nation's economy over the period of one year. c. The fluctuations of national income around its long-term trend. d. The annual growth rate of real national income. e. The long-term trend in total output produced by the nation's economy.

Refer to Table 19-1 What is the output gap in 2012? a. $420 billion b. $418 billion c. - $2 billion d. - $20 billion e. $2 billion

Refer to Table 19-1. In the year 2012, it is probably the case that workers are ________ and factories are ________. a. Facing cyclical unemployment; facing temporary shut downs b. Working longer than normal hours; facing temporary shutdowns c. Experiencing zero unemployment; operating extra shifts d. Experiencing zero unemployment; operating beyond their normal capacity e. Working longer than normal hours; operating beyond their normal capacity

Refer to Table 19-1. In the year 2014, it is probably the case that workers are ________ and factories are ________. a. Facing cyclical unemployment; facing temporary shut downs b. Working longer than normal hours; facing temporary shutdowns c. Experiencing zero unemployment; operating extra shifts d. Experiencing zero unemployment; operating beyond their normal capacity e. Working longer than normal hours; operating beyond their normal capacity

Refer to Table 19-1. In which years are the factors of production in this economy said to be "fully employed"? a. 2009, 2010, 2014 b. 2011, 2015 c. 2012, 2013 d. all years e. none of the years

Refer to Table 19-1. In which years was this economy experiencing a recessionary gap? a. 2012, 2013 b. 2009, 2010, 2014 c. 2011, 2015 d. 2009, 2010, 2011 e. 2013, 2014, 2015

Refer to Table 19-1. In which years was this economy experiencing an inflationary gap? a. 2012, 2013 b. 2009, 2010 c. 2013, 2014 d. 2011, 2015 e. 2009, 2010, 2014

Refer to Table 19-1. What is the output gap in 2010? a. $408 billion b. $411 billion c. $7.1 billion d. $3 billion e. - $3 billion

Refer to Table 19-1. What is the unemployment rate when this economy is at "full employment"? a. 5.9% b. 6.0% c. 6.3% d. 7.0% e. 7.1%

Short-run fluctuations in real GDP around its trend value are a. Generally ignored by economists, because these fluctuations do not affect behaviour of other variables such as the unemployment rate. b. Generally ignored by economists, because these fluctuations are constant and predictable. c. Referred to in economics as "background noise" d. Referred to in economics as "the business cycle" E) unimportant to the study of macroeconomics.

Since 1960 in Canada, the rate of inflation has ranged (approximately) between a. 0 and 12%. b. - 5 and 5%. c. 2 and 4%. d. 2 and 20%. e. 1 and 24%.

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. Leave the value of national income unchanged. d. Increase the value of national income by $1000. e. Increase the value of national income by $3000.

Suppose a country has an unemployment rate of 20%. If we know that the population is 38 million and the labour force is 25 million, then the number of people unemployed is a. 5 million. b. 13 million. c. 20 million. d. 7.6 million. e. 2.6 million.

Suppose a small city has a population of 100 000 and a labour force of 60 000. Employment is 55 000 and 5000 workers are unemployed. How many people are not in the labour force? a. 40 000 b. 35 000 c. 30 000 d. 5000 e. 0

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. Greater is the employment rate. d. Greater is the unemployment rate. c. Lower is frictional unemployment. d. Lower the deadweight loss of unemployment. e. More upward pressure there is on prices.

Suppose an employer and its employees enter into a wage contract specifying a wage increase of 2%. But suppose that the price level rises by 3% over the course of the contract. In this case, a. The employees' purchasing power will rise. b. The employees' purchasing power will fall. c. The employer will experience a greater fall in purchasing power than would have occurred if the price level had held steady. d. Both employer and employees will benefit from increased purchasing power. e. Both employer and employees will experience a loss of purchasing power.

Suppose that a country's population is 30 million and it has a labour force of 15 million people. If 14.5 million people are employed, the country's unemployment rate is a. 2.5%. b. 3.3%. c. 4.5%. d. 6.7%. e. 9.0%.

Suppose that a price index for a certain basket of goods and services has a value of 150 in 2015 and a value of 156 in 2016. This index suggests that the cost of the market basket of goods and services a. Was 4% higher in 2016 than in 2015. b. Was 6% lower in 2016 than in 2015. c. Was 6% higher in 2016 than in 2015. d. Was 156% higher in 2016 than in 2015. e. Was approximately the same in 2016 and 2015.

Suppose that at the end of a given year there has been unanticipated inflation of 4%. Who is better off at the end of the year? a. A bank that lent money at the beginning of the year b. A bank that lent money at the end of the year c. A consumer who borrowed money at the beginning of the year d. A consumer who borrowed money at the end of the year e. A consumer who lent money at the end of the year

Suppose that in 2016 Canada's automobile manufacturers produced 2 million cars priced at $20 000 each. And in 2017 they produced 1 million cars priced at $40 000 each. Ceteris paribus, the change in nominal national income is a. A decrease because fewer cars were produced. b. An increase because the price of each car increased. c. Insufficient information to know. d. No change in nominal national income. e. An increase because of inflation.

