Ch. 19 - 20

118) We would expect real national income to be "demand determined" when 1) there is large-scale unemployment of resources in the economy; 2) firms are price setters; 3) firms have excess capacity. A) 1, 2, and 3 B) 1 and 2 C) 2 and 3 D) 1 only E) 3 only

A Diff: 2 Topic: 22.5. demand-determined output Skill: Recall User2:

87) Suppose that a price index for a certain basket of goods and services has a value of 150 in 2012 and a value of 156 in 2013. This index suggests that the cost of the market basket of goods and services A) was 4% higher in 2013 than in 2012. B) was 6% lower in 2013 than in 2012. C) was 6% higher in 2013 than in 2012. D) was 156% higher in 2013 than in 2012. E) was approximately the same in 2013 and 2012.

A) was 4% higher in 2013 than in 2012.

82) 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%.

D) 1.67%.

48) 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%.

B) 5.2%.

33) Refer to Figure 22-1. The net export function for this economy can be expressed as A) NX = 2250 - 450(Y) B) NX = 450 - 0.2(Y) C) NX = 2250 - 450 D) NX = 0.2Y E) NX = 2250 - .2(IM)

B Diff: 3 Topic: 22.2. net export function Skill: Applied User1: Graph User2:

37) Refer to Table 22-1. What is the marginal propensity to import? A) 0.01 B) 0.10 C) 1.0 D) 10.0 E) not enough data to determine

B Diff: 3 Topic: 22.2. net export function Skill: Applied User1: Table User2:

96) 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%.

B) 9%.

34) Refer to Table 19-1. In which years are the factors of production in this economy said to be "fully employed"? A) 2006, 2007, 2011 B) 2008, 2012 C) 2009, 2010 D) all years E) none of the years

B) 2008, 2012

46) 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%.

B) 3.3%.

110) Refer to Figure 20-1. Nominal GDP increased by approximately ________% between 1995 and 2000. A) 20 B) 45 C) 65 D) 85 E) 100

B) 45

*Ch. 20*

*The Measurement of National Income*

*Ch. 19*

*What Macroeconomics is All About*

104) 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.

A) Canadian dollar depreciates relative to foreign currencies.

5) Consider the government's budget balance. Suppose G = 300 and the government's net tax revenue is equal to 0.14Y. When Y = 2000, the government is running a budget A) deficit of 20. B) surplus of 20. C) balance. D) deficit of -20. E) surplus of 40.

A Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

The table below shows national income and imports. The level of exports is fixed at $300. All figures (in table and questions) are in millions of dollars. Income (Y) Imports (IM) Net Exports (NX) 2000 150 a 3000 250 b 4000 350 c 5000 450 d TABLE 22-1 36) Refer to Table 22-1. What are the correct values for the level of net exports (a, b, c, and d) at each level of national income? A) a = $150, b = $50, c = -$50, d = -$150 B) a = -$150, b = -$50, c = $50, d = $150 C) a = $150, b = $250, c = $350, d = $450 D) a = $300, b = $300, c = $300, d = $300 E) not enough data to determine

A Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 22.2. net export function Skill: Applied User1: Table User2:

Consider the following information describing an economy with demand-determined output. There is no government or foreign trade. All dollar figures are in billions. 1. equilibrium condition is Y = C + I 2. marginal propensity to save = 0.20 3. the autonomous part of C is $50 4. investment is autonomous and equals $25 TABLE 21-5 95) Refer to Table 21-5. The equilibrium level of national income is A) $375. B) $249. C) $155. D) $75. E) $93.75.

A Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User1: Table User2:

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

A Diff: 1 Topic: 21.1c. average and marginal propensities to consume Skill: Recall Objective: REVISED User2:

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

A Diff: 1 Topic: 21.1d. the saving function Skill: Recall User2:

53) Investment expenditure is the ________ volatile component of GDP, and changes in investment are ________ associated with business-cycle fluctuations. A) most; strongly B) most; weakly C) least; strongly D) least; weakly E) least; not

A Diff: 1 Topic: 21.1e. desired investment Skill: Recall User2:

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

A Diff: 1 Topic: 21.1e. desired investment Skill: Recall User2:

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

A Diff: 1 Topic: 21.1e. desired investment Skill: Recall User2:

78) Refer to Table 21-3. At the equilibrium level of national income, desired investment is A) $100. B) $4000. C) $3900. D) $400. E) $1000.

A Diff: 1 Topic: 21.2. equilibrium national income Skill: Applied Objective: NEW User1: Table User2:

2) Why are government expenditures such as Old Age Security payments, employment insurance payments, or welfare benefits paid to individuals not considered part of G, the government component of aggregate expenditure? A) These are transfer payments and place no direct demand on Canada's total output. B) These payments are directly included as part of C, consumption, because they become consumption expenditure for the recipient. C) Since the revenues from which these payments are made did not originate from tax collection, they are not considered part of G. D) Since these expenditures are transfers from recipients to taxpayers, they are not included in G. E) These payments are included in G only when the payments are made directly by the federal government.

A Diff: 1 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Recall Objective: NEW User2:

10) Transfer payments made by the government affect its net tax revenues A) directly. B) indirectly through government purchases. C) indirectly through net exports. D) indirectly through the investment function. E) indirectly through the consumption function.

A Diff: 1 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Recall User2:

4) When economists use the term "budget surplus" they are referring to A) net tax revenues minus government purchases. B) national income minus transfer payments. C) national income minus consumption. D) disposable income minus consumption. E) net tax revenues minus transfer payments.

A Diff: 1 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Recall User2:

3) The G and T components in the national-income accounts measure purchases and net taxes collected by A) all levels of government. B) only provincial governments and the federal government. C) only the federal government. D) only provincial governments. E) only local governments.

A Diff: 1 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Recall User2:

43) When compared to a simple macroeconomic model (with only consumption and investment), adding government and foreign trade to the AE function causes A) the autonomous component of AE to increase. B) the autonomous component of AE to fall. C) the AE function to become downward sloping. D) the AE function to become perfectly horizontal. E) no change in the AE function.

A Diff: 1 Topic: 22.3a. the AE function Skill: Applied User2:

66) 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) exceeds income and income will fall. C) is less than income and income will rise. D) is equal to income and income will not change. E) is less than income and income will fall.

A Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User1: Graph User2:

103) Consider the simplest 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 the AE function shifts downward simultaneously. B) rise because the AE function shifts upward simultaneously. C) remain constant but consist of more consumption and less investment. D) remain constant but consist of less consumption and more investment. E) remain constant because it does not affect desired aggregate expenditure.

A Diff: 2 Topic: 21.3a. shifts of the AE function Skill: Applied User2:

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

A Diff: 2 Topic: 21.3b. the simple multiplier Skill: Recall User2:

28) A decrease in domestic national income will cause a ________ the net exports (NX) function. A) movement to the left along B) parallel downward shift of C) parallel upward shift of D) rotation upward in E) rotation downward in

A Diff: 2 Topic: 22.2. net export function Skill: Applied User2:

18) A movement along the net export (NX) function can be caused by a change in A) domestic national income. B) foreign national income. C) domestic prices. D) the exchange rate. E) foreign prices.

A Diff: 2 Topic: 22.2. net export function Skill: Applied User2:

23) The net export (NX) function crosses the horizontal axis at a level of national income where the A) X and IM curves intersect. B) X curve reaches the horizontal axis. C) IM curve reaches the horizontal axis. D) X and IM curves are at their farthest distance apart. E) X curve reaches its maximum.

A Diff: 2 Topic: 22.2. net export function Skill: Recall User2:

29) An increase in foreign income, other things being equal, is assumed to cause the net export (NX) function to A) shift parallel upward. B) shift parallel downward. C) pivot downward. D) pivot upward. E) remain stationary.

A Diff: 2 Topic: 22.2. net export function Skill: Recall User2:

48) In our simple macro model with government and foreign trade, the marginal propensity to consume out of disposable income is ________ whereas the marginal propensity to consume out of national income is ________. A) MPC; MPC(1 - t) B) MPC(1 - t); MPC C) MPC(1 - t) - m; MPC(1 - t) D) MPC; MPC(1 - t) - m E) MPC(1 - t); MPC(1 - t) - m

A Diff: 2 Topic: 22.3a. the AE function Skill: Recall Objective: NEW User2:

89) Consider the following news headline: "Business community gloomy about the economy—investment plans axed." Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

A Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

90) Consider the following news headline: "Canadian exporters hurt by foreign recession." Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

A Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

114) Refer to Figure 22-4, Diagram 1. Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output, Y*)? A) reduce government spending B) increase transfer payments C) reduce taxes D) increase government spending E) increase disposable income

A Diff: 2 Topic: 22.4c. fiscal policy Skill: Applied User1: Graph User2:

43) Jean Tremblay'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) average propensity to consume decreased from 0.950 to 0.943. B) average propensity to save decreased from 0.950 to 0.943. C) marginal propensity to consume is 0.050. D) marginal propensity to consume increased from 0.050 to 0.058. E) marginal propensity to save is 0.80.

A Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User2:

79) Refer to Table 21-3. At the equilibrium level of national income, desired saving is A) $100. B) $300. C) $4000. D) $3900. E) $1000.

A Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied Objective: NEW User1: Table User2:

139) Refer to Table 21-7. The simple multiplier in this economy is A) 2.0. B) 2.5. C) 3.0. D) 4.0. E) 5.0.

A Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User1: Table User2:

25) A fall in domestic prices relative to foreign prices, other things being equal, causes the net export (NX) function to shift ________ and ________. A) upward; become flatter B) upward; become steeper C) downward; become flatter D) downward; keep the same slope E) downward; become steeper

A Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

26) A rise in the Canadian-dollar price of foreign currency, other things being equal, causes Canada's net export (NX) function to shift ________ and ________. A) upward; become flatter B) upward; become steeper C) downward; become flatter D) downward; keep the same slope E) downward; become steeper

A Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

51) Consider a consumption function in a simple macro model with government and taxes. Given a marginal propensity to consume out of disposable income of 0.7 and a net tax rate of 30% of national income, the marginal propensity to consume out of national income is A) 0.49. B) 0.58. C) 0.70. D) 0.90. E) 1.00.

A Diff: 3 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User2:

65) Refer to Figure 22-2. Which of the following equations describes the aggregate expenditure function for this economy? A) AE = 250 + (0.6)Y B) AE = 225 + (0.75)Y C) AE = 250 +(0.15)Y D) AE = 75 + (0.75)Y + (0.2)YD E) AE = 250 +(0.75)Y + (0.2)YD

A Diff: 3 Topic: 22.3a. the AE function Skill: Applied User1: Graph User2:

61) Consider the simplest macro model with demand-determined output. The equations are: C = 150 + 0.8Yd, Yd = Y -T, I = 400, G = 700, T = .2Y, X = 130, and IM = 0.14Y. The marginal propensity to spend on national income in this model is A) 0.50. B) 0.54. C) 0.64. D) 0.84. E) 0.86.

A Diff: 3 Topic: 22.3a. the AE function Skill: Applied User2:

29) Suppose a government collects $12 billion in various tax revenues, and pays $2.5 billion in debt interest, $9 billion in social security benefits, and $0.5 billion in government employee wages. What is the direct contribution to GDP coming from this government's fiscal actions? A) $0.5 billion B) $2.5 billion C) $3.0 billion D) $11.5 billion E) $12.0 billion

A) $0.5 billion

The table below shows total output for an economy over 2 years. TABLE 20-8 105) Refer to Table 20-8. The nominal Gross Domestic Product in 2012 was A) $1760. B) $1500. C) $1300. D) $1260. E) $410.

A) $1760.

16) 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.

A) $3000.

The table below includes data for a one-year period required to calculate GDP for this economy. All figures are in billions of dollars. TABLE 20-2 71) 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

A) $3866

101) Refer to Table 20-7. The real GDP in 2011, expressed in 2002 prices, was A) $773 585. B) $798 000. C) $800 000. D) $869 200. E) $900 000.

A) $773 585.

93) 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%.

A) .0 and 12%.

97) 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%.

A) 10%.

97) Refer to Table 20-5. If 2012 is the base year, the GDP deflator in 2012 was A) 100. B) 102. C) 180. D) 193. E) 1000.

A) 100.

103) Refer to Table 20-7. The growth rate of nominal output from 2010 to 2011 is A) 2.76%. B) 3.36%. C) 4.09%. D) 4.27%. E) 5.00%.

A) 2.76%.

32) Refer to Table 19-1. In which years was this economy experiencing an inflationary gap? A) 2009, 2010 B) 2006, 2007 C) 2010, 2011 D) 2008, 2012 E) 2006, 2007, 2011

A) 2009, 2010

50) 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

A) 40 000

49) 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.

A) 5 million.

53) 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.

A) A worker is laid off because his firm had to reduce production due to reduced demand.

1) 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.

A) all final goods produced.

38) 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.

A) and is actively searching for employment.

29) 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.

A) business cycle.

59) 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.

A) capital stock will be shrinking.

3) 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.

A) changes in the price of a particular good in a specific market.

49) 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.

A) classified as part of current actual investment.

121) 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

A) computers produced here and exported to Europe

115) 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 CPI than the GDP deflator? A) consumer electronics B) lumber C) car parts D) aircraft engines E) engineering services

A) consumer electronics

60) If the cyclical unemployment rate is negative, then the A) 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.

A) economy is operating beyond full employment.

50) 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

A) employment-insurance benefits

91) 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%.

A) fell by 10%.

74) Which of the following pairs are conceptually identical? A) gross domestic product and gross domestic expenditure B) gross national product and gross domestic product C) gross domestic product and personal disposable income D) personal income and labour income E) personal income and personal disposable income

A) gross domestic product and gross domestic expenditure

24) Which of the following purchases by households is considered as consumption expenditure for the purposes of national-income accounting? A) legal services B) a new house C) a Government of Canada Treasury bill D) tractors for use on a family farm E) the purchase of company stock

A) legal services

110) 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.

A) long-run trends and short-run fluctuations.

103) 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.

A) number of Canadian dollars needed to buy one unit of foreign currency.

70) 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.

A) productivity growth.

42) 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.

A) they do not represent the purchase of a good or a service.

13) 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

A) value of final good and services

53) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y. The marginal propensity to spend on national income, z, is A) 0.655. B) 0.760. C) 0.773. D) 0.840. E) 0.920.

B Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.3a. the AE function Skill: Applied User2:

100) Consider a model in which output is demand-determined. If the marginal propensity to spend out of national income is 0.4, then a $0.6 billion decrease in government purchases will cause equilibrium national income to ________ by approximately ________. A) decrease; $1.50 billion B) decrease; $1.00 billion C) decrease; $0.24 billion D) increase; $1.00 billion E) increase; $1.50 billion

B Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

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

B Diff: 1 Topic: 21.1c. average and marginal propensities to consume Skill: Recall User2:

47) Total desired saving divided by total income is called the A) average propensity to consume. B) average propensity to save. C) average propensity to spend. D) marginal propensity to save. E) total propensity to save.

B Diff: 1 Topic: 21.1d. the saving function Skill: Recall User2:

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

B Diff: 1 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Recall User2:

38) Refer to Table 22-1. The net export function can be expressed as A) NX = 300 - 0.1Y B) NX = 350 - 0.1Y C) 0 = 300 - IM D) 0 = 300 - 0.5Y E) NX = 350 - 0.5Y

B Diff: 3 Topic: 22.2. net export function Skill: Applied Objective: NEW User1: Table User2:

85) 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 is greater than actual national income. B) aggregate desired expenditure equals actual national income. C) aggregate desired expenditure equals consumer spending. D) saving equals income. E) saving equals consumer spending.

B Diff: 1 Topic: 21.2. equilibrium national income Skill: Applied User2:

87) 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) where the AE curve intersects the 45-degree line. C) to the right of the point where the AE curve intersects the 45-degree line. D) where saving equals consumption. E) where saving equals income.

B Diff: 1 Topic: 21.2. equilibrium national income Skill: Applied User2:

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

B Diff: 1 Topic: 21.3b. the simple multiplier Skill: Recall User2:

Economics - Canadian Edition, 14e (Ragan) Chapter 22 Adding Government and Trade to the Simple Macro Model 1) Government's transfer payments to individuals affect desired aggregate expenditure A) directly. B) through the consumption function. C) through the investment function. D) through net exports. E) through the government's budget deficit.

B Diff: 1 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Recall User2:

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

B Diff: 2 Topic: 21.1e. desired investment Skill: Applied User2:

54) 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) increases; increases B) increases; decreases C) decreases; increases D) decreases; leaves unaffected E) decreases; decreases

B Diff: 2 Topic: 21.1e. desired investment Skill: Applied User2:

 FIGURE 21-3 63) Refer to Figure 21-3. Assuming AE0 is the prevailing aggregate expenditure function, the distance 0A is a measure of A) aggregate expenditure at equilibrium national income. B) autonomous desired expenditures. C) induced expenditures. D) desired saving. E) desired investment.

B Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User1: Graph User2:

70) In general, the marginal propensity to spend is the change in total desired expenditure induced by a change in ________ whereas the marginal propensity to consume is the change in desired consumption expenditure induced by a change in ________. In the case of the simplest macro model with no government and no international trade, however, the marginal propensity to spend is ________ the marginal propensity to consume. A) national income; disposable income; greater than B) national income; disposable income; equal to C) disposable income; national income; equal to D) disposable income; national income; greater than E) national income; disposable income; smaller than

B Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Recall User2:

FIGURE 21-3 72) Refer to Figure 21-3. All points along the 45-degree line represent A) combinations of desired aggregate expenditure and actual national income where consumption expenditure equals saving. B) the equilibrium condition that desired aggregate expenditure equals actual national income. C) levels of actual national income where desired AE is equal to the sum of desired consumption and desired investment. D) levels of actual national income that occur when autonomous expenditure is increasing at a constant (linear) rate. E) levels of actual national income where desired saving is equal to zero.