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%. b. 5.2%. c. 5.5%. d. 54.5%. e. 57.5%.

Suppose the unemployment rate is 8.5% and we know that frictional and structural unemployment together account for 5.5%. The cyclical unemployment rate is then a. 14%. b. 8.5%. c. 5.5%. d. 3.0%. e. -3.0%.

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.

The price level is measured in some time period with an index number, such as the number 118.6. How is such a number of use to us? a. It allows us to compare it to the value of the same index number from another time period to determine the rate of change of the price level. b. The index number tells us the rate of inflation. c. It tells us the dollar value for the average basket of goods and services bought by the typical Canadian household. d. It tells us the real value for the average basket of goods and services bought by the typical Canadian household. e. It tells us the percentage change in the price level from the previous time period.

The real interest rate must be a. High if the nominal interest rate is high. b. High if the inflation rate is greater than the nominal interest rate. c. Low if the nominal interest rate is high. d. Positive if the nominal rate of interest is greater than the rate of inflation. e. Negative if the nominal rate of interest is greater than the rate of inflation.

The unemployment rate will understate the true amount of unemployment if a. The unemployment rate is rising. b. Crime, divorce, and social unrest are all positively correlated with unemployment. c. The official unemployment figure excludes discouraged workers who have stopped actively looking for work. d. The labour force has grown more rapidly than output. e. The actual unemployment rate is greater than the natural rate of unemployment.

To compare the economy's aggregate output in two different time periods, economists compare the a. Nominal national income for the two periods. b. Potential national incomes for the two periods. c. Real national income for the two periods. d. Unemployment rates for the two periods. e. Inflation rates for the two periods.

What is potential or full-employment output? 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. A goal that can never be achieved by the economy d. The GDP that would be produced if the economy's resources were fully employed at a normal intensity of use e. The GDP that could be produced if the economy's resources were fully employed at their maximum intensity of use

When macroeconomists use the term "recession" they usually define it as a fall in real GDP that lasts for at least a. One quarter. b. Two quarters. c. Three quarters. d. One year. e. Two years.

Which of the following correctly describes the meaning of the expression Y < Y*? a. Actual output is less than potential output - a recessionary gap b. Potential output is less than actual output - a recessionary gap c. Actual output is less than potential output - an inflationary gap d. Potential output is less than actual output - an inflationary gap

Which of the following correctly describes the meaning of the expression Y > Y*? a. Actual output is more than potential output - a recessionary gap b. Potential output is more than actual output - a recessionary gap c. Actual output is more than potential output - an inflationary gap d. Potential output is more than actual output - an inflationary gap

Which of the following is an accurate statement about real national income? a. It always equals nominal national income b. It changes by the same amount and in the same direction as does nominal national income c. It changes only when the underlying quantities change d. It refers to national income with no adjustment for changes in prices e. It refers to national wealth but is not an indicator of current production

Which of the following is an equivalent term for "full-employment output"? a. Actual output b. Long-run output c. Gross national product (GNP) d. Gross domestic product (GDP) e. Potential output

Which of the following is the best description of the business cycle? a. The normal cycle of profits and losses by producers in the economy b. The short-run fluctuations of national income around its trend value c. A five-year period designed for national accounting purposes to capture the normal cycle of recession periods and boom periods d. A ten-year period designed for national accounting purposes to capture the normal cycle of recession periods and boom periods e. The fluctuations of one country's national income in comparison to another country's national income

Which of the following is the best example of cyclical unemployment? a. A worker is laid off because his firm had to reduce production due to reduced demand. b. A worker quits her current job to search for a better one. c. An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta. d. Bank tellers are unable to find jobs due to technological advances in the banking system. e. Inflationary pressures have led to higher wages for all jobs.

Which of the following is the best example of frictional unemployment? a. A worker is laid off because his firm has to reduce production due to reduced demand. b. A worker quits her current job to search for a better one. c. An ironworker cannot find a job in Ottawa because all job vacancies are in Alberta. d. Bank tellers are unable to find jobs due to technological advances in the banking system. e. Inflationary pressures have led to higher wages for all jobs.

Which of the following statements is logically valid? a. If the rate of inflation is high, the nominal rate of interest must be low. b. If the rate of inflation is less than the nominal interest rate, the real interest rate is positive. c. If the real interest rate is less than the nominal interest rate, inflation must be zero. d. If the real interest rate is less than the nominal interest rate, inflation must be negative. e. If the nominal interest rate is high, the real interest rate must be high.

Workers with marketable skills sometimes quit a job and become unemployed, with the expectation of soon finding a better job. This type of unemployment is called a. Cyclical unemployment. b. Frictional unemployment. c. Historical unemployment. d. Overly-optimistic unemployment. e. Structural unemployment.

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