B Diff: 2 Topic: 21.2. equilibrium national income Skill: Recall User1: Graph User2:

102) 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) fall because the AE function shifts downward simultaneously. B) rise because the AE function shifts upward simultaneously. C) remain constant but consist of more consumption and less investment. D) remain constant but consist of less consumption and more investment. E) remain constant because it does not affect desired aggregate expenditure.

B Diff: 2 Topic: 21.3a. shifts of the AE function Skill: Applied User2:

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

B Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

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

B Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

16) When determining the AE function for an open economy with government, it is generally assumed that as real national income A) increases, exports will decrease. B) increases, net exports will decrease. C) increases, imports will decrease. D) decreases, net exports will decrease. E) decreases, exports will decrease.

B Diff: 2 Topic: 22.2. net export function Skill: Recall User2:

54) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. Total autonomous spending in this model is A) 120.0. B) 1120.0. C) 420.0. D) 600.0. E) 828.8.

B Diff: 2 Topic: 22.3a. the AE function Skill: Applied Objective: NEW User2:

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: ∙ marginal propensity to consume (mpc) = 0.75 ∙ net tax rate (t) = 0.20 ∙ no foreign trade ∙ fixed price level ∙ all expenditure and income figures are in billions of dollars. FIGURE 22-2 62) Refer to Figure 22-2. What is the level of autonomous consumption? A) $0 B) $75 C) $100 D) $175 E) $250

B Diff: 2 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User1: Graph User2:

 FIGURE 22-3 67) Refer to Figure 22-3. The rotation from AE0 to AE1 could be caused by A) a higher net tax rate. B) a lower net tax rate. C) a balanced budget. D) lower government purchases. E) higher government purchases.

B Diff: 2 Topic: 22.3a. the AE function Skill: Applied User1: Graph User2:

77) Consider a simple macro model with a constant price level and demand-determined output. When national income falls short of desired aggregate expenditures, unplanned inventory ________ will induce firms to ________ the rate of output production. A) depletion; lower B) depletion; raise C) buildup; lower D) buildup; raise E) at zero; maintain the current

B Diff: 2 Topic: 22.3b. equilibrium national income Skill: Applied User2:

92) Consider the following news headline: "Government follows through on election promise—cuts income-tax rate by 5 percentage points." Assuming that aggregate output is demand-determined, what will be the effect of this action, all other things equal, on the AE function and on equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

B Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

 FIGURE 22-3 106) Refer to Figure 22-3. The rotation from AE0 to AE1 implies that the marginal propensity to spend ________ and the value of the simple multiplier ________. A) increases; decreases B) increases; increases C) remains the same; increases D) decreases; increases E) decreases, decreases

B Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User1: Graph User2:

107) Consider a macro model with a constant price level and demand-determined output. A rise in the net tax rate ________ the simple multiplier and ________ equilibrium national income. A) lowers; has no effect on B) lowers; lowers C) lowers; raises D) raises; raises E) raises; has no effect on

B Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

103) Suppose aggregate output is demand determined. If the marginal propensity to spend is 0.5, and the MPC is 0.7, a $1 billion reduction in government purchases will cause equilibrium national income to ________ by ________. A) decrease; $3.33 billion B) decrease; $2.00 billion C) decrease; $1.50 billion D) increase; $2.00 billion E) increase; $3.33 billion

B Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

 FIGURE 22-4 112) Refer to Figure 22-4. Diagram 1 illustrates an economy that is experiencing a(n) ________ gap. The goal of stabilization policy would be to ________ national income until it is equal to ________. A) recessionary; increase; actual national income B) inflationary; reduce; potential GDP C) inflationary; reduce; actual national income D) inflationary; increase; potential GDP E) recessionary; increase; potential GDP

B Diff: 2 Topic: 22.4c. fiscal policy Skill: Applied User1: Graph User2:

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

B Diff: 3 Topic: 21.1b. the consumption function Skill: Recall User2:

83) Refer to Table 21-4. At the equilibrium level of national income, desired saving will be A) zero. B) $ 40. C) $ 70. D) $200. E) $240.

B Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User1: Table User2:

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) accumulating; rise B) accumulating; fall C) being depleted; rise D) being depleted; fall E) constant: fall

B Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User2:

128) Consider the simplest macro model in which aggregate output is demand-determined. If autonomous consumption increases by $2 billion causing equilibrium national income to rise by $4 billion, the marginal propensity to save must be A) 1.0. B) 0.5. C) 0.2. D) 0.8. E) 2.0.

B Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied Objective: NEW User2:

137) Refer to Table 21-6. The simple multiplier in this economy is A) 2.0. B) 2.5. C) 3.0. D) 4.0. E) 5.0.

B Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User1: Table User2:

Consider the following information concerning an economy with demand-determined output. There is no government or foreign trade. TABLE 21-7 138) Refer to Table 21-7. This economy's equilibrium level of national income is A) 500. B) 600. C) 750. D) 1000. E) 1500.

B Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User1: Table User2:

13) If the government's net tax rate increases, then for a given level of national income disposable income will ________ and net tax revenue will ________. A) decrease; decrease B) decrease; increase C) increase; increase D) increase; decrease E) not change; increase

B Diff: 3 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

11) Suppose that real national income (Y) is equal to 800 and that government purchases are equal to 200. If the government's net tax revenues are equal to tY, where t is the net tax rate, then what is the value of t necessary for the government to have a balanced budget? A) 20% B) 25% C) 30% D) 35% E) 40%

B Diff: 3 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

40) Refer to Table 22-1. In this economy, if actual national income increases by $600, the level of imports will A) rise by $30. B) rise by $60. C) rise by $100. D) fall by $100. E) not change.

B Diff: 3 Topic: 22.2. net export function Skill: Applied User1: Table User2:

19) A parallel upward shift in the net export (NX) function can be caused by A) an increase in domestic national income. B) an increase in foreign national income. C) an increase in domestic prices relative to foreign prices. D) a decrease in the Canadian-dollar price of foreign currency. E) a decrease in foreign prices relative to domestic prices.

B Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

20) A parallel downward shift in the net export (NX) function can be caused by A) an increase in domestic national income. B) a decrease in foreign national income. C) a decrease in domestic prices. D) an increase in the Canadian-dollar price of foreign currency. E) a decrease in foreign prices.

B Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

50) Consider a consumption function in a simple macro model with government and taxes. Given a marginal propensity to consume out of disposable income of 0.8 and a net tax rate of 20% of national income, the marginal propensity to consume out of national income is A) 0.36. B) 0.64. C) 0.80. D) 0.90. E) 1.00.

B Diff: 3 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User2:

59) Consider the simplest macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The marginal propensity to spend on national income, z, is A) 0.06. B) 0.37. C) 0.43. D) 0.49. E) 0.63.

B Diff: 3 Topic: 22.3a. the AE function Skill: Applied User2:

72) Suppose that the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14. If the net tax rate is 0.1, then what is the marginal propensity to spend in this economy? A) 0.30 B) 0.40 C) 0.46 D) 0.50 E) 0.60

B Diff: 3 Topic: 22.3a. the AE function Skill: Applied User2:

73) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y. Equilibrium national income is A) 1816. B) 5750. C) 7307. D) 7935. E) 17 250.

B Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

76) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 150 + 0.84Y, I = 400, X = 130, IM = 0.08Y, T = 0. Equilibrium national income is 5000 when G is equal to A) -40. B) 520. C) 580. D) 740. E) 812.

B Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

79) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. Equilibrium national income is A) 560.00. B) 888.89. C) 1142.85. D) 1302.33. E) 1513.50.

B Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

99) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The value of the simple multiplier in this model is A) 0.37. B) 1.59. C) 2.04. D) 2.32. E) 2.70.

B Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

16) 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

B) $1500

112) 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.

B) $2500.

7) 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.

B) $300.

The table below shows the total output and prices for an economy that produces only two goods, potatoes and oil. Data is provided for the years 2000 and 2010. TABLE 20-6 98) Refer to Table 20-6. What is the real GDP for 2010 if 2000 is the base year? A) $6750 B) $7975 C) $9000 D) $10 500 E) $20 100

B) $7975

108) Refer to Table 20-8. The implicit GDP deflator in 2012 (using 2012 as the base year) is A) 71.59. B) 100. C) 103.4. D) 114.6. E) 139.7.

B) 100.

102) Refer to Table 20-7. The implicit GDP deflator for 2012 is approximately A) 94. B) 107. C) 108. D) 109. E) 110.

B) 107.

111) Refer to Figure 20-1. Real GDP increased by approximately ________% between 1995 and 2000. A) 9 B) 17 C) 35 D) 52 E) 75

B) 17

96) Refer to Table 20-5. If the output of all three goods is consumed in the country, and if 2012 is used as the base year, then the consumer price index (CPI) in 2013 was approximately A) 102. B) 180. C) 179. D) 193. E) 418.

B) 180.

9) Consider a firm producing skateboards in one factory. In determining this firm's value added, we would start with its total revenue and subtract the cost of (among other things) 1) salaries to the firm's cleaning staff; 2) electricity used in the factory; 3) 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

B) 2 and 3

105) 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.

B) 2.0.

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 31) Refer to Table 19-1. In which years was this economy experiencing a recessionary gap? A) 2009, 2010 B) 2006, 2007, 2011 C) 2008, 2012 D) 2006, 2007, 2008 E) 2010, 2011, 2012

B) 2006, 2007, 2011

52) 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.

B) A worker quits her current job to search for a better one.

18) Consider the circular flow of expenditure and income in the Canadian economy. Which of the following is an injection into the circular flow? A) Bombardier imports machine parts from Germany. B) Bombardier exports subway cars to Mexico. C) Safeway pays corporate income tax to the federal government. D) You put $500 into your TFSA (tax-free savings account). E) You make an online purchase from a U.S. retailer.

B) Bombardier exports subway cars to Mexico.

78) In recent years, several large Canadian mining companies have been bought by foreign companies. If some of the profits generated at these Canadian mines which previously flowed to Canadian owners are now remitted to foreign owners, then which of the following statements best describes the impact of the change in ownership? A) Canadian GNP remains constant and Canadian GDP falls. B) Canadian GNP falls and Canadian GDP is unaffected. C) There is no change in either Canadian GDP or GNP. D) The gap between Canadian GNP and GDP becomes smaller. E) Canadian GNP is larger than Canadian GDP by an increased amount.

B) Canadian GNP falls and Canadian GDP is unaffected.

67) 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

B) GST

88) 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.

B) If the rate of inflation is less than the nominal interest rate, the real interest rate is positive.

73) 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.

B) Primarily because productivity per worker is so much higher today than in the past.

40) 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.

B) Rental payments for houses are counted as part of consumption.

11) 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.

B) The value of the expenditure on a nation's output is equal to the total income claims generated by producing that output.

47) Suppose that in 2012, 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 2012? A) Yes, since changes in inventories are part of consumption expenditures. B) Yes, since they are part of the economy's output in 2012. 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.

B) Yes, since they are part of the economy's output in 2012.

56) Cyclical unemployment is associated with 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.

B) an output level different from the economy's potential output.

108) 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

B) appreciation; fewer

45) 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. Final users 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.

B) fees paid by Google Canada to a Toronto law firm. Final users

58) 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.

B) frictional unemployment.

26) When calculating GDP from the expenditure side, Ga comprises A) only expenditures made by the federal government. B) government purchases of goods and services, excluding transfer payments. C) only purchases of goods and not services. D) only expenditures made by provincial and local governments. E) government expenditures on goods and services, including transfer payments.

B) government purchases of goods and services, excluding transfer payments.

23) 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. B) 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.

B) greater is the unemployment rate.

89) 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%

B) if next year's inflation rate is 3%

100) 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%

B) inflation rate of 2% nominal interest rate of 7.5%

63) 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.

B) interest, rent, depreciation, profits and indirect taxes net of subsidies.

4) 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.

B) intermediate goods.

117) 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.

B) it does not include the value of leisure.

34) 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.

B) maintains the existing capital stock at a constant level.

30) In macroeconomics, the term "capital goods" refers to A) the financial resources necessary to start a firm. B) man-made factors of production, such as tools, machines, and factory buildings. C) money. D) stocks and bonds. E) all factors of production.

B) man-made factors of production, such as tools, machines, and factory buildings.

95) 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.

B) minus the rate of inflation.

12) In determining the economy's real GDP growth rate between two time periods, A) nominal national income should be used because it compares actual output in each time period. B) real national income, which is equal to nominal national income corrected for price-level changes, should be used. C) potential national income should be used. D) we should ignore prices completely, in order to examine output alone. E) only the real national product from the latest time period is relevant.

B) real national income, which is equal to nominal national income corrected for price-level changes, should be used.

22) 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.

B) represents a loss of output due to unemployed resources.

122) 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.

B) satisfactory methods for their measurement have not been developed.

5) 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.

B) should be subtracted from the value of final goods in determining a firm's total value added.

31) In national-income accounting, "depreciation" refers to A) a term used in accounting, not economics. B) the amount by which the capital stock is depleted during the accounting period. C) net investment. D) the increase in the economy's stock of capital per year. E) the decrease in the economy's stock of capital per year.

B) the amount by which the capital stock is depleted during the accounting period.

65) 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.

B) the amount of output that the economy produces per unit of input.

76) 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.

B) the employees' purchasing power will fall.

15) 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.

B) the quantity of total output produced by the nation's economy over the period of one year.

64) 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.

B) the short run.

18) 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

B) the short-run fluctuations of national income around its trend value

30) 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.

B) two quarters.

5) 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.

B) value of output produced by the economy, measured in constant dollars.

71) Consider the following aggregate expenditure function: AE = $300 billion + (0.87)Y. Assuming that we have no government, no international trade and desired investment is autonomous and is equal to $56 billion, then which of the following is the correct statement of the consumption function? A) C = $356 billion + (0.87)Y B) C = $356 billion + (0.13)Y C) C = $244 billion + (0.87)Y D) C = $244 billion + (0.13)Y E) C = $300 billion + (0.13)Y

C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User2:

118) 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 Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

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

C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

39) Refer to Table 22-1. On a graph of the net export function for this economy, at what level of Y would the NX function intersect the horizontal axis? A) at $0 B) at $2000 C) at $3500 D) at $4000 E) at $5000

C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.2. net export function Skill: Applied User1: Table User2:

49) Consider a consumption function in a simple macro model with government and taxes. Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10% of national income, the marginal propensity to consume out of national income is A) 0.09. B) 0.72. C) 0.81. D) 0.90. E) 1.00.

C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User2:

58) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. A national income of 1200 results in desired aggregate expenditure of A) 560. B) 926. C) 1004. D) 1016. E) 1148.

C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User2:

98) In a macro model where the marginal propensity to consume out of disposable income is 0.8, the net tax rate is 0.25, and the marginal propensity to import is 0.12, the simple multiplier will be A) 0.480. B) 1.471. C) 1.923. D) 2.083. E) 2.110.

C Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

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

C Diff: 1 Topic: 21.1c. average and marginal propensities to consume Skill: Recall Objective: REVISED User2:

39) 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 total disposable income. C) the change in desired consumption divided by the change in disposable income. D) total desired consumption divided by total disposable income. E) total desired consumption divided by the change in disposable income.

C Diff: 1 Topic: 21.1c. average and marginal propensities to consume Skill: Recall User2:

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

C Diff: 1 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Recall User2:

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

C Diff: 1 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Recall User2:

84) 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) firms will hold no inventories of raw materials or final goods. C) desired aggregate expenditures will equal total output. D) desired aggregate expenditures will equal total output minus inventory holdings. E) consumers' purchases of goods and services equals their saving.

C Diff: 1 Topic: 21.2. equilibrium national income Skill: Applied User2:

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

C Diff: 1 Topic: 21.2. equilibrium national income Skill: Applied User2:

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

C Diff: 2 Topic: 21.1b. the consumption function Skill: Recall User2:

30) 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) marginal propensity to consume is $800. B) average propensity to consume is 0.8. C) marginal propensity to consume is 0.8. D) average propensity to save is 0.8. E) marginal propensity to save is 0.8.

C Diff: 2 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User2:

40) 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 more than the increase in income. B) rise by the full increase in income. C) rise by less than the full increase in income. D) fall, as an increase in income will increase saving. E) remain constant, because the MPC is also constant.

C Diff: 2 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User2:

49) 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) an equal upward B) a less-than-equal upward C) an equal downward D) a less-than-equal downward E) no

C Diff: 2 Topic: 21.1d. the saving function Skill: Applied User2:

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

C Diff: 2 Topic: 21.1d. the saving function Skill: Recall User2:

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

C Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied Objective: REVISED User2:

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

C Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied Objective: REVISED User2:

67) 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 Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User1: Graph User2:

88) Consider the simplest 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 national income is below the equilibrium level. C) actual national income must be above the equilibrium level. D) actual national income must be at equilibrium. E) inventories begin to fall, causing national income to fall.

C Diff: 2 Topic: 21.2. equilibrium national income Skill: Applied User2:

90) 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 consumption function. C) shifting the aggregate expenditure function. D) causing movement along the investment function. E) shifting the 45-degree line.

C Diff: 2 Topic: 21.2. equilibrium national income Skill: Applied User2:

98) 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) inventories will build up, causing national income to rise. B) national income will fall, because desired expenditures are less than actual expenditures. C) shortages of goods and reductions in inventories will cause producers to increase output and national income to rise. D) national income may increase or decrease, depending on the relative sizes of the average propensity to consume and the average propensity to save. E) there will be no change in national income because only actual expenditure is relevant.

C Diff: 2 Topic: 21.2. equilibrium national income Skill: Applied User2:

99) 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) desired accumulation of inventories. B) desired decumulation of inventories. C) the amount by which output exceeds desired expenditures. D) the output gap. E) the amount by which desired expenditures exceeds output.

C Diff: 2 Topic: 21.2. equilibrium national income Skill: Recall User2:

101) 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; a decrease D) a decrease; no change E) a decrease; an increase

C Diff: 2 Topic: 21.3a. shifts of the AE function Skill: Applied User2:

107) Consider the simplest macro model with demand-determined output. Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million. The marginal propensity to spend in this economy is 0.75. What is the increase in expenditure in this economy during the initial first round of spending? A) $75 million B) $25 million C) $100 million D) $400 million E) $500 million

C Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied Objective: NEW User2:

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

C Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User1: Graph User2:

114) 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 Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

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

C Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

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

C Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

9) Consider the government's budget balance. Suppose G = 300 and the government's net tax revenue is 0.3Y. The government budget is in surplus only when Y is A) less than 350. B) less than 1000. C) greater than 1000. D) greater than 2500. E) greater than 3000.

C Diff: 2 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

41) Consider an open economy that has a marginal propensity to import equal to 0.30. If national income rises by $2500, imports will rise by A) $30. B) $300. C) $750. D) $7500. E) $8333.

C Diff: 2 Topic: 22.2. net export function Skill: Applied User2:

15) In a simple macro model, it is generally assumed that a country's exports A) and imports are autonomous. B) and imports are induced. C) are autonomous whereas imports are induced. D) are induced whereas imports are autonomous. E) are always equal to investment.

C Diff: 2 Topic: 22.2. net export function Skill: Recall User2:

30) Consider the net export function. An increase in domestic national income, other things being equal, is assumed to cause A) the net export function to shift upward. B) the net export function to pivot upward. C) movement to the right along the net export function. D) the net export function to pivot downward. E) no effect on net exports.

C Diff: 2 Topic: 22.2. net export function Skill: Recall User2:

68) Refer to Figure 22-3. The rotation from to could be caused by A) an increase in the marginal propensity to consume out of disposable income. B) a decrease in the marginal propensity to import. C) an increase in the marginal propensity to import. D) a decrease in the net tax rate. E) a decrease in government purchases.

C Diff: 2 Topic: 22.3a. the AE function Skill: Applied Objective: NEW User1: Graph User2:

47) In our simple macro model with government, which statement is correct regarding the following equation: = (0.75)Y? A) If disposable income increases by $0.75, then national income increases by $1.00 and total tax revenue rises by $0.75. B) Net tax revenue is equal to 75% of national income. C) If national income increases by $1.00, then disposable income increases by $0.75 and net tax revenue increases by $0.25. D) Net tax revenue is equal to 25% of disposable income. E) If national income increases by $1.00, then disposable income increases by $0.25 and net tax revenue increases by $0.75.

C Diff: 2 Topic: 22.3a. the AE function Skill: Applied Objective: NEW User2:

64) Refer to Figure 22-2. Which of the following correctly describes the consumption function for this economy? A) C = (0.75)YD B) Y = 250 + (0.75)YD C) C = 75 + (0.75)YD D) Y = 250 + (0.75)Y E) C = 250 + (0.75)Y

C Diff: 2 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User1: Graph User2:

60) Consider the simplest macro model with demand-determined output. The equations are: C = 150 + 0.8Yd, Yd = Y-T, I = 400, G = 700, T = .2Y, X = 130, and IM = 0.14Y. Autonomous expenditures in this model are A) 1120. B) 1350. C) 1380. D) 2700. E) 5400.

C Diff: 2 Topic: 22.3a. the AE function Skill: Applied User2:

70) In a simple macro model with a constant price level, an increase in the net tax rate causes the AE curve to A) shift parallel downward. B) shift parallel upward. C) rotate downward. D) rotate upward. E) remain stationary.

C Diff: 2 Topic: 22.3a. the AE function Skill: Applied User2:

85) In an open economy with government and demand-determined output, a decrease in the equilibrium level of national income could be caused by A) a decrease in taxes at all levels of income. B) a decrease in the desired level of imports at all levels of income. C) a decrease in desired consumption at all levels of income. D) a decrease in the desired level of saving at all levels of income. E) an increase in government purchases.

C Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

88) Consider the following news headline: "Finance minister announces that the federal income-tax rate will rise by three percentage points." Assuming that aggregate output is demand-determined, what will be the effect of this action, all other things equal, on the AE function and equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

C Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

91) Consider the following news headline: "Canadians develop a greater taste for foreign vacations." Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

C Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

101) Consider a model with demand-determined output and a constant price level. A decrease in the net tax rate causes ________ in autonomous spending and a ________ in the simple multiplier. A) a rise; rise B) a rise; fall C) no change; rise D) no change; fall E) a fall; fall

C Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

119) The simple macro model that is considered in Chapters 21 and 22 of the textbook is characterized by A) a given (constant) price level, and equilibrium national income determined by demand and supply. B) an endogenous price level, and national income that is solely demand determined. C) a given (constant) price level, and national income that is solely demand determined. D) an endogenous price level, and equilibrium national income determined by demand and supply. E) an open economy with an endogenous exchange rate.

C Diff: 2 Topic: 22.5. demand-determined output Skill: Recall User2:

32) Refer to Table 21-1. The marginal propensity to save is equal to A) 0.2. B) 0.4. C) 0.6. D) 0.67. E) 0.8.

C Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied Objective: NEW User1: Table User2:

77) Refer to Table 21-3. At the equilibrium level of national income, desired consumption expenditure will be A) $300. B) $400. C) $3900. D) $3600. E) $4000.

C Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied Objective: NEW User1: Table User2:

93) Consider the simplest macro model with a constant price level and demand-determined output. 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) accumulating; fall C) being depleted; rise D) being depleted; fall E) constant; fall

C Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User2:

Consider the following information describing a closed economy with no government. Aggregate output is demand determined and the price level is constant. TABLE 21-6 136) Refer to Table 21-6. This economy's equilibrium level of national income is A) 500. B) 600. C) 750. D) 1000. E) 1500.

C Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User1: Table User2:

135) 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.

C Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

127) 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 Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

35) Refer to Figure 22-1. If actual national income is equal to $2000, then imports are equal to A) $0 B) $200 C) $400 D) $450 E) $1000

C Diff: 3 Topic: 22.2. net export function Skill: Applied Objective: NEW User1: Graph User2:

34) Refer to Figure 22-1. If actual national income in this economy is equal to $1000, then net exports are equal to A) $90. B) $200. C) $250. D) $375. E) $400.

C Diff: 3 Topic: 22.2. net export function Skill: Applied User1: Graph User2:

56) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. A national income of 2400 results in desired aggregate expenditure of A) 1120 B) 1776 C) 2896 D) 3184 E) 3472

C Diff: 3 Topic: 22.3a. the AE function Skill: Applied Objective: REVISED User2:

75) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y. The trade balance at equilibrium national income is a A) deficit of 504.8. B) deficit of 460.0. C) deficit of 330.0. D) surplus of 125.0. E) surplus of 15.3.

C Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

104) In a simple macro model with government and demand-determined output, to raise equilibrium national income by $100 billion, G must be A) raised by $100 billion. B) raised by $100 billion times the simple multiplier. C) raised by $100 billion divided by the simple multiplier. D) lowered by $100 billion times the simple multiplier. E) lowered by $100 billion divided by the simple multiplier.

C Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

109) Consider a simple macro model with demand-determined output and the following specific parameter values: a) Marginal propensity to consume out of disposable income = 0.6 b) Marginal propensity to consume out of national income = 0.48 c) Marginal propensity to import = 0.23 The simple multiplier without government and foreign trade in this economy is ________ and the simple multiplier with government and foreign trade in this economy is ________. A) 1.67; 1.33 B) 1.67; 4 C) 2.5; 1.33 D) 2.5; 2.5 E) 2.5; 4

C Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

6) 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.

C) $1200.

17) 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.

C) $2100.

12) 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

C) $2400

88) Refer to Table 20-4. Assume that consumption expenditure in this economy over the one-year period is $290 billion. What is the level of saving during that year? A) - $56 billion B) - $50 billion C) $30 billion D) $36 billion E) $43 billion

C) $30 billion

87) Refer to Table 20-4. What is the value of personal disposable income in this economy? A) $234 billion B) $240 billion C) $320 billion D) $326 billion E) $333 billion

C) $320 billion

The table below includes data for a one-year period required to calculate GDP for this economy. All figures are in billions of dollars. TABLE 20-2 58) 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

C) $3866

61) 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

C) $4000 spent for services provided by a private consultant

99) Refer to Table 20-6. What is the real GDP for 2000 if 2010 is the base year? A) $6750 B) $7975 C) $9000 D) $10 500 E) $20 100

C) $9000

113) A country's computed GDP deflator 1) excludes the changes in the price of imported goods; 2) is less relevant than the measured CPI for the typical consumer; 3) 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

C) 1, 2, and 3

51) 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

C) 10%

95) Refer to Table 20-5. The implicit GDP deflator in 2013, when 2012 is used as the base year, was approximately A) 105. B) 160. C) 180. D) 193. E) 203.

C) 180.

83) 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%.

C) 20%.

98) 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%

C) 3%

47) 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

C) 425 000

33) 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%

C) 6.3%

23) GDP from the expenditure side is equal to the sum of A) Ca + Ia + Ga + (IMa - Xa). B) Ca + Ia + Ga - net exports. C) Ca + Ia + Ga + (Xa - IMa). D) Ca + Ia + Ga. E) Ca + Ia + net exports.

C) Ca + Ia + Ga + (Xa - IMa).

109) 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.

C) Fewer Canadians will cross the border to shop in the U.S.

62) 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 - ) C) GDP = Ca + Ia + Ga + (Xa - IMa) D) GNP = + + + ( - ) E) GDP = C + I + (G - transfers) + (X - IM)

C) GDP = Ca + Ia + Ga + (Xa - IMa)

71) 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.

C) GDP per hour worked is more accurate because the average number of hours worked per employed worker has changed over time.

81) In the national-income accounts, disposable personal income is calculated as A) GNP minus that part of it not actually paid to households, minus transfer payments to households. B) GNP minus that part of it not actually paid to households, plus personal income taxes paid by households. C) GNP minus that part of it not actually paid to households, plus transfer payments, minus personal income taxes. D) equal to the gross wages plus salaries received by the household. E) equal to the gross wages plus interest received by the household.

C) GNP minus that part of it not actually paid to households, plus transfer payments, minus personal income taxes.

37) 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.

C) Net investment is equal to gross investment minus depreciation.

123) 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.

C) They are difficult to measure.

53) 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.

C) They are included as a separate category.

120) Which of the following statements about the underground economy and how it relates to GDP is correct? A) Activity in the underground economy is 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.

C) Transactions in the underground economy are legal but are not reported for tax purposes, and therefore not included in GDP.

20) Consider the circular flow of income and expenditure in the Canadian economy. Which of the following is a withdrawal from the circular flow? A) Your family buys weekly groceries. B) Bombardier exports subway cars to Mexico. C) You put $500 into your TFSA (tax-free savings account). D) The B.C. provincial government builds a new hospital. E) Canadian farmers sell wheat to China.

C) You put $500 into your TFSA (tax-free savings account).

86) 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]

C) [(P2 - P1)/P1] × [100/2]

90) 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

C) a consumer who borrowed money at the beginning of the year

52) 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

C) actual gross investment (including depreciation)

91) 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.

C) aggregate output decreased.

92) 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

C) been rising steadily; been quite volatile

6) Real national income A) always equals nominal national income. B) changes by the same amount and in the same direction as does nominal national income. C) changes only when the underlying quantities change. D) refers to national income with no adjustment for changes in prices. E) refers to national wealth but is not an indicator of current production.

C) changes only when the underlying quantities change.

4) 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.

C) constant-dollar national income.

25) 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 neighbouring countries. C) constant. D) equal to actual income. E) irrelevant, as the economy is rarely there.

C) constant.

33) 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.

C) current market value.

107) 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

C) depreciation; more

61) 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.

C) economy is operating at less than full employment.

82) A government transfer payment to a person is A) an important component of national income. B) considered a consumption expenditure. C) included in disposable income measures but not national income. D) considered a component of G in the calculation of GDP. E) evidence that government expenditures are too high.

C) included in disposable income measures but not national income.

14) 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.

C) increase the value of national product by $150.

24) 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.

C) inflationary pressures.

116) 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.

C) it does not include non-market activities.

32) In national-income accounting, a reduction of inventories counts as A) consumption. B) depreciation. C) negative investment. D) positive investment. E) saving.

C) negative investment.

39) Consider investment as a 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.

C) net investment.

3) 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.

C) occurs when the value of output is counted more than once in the calculation of national income.

79) 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.

C) overstate the change in the real value of production.

27) 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

C) peak

43) 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.

C) pensions paid from the Canada Pension Plan.

20) 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.

C) potential real national income and actual real national income.

37) 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.

C) raised potential output.

67) 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.

C) real GDP per hour worked = $200

11) 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.

C) real national income for the two periods.

19) Consider the circular flow of income and expenditure in the Canadian economy. Which of the following is a withdrawal from the circular flow? A) investment B) consumption C) saving D) exports E) government purchases

C) saving

46) 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

C) the construction of a new factory

35) 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.

C) the creation of new plant and equipment.

118) 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. D) non-market activities, such as teenaged-babysitting services. E) illegal activities, such as the drug trade.

C) the economic "bads" associated with production, such as pollution.

101) 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.

C) the inflation rate exceeded the nominal interest rate, implying a negative real interest rate.

125) 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 Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

55) 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.

C) the official unemployment figure excludes discouraged workers who have stopped actively looking for work.

76) The principle difference between GDP and GNP is that GNP measures ________, while GDP measures ________. A) total income generated by Canadians, both domestic and abroad; total income generated by Canadians, domestic only B) total factor incomes in the economy; total expenditure in the economy C) the total amount of income received by Canadian residents; the value of total output produced in Canada D) the value of total output produced by Canada; wages and salaries received by Canadian residents E) wages and salaries, plus world-wide investment income received by Canadian residents; the value of total output produced in Canada

C) the total amount of income received by Canadian residents; the value of total output produced in Canada

27) In national-income accounting, a rise in Ga will be recorded (other things being equal) if A) labour productivity in the government sector rises. B) output of government-produced goods and services increases. C) the total salaries paid to civil servants rise. D) wages in the government sector fall. E) the government's purchases of office furniture falls.

C) the total salaries paid to civil servants rise.

82) Refer to Table 21-4. At the equilibrium level of national income, desired consumption expenditure will be A) $ 30. B) $ 70. C) $210. D) $240. E) $280.

D Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied Objective: REVISED User1: Table User2:

108) Consider a simple macro model with government and foreign trade and where the price level is taken as given. The simple multiplier is equal to A) 1/(1-MPC). B) 1/MPC. C) 1/(1- MPS - t). D) 1/(1 - (MPC(1 - t)- m )). E) 1/(1- (MPS(1 - t)- m )).

D Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Recall User2:

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: ∙ marginal propensity to consume (mpc) = 0.75 ∙ net tax rate (t) = 0.20 ∙ no foreign trade ∙ fixed price level ∙ all expenditure and income figures are in billions of dollars. FIGURE 22-2 95) Refer to Figure 22-2. What is the value of the multiplier in this economy? A) 1.33 B) 1.67 C) 2.0 D) 2.5 E) 6.67

D Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User1: Graph User2:

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

D Diff: 1 Topic: 21.1c. average and marginal propensities to consume Skill: Recall User2:

120) Consider a simple macro model with demand-determined output. If z is the marginal propensity to spend out of national income, Y is national income and A is autonomous expenditure, then the simple multiplier is equal to A) z. B) 1 - z. C) 1/z. D) 1/(1-z). E) Y/(1-z).

D Diff: 1 Topic: 21.3b. the simple multiplier Skill: Recall User2:

113) 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) average propensity not to spend. C) level of autonomous expenditure. D) marginal propensity to spend. E) marginal propensity not to spend.

D Diff: 1 Topic: 21.3b. the simple multiplier Skill: Recall User2:

46) In our simple macro model with government, which statement is correct regarding the following equation: T = (0.2)Y? A) Total tax revenues are equal to 20% of disposable income. B) Total tax revenues are equal to 20% of real GDP. C) Net tax revenues are equal to 20% of disposable income. D) If national income increases by $1.00, then net tax revenue increases by $0.20. E) If total tax revenue increases by $0.20, then national income increases by $1.00.

D Diff: 1 Topic: 22.3a. the AE function Skill: Applied Objective: NEW User2:

94) Consider a simple macro model with demand-determined output. Suppose the level of exports decreases unexpectedly by $6 billion. If the government wants to restore the initial equilibrium level of output it could, all other things equal, ________ by ________. A) increase its purchases; more than $6 billion B) increase its net tax revenues; $6 billion C) increase its net tax revenues; less than $6 billion D) increase its purchases; $6 billion E) decrease its purchases; $6 billion

D Diff: 1 Topic: 22.4a. changes in equilibrium national income Skill: Applied Objective: REVISED User2:

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

D Diff: 2 Topic: 21.1c. average and marginal propensities to consume Skill: Applied Objective: REVISED User2:

42) 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) average propensity to consume is 0.8. B) average propensity to save is 0.8. C) marginal propensity to consume is $800. D) marginal propensity to consume is 0.8. E) marginal propensity to save is 0.8.

D Diff: 2 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User2:

52) 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? 1) a decrease in interest rates 2) an increase in firms' optimism about the economy 3) an expectation of a downturn in future economic activity A) 1 and 2 B) 2 and 3 C) 1 and 3 D) 1, 2, and 3 E) 1 only

D Diff: 2 Topic: 21.1e. desired investment Skill: Recall User2:

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

D Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User1: Graph User2:

68) 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 Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User1: Graph User2:

62) 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) a movement to the left along the AE curve. C) an increase in the slope of the AE curve, which rotates it upward. D) a decrease in the slope of the AE curve, which rotates it downward. E) a parallel downward shift in the AE curve.

D Diff: 2 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User2:

 FIGURE 21-3 104) Refer to Figure 21-3. A shift in the aggregate expenditure function from AE0 to AE1 could be caused by A) a rise in the multiplier. B) a fall in the marginal propensity to consume. C) a rise in the marginal propensity to consume. D) an increase in desired investment expenditures. E) a decrease in desired investment expenditures.

D Diff: 2 Topic: 21.3a. shifts of the AE function Skill: Applied User1: Graph User2:

105) 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 rise in the marginal propensity to consume. D) an increase in autonomous desired saving. E) a decrease in autonomous desired saving.

D Diff: 2 Topic: 21.3a. shifts of the AE function Skill: Applied User1: Graph User2:

92) 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%.

D) rose by 5%.

108) Consider the simplest macro model with demand-determined output. Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million. The marginal propensity to spend in this economy is 0.75. What is the increase in expenditure in this economy during the second round of spending? A) $25 million B) $100 million C) $400 million D) $75 million E) $500 million

D Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied Objective: NEW User2:

111) 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) average propensity to save. B) marginal propensity to save. C) equilibrium level of national income. D) simple multiplier. E) reciprocal of the marginal propensity to spend.

D Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

132) 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 Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

116) 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 Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

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

D Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

6) Consider the government's budget balance. Suppose G = 300 and the government's net tax revenue is equal to 0.12Y. The government budget is balanced when Y equals A) 350. B) 1000. C) 2000. D) 2500. E) 3600.

D Diff: 2 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

17) In a simple macro model, the net export (NX) function indicates a ________ relationship between ________ and domestic national income. A) positive; exports B) positive; net exports C) negative; imports D) negative; net exports E) negative; exports

D Diff: 2 Topic: 22.2. net export function Skill: Applied User2:

69) Refer to Figure 22-3. Autonomous expenditures ________ as the AE curve rotates from AE1 to AE0 and equilibrium national income ________. A) decrease; decreases B) increase; decreases C) remain constant; increases D) remain constant; decreases E) remain constant; remains constant

D Diff: 2 Topic: 22.3a. the AE function Skill: Applied User1: Graph User2:

71) In a simple macro model with a constant price level, a decrease in the net tax rate causes the AE curve to A) shift parallel downward. B) shift parallel upward. C) rotate downward. D) rotate upward. E) remain stationary.

D Diff: 2 Topic: 22.3a. the AE function Skill: Applied User2:

87) Consider the following news headline: "Minister of Defence announces $2 billion purchase of military helicopters." Assuming that aggregate output is demand-determined, and that the helicopters are purchased domestically, what will be the effect of this action, all other things equal, on the AE function and equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

D Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied Objective: REVISED User2:

84) In an open economy with government and demand-determined output, an increase in the equilibrium level of national income could be caused by A) an increase in taxes at all levels of income. B) an increase in the desired level of imports at all levels of income. C) a decrease in desired consumption at all levels of income. D) a decrease in the desired level of saving at all levels of income. E) a decrease in government purchases.

D Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

86) In an open economy with government and demand-determined output in the short run, a specific "target" level of national income A) cannot be achieved by any of the government's fiscal policy tools. B) can be achieved by changing G, but not T. C) can be achieved by changing T, but not G. D) can be achieved by changes in G, T, or both. E) can be achieved only by changing both G and T at the same time.

D Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

93) Consider the following news headline: "China signs deal to buy more Canadian wheat." Assuming that aggregate output is demand-determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income? A) The AE function will shift down parallel to itself and equilibrium national income will fall. B) The AE function will rotate upward (become steeper) and equilibrium national income will rise. C) The AE function will rotate downward (become flatter) and national income will fall. D) The AE function will shift up parallel to itself and equilibrium national income will rise. E) There will be no change in the AE function or in equilibrium national income.

D Diff: 2 Topic: 22.4a. changes in equilibrium national income Skill: Applied User2:

102) Suppose output is demand determined. An increase in the net tax rate ________ the marginal propensity to spend and thus ________ the simple multiplier. A) raises; raises B) raises; lowers C) causes no change in; raises D) lowers; lowers E) lowers; raises

D Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

96) A decrease in the value of the simple multiplier can be caused by A) a decrease in the net tax rate. B) a decrease in the marginal propensity to import. C) an increase in the marginal propensity to consume. D) an increase in the marginal propensity to save. E) an increase in the marginal propensity to spend.

D Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

115) Refer to Figure 22-4, Diagram 2. Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output, Y*)? A) reduce government spending B) reduce transfer payments C) increase taxes D) increase government spending E) decrease disposable income

D Diff: 2 Topic: 22.4c. fiscal policy Skill: Applied User1: Graph User2:

120) In the simple macro model that is considered in Chapters 21 and 22 of the textbook, A) the economy is always in equilibrium. B) there is no government or foreign trade. C) the price level is determined within the model. D) there are no supply-side influences on national income. E) the simple multiplier is always equal to 1.

D Diff: 2 Topic: 22.5. demand-determined output Skill: Recall User2:

 Disposable Income Desired Consumption 0 10 50 30 150 70 300 130 TABLE 21-1 31) Refer to Table 21-1. The marginal propensity to consume is equal to A) 0.8. B) 0.67. C) 0.6. D) 0.4. E) 0.2.

D Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User1: Table User2:

46) If the Jones family's disposable income increases from $1200 to $1700 and their desired saving increases from -$100 to +$100, then the family's A) average propensity to consume is 0.60. B) average propensity to consume is 0.40. C) marginal propensity to consume is 0.40. D) marginal propensity to consume is 0.60. E) marginal propensity to save is 1.

D Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User2:

65) Refer to Figure 21-3. In this demand-determined model of the macro economy, the price level is A) measured by Y2/0B. B) measured by Y1Y2/AB. C) increasing as the economy moves from E0 to E1. D) assumed to be constant. E) derived from the slope of the AE function.

D Diff: 3 Topic: 21.1f. the aggregate expenditure function (AE) Skill: Applied User1: Graph User2:

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. TABLE 21-3 76) Refer to Table 21-3. The equilibrium level of national income will be A) $3000. B) $3600. C) $3900. D) $4000. E) $4400.

D Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied Objective: NEW User1: Table User2:

73) Refer to Figure 21-3. Consider the simplest macro model with no government and no foreign trade, and the aggregate expenditure function AE = C + I. If there was zero autonomous expenditure and the marginal propensity to consume was equal to one, then the AE function would be A) steeper than the 45-degree line. B) above the 45-degree line at all points. C) below the 45-degree line at all points. D) coincident with the 45-degree line. E) flatter than the 45-degree line.

D Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User1: Graph User2:

96) Refer to Table 21-5. At the equilibrium level of national income, what is the level of desired consumption expenditures? A) $68.75 B) $125 C) $150 D) $350 E) $375

D Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User1: Table User2:

97) Refer to Table 21-5. At the equilibrium level of national income, the level of desired saving will be A) equal to consumption expenditures. B) $375. C) $50. D) $25. E) $0

D Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User1: Table User2:

74) Consider the simplest macro model with demand-determined output, where AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $920 billion. We can expect that A) firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income. B) firms will decrease autonomous investment by $20 billion until equilibrium national income is reached at $900 billion. C) firms will increase autonomous investment by $20 billion until equilibrium national income is reached at $920 billion. D) firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income. E) actual national income will decrease until equilibrium national income is reached at $900 billion.

D Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User2:

117) 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 Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

129) 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 Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

119) 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 Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

130) 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) decrease by $40 billion; 0.75 B) decrease by $10 billion; 0.25 C) increase by $40 billion; 0.25 D) increase by $40 billion; 0.75 E) increase by $10 billion; 4.0

D Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

134) 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 Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

12) Suppose Y=400 and the government's net tax rate is 10%. If we are told that the government has a budget surplus, then government purchases must be A) greater than 30. B) less than 30. C) greater than 40. D) less than 40. E) Not enough information to know.

D Diff: 3 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

62) As the banking industry becomes more and more automated, tellers find themselves with unneeded skills and some of them become unemployed. At the same time, computer programmers are in high demand. These unemployed tellers would be classified as A) cyclically unemployed. B) frictionally unemployed. C) naturally unemployed. D) structurally unemployed. E) underemployed.

D) structurally unemployed.

14) Consider a simple macro model with a constant price level and demand-determined output. The inclusion of government in such a model affects desired aggregate expenditure directly through ________ and indirectly through ________. A) the net taxes; the government purchases of goods and services B) the net taxes; its affect on disposable income C) the government purchases of goods and services; its effect on net exports D) the government purchases of goods and services; its effect on disposable income E) the government purchases of goods and services; its effect on investment

D Diff: 3 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Recall User2:

31) Suppose exports are $200 and imports are given by IM = 0.2Y. At what level of national income will net exports equal zero? A) $0 B) $200 C) $250 D) $1000 E) $1250

D Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

42) Suppose exports (X)=100, Y=500, and imports are equal to mY, where m is the marginal propensity to import. Net exports would be equal to zero if the marginal propensity to import were A) 1%. B) 5%. C) 10%. D) 20%. E) 50%.

D Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

66) Refer to Figure 22-2. What is the marginal propensity to spend (z) in this economy? A) 0.15 B) 0.20 C) 0.40 D) 0.60 E) 0.75

D Diff: 3 Topic: 22.3a. the AE function Skill: Applied User1: Graph User2:

The diagram below shows desired aggregate expenditure for a hypothetical economy. Assume the following features of this economy: ∙ marginal propensity to consume (mpc) = 0.75 ∙ net tax rate (t) = 0.20 ∙ no foreign trade ∙ fixed price level ∙ all expenditure and income figures are in billions of dollars. FIGURE 22-2 83) Refer to Figure 22-2. What is the equilibrium national income in this economy? A) $187.50 B) $294 C) $333.34 D) $625 E) $1666.67

D Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User1: Graph User2:

74) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y. Desired consumption expenditure at equilibrium national income is A) 1675.44. B) 4060.04. C) 4830.00. D) 4980.00. E) 6815.40.

D Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

78) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. Equilibrium national income is A) 2037.48. B) 3615.24. C) 4000.00. D) 4307.70. E) 8000.00.

D Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

81) Consider a macro model with demand-determined output. The equations are: C = 150 + 0.8Yd, Yd = Y-T, I = 400, G = 700, T = 0.2Y, X = 130, and IM = 0.14Y. Equilibrium national income in this model is A) 1120. B) 1350. C) 2240. D) 2760. E) 5400.

D Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

82) Consider the following macro model with demand-determined output: C = 150 + 0.9, = 0.8Y, I = 400, G = 700, T = (0.2)Y, X = 130, IM = (0.08)Y. Equilibrium national income is A) 1380.00. B) 1916.67. C) 2156.25. D) 3833.33. E) 4928.57.

D Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

105) Consider a simple macro model with government and demand-determined output. If the government wants to reduce equilibrium national income by $20 billion, G must be A) raised by $20 billion times the simple multiplier. B) raised by $20 billion divided by the simple multiplier. C) lowered by $20 billion times the simple multiplier. D) lowered by $20 billion divided by the simple multiplier. E) lowered by $20 billion.

D Diff: 3 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied Objective: REVISED User2:

94) Refer to Table 20-5. The real GDP in 2013, expressed in 2012 prices, was A) $ 700. B) $ 840. C) $ 970. D) $1010. E) $1740.

D) $1010.

106) Refer to Table 20-8. The real GDP in 2012, expressed in 2011 prices, was A) $1760. B) $1500. C) $1300. D) $1260. E) $410.

D) $1260.

70) Refer to Table 20-3. 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

D) $1910.80

The table below includes data for a one-year period required to calculate GDP from the expenditure side for a teeny-tiny economy. TABLE 20-1 57) Refer to Table 20-1. What is the value of GDP from the expenditure side? A) $1982.60 B) $1986.00 C) $2010.00 D) $2285.20 E) $2584.40

D) $2285.20

The table below includes data for a one-year period required to calculate GDP from the income side for a teeny-tiny economy. TABLE 20-3 68) Refer to Table 20-3. What is the value of GDP? A) $1982.60 B) $1986.00 C) $2010.00 D) $2285.20 E) $2584.40

D) $2285.20

14) 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

D) $2700; $1400

72) 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

D) $3728

The table below provides national-income data for an economy for a one-year period (billions of dollars). TABLE 20-4 86) Refer to Table 20-4. What is the gross national product (GNP) for this economy? A) $270 billion B) $300 billion C) $355 billion D) $494 billion E) $506 billion

D) $494 billion

The table below shows total output for an economy over 3 years. TABLE 20-7 100) Refer to Table 20-7. The nominal Gross Domestic Product in 2010 was A) $700 000. B) $724 000. C) $774 000. D) $798 000. E) $820 000.

D) $798 000.

106) 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.

D) 1.33.

54) Economists expect some unemployment to exist even at times of "full employment" for, among others, the following reasons: 1) actual GDP is rarely equal to potential GDP; 2) as the economy changes, the structure of the existing labour force is not the same as the structure of labour demand; 3) 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

D) 2 and 3

84) 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%.

D) 2.5%.

FIGURE 20-1 109) Refer to Figure 20-1. Which of the following years was used as the base year for constructing real GDP? A) 1990 B) 1995 C) 2000 D) 2003 E) 2005

D) 2003

59) 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%.

D) 3.0%.

104) Refer to Table 20-7. The growth rate of real output from 2011 to 2012 is A) 1.03%. B) 1.84%. C) 3.25%. D) 3.41%. E) 4.27%.

D) 3.41%.

42) 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%.

D) 6.7%.

83) Suppose you are hired as a consultant to estimate the increase in consumer demand for automobiles for the coming year. Which measure of aggregate income would be most useful to you for this type of forecasting? A) Gross Domestic Product B) Net National Product C) GDP Deflator D) Disposable Income E) Gross National Product

D) Disposable Income

79) If you are analyzing fluctuations in Canadian unemployment you would be most interested in studying changes in A) GNP. B) disposable personal income. C) value added. D) GDP. E) the GDP deflator.

D) GDP.

75) If the amount of income generated in Canada that is remitted to foreigners is greater than the amount of income generated abroad that is remitted to Canadian residents, then A) GNP is negative. B) GNP is less than disposable personal income. C) GDP is equal to GNP. D) GNP is lower than GDP. E) GDP is lower than GNP.

D) GNP is lower than GDP.

40) 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.

D) Statistics Canada conducts a Labour Force Survey each month.

85) 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

D) [(P2 - P1)/P1] × 100

74) 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.

D) a change in a broad average price over some particular time span.

22) To calculate GDP from the expenditure side, one must add together A) wages, profits, government purchases and net exports. B) consumption, government purchases, and interest. C) wages, rent, interest, and profits. D) consumption, investment, government purchases, and net exports. E) consumption, investment, government purchases, and exports.

D) consumption, investment, government purchases, and net exports.

64) 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.

D) excludes the value of output that is used as replacement investment.

25) Which of the following would be included in the consumption expenditure component of GDP? A) export sales of snowmobiles B) government expenditure for highway construction C) the increase in inventories at lumber mills D) expenditure by a firm for architectural services E) a municipal government's purchase of new desks for city council chambers

D) expenditure by a firm for architectural services

1) 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.

D) fluctuations and trends in aggregated data.

51) 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) the purchase of a tattoo for Mary Smith's ankle. D) government pension payments to a retired person. E) a new truck purchased by a furniture-delivery company.

D) government pension payments to a retired person.

10) 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.

D) increase the value of national income by $1000.

80) 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.

D) inflation is fully anticipated and no one changes their behaviour.

80) In the national-income accounts, disposable personal income A) includes capital consumption allowances. B) includes undistributed corporate profits. C) equals personal income, minus personal income taxes, plus transfer payments and interest on public debt. D) is the part of national income that is available to households to spend or save. E) is equal to wages.

D) is the part of national income that is available to households to spend or save.

56) When calculating GDP from the expenditure side, which of the following is true of the government purchases component, Ga? A) it excludes government investment expenditure 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

D) it excludes transfer payments

55) 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

D) it includes changes in inventories

38) When calculating GDP using the expenditure approach, the investment component includes A) net investment only. B) net investment minus depreciation. C) gross investment plus depreciation. D) net investment plus depreciation. E) fixed investment minus depreciation.

D) net investment plus depreciation.

9) Suppose that in 2013 Canada's automobile manufacturers produced 2 million cars priced at $20 000 each. And in 2014 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.

D) no change in nominal national income.

99) 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%

D) nominal interest rate of 4% and an inflation rate of 4%

28) 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.

D) path of potential output.

60) 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

D) payment for the construction of a custom-built new home

73) Of the following possibilities, the best measure of the average material living standards of domestic residents is A) GDP. B) GNP. C) per capita GDP. D) per capita GNP. E) per capita net exports.

D) per capita GNP.

65) 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

D) plus; minus; plus

94) 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.

D) positive if the nominal rate of interest is greater than the rate of inflation.

68) 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

D) real GDP per employed worker = $400 000

75) 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.

D) reduces the real value of existing nominal debt.

26) 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.

D) referred to in economics as "the business cycle."

66) 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.

D) replacement investment.

63) 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.

D) rising employment, increasing stock of physical capital and increasing productivity.

28) In national-income accounting, a fall in Ga (other things being equal) will be recorded if A) labour productivity in the government sector falls. B) the true market value of government-produced goods and services decreases. C) wages in the government sector rise. D) the Canadian armed forces reduces the size of the army. E) the number of employed civil servants increases, but total government salaries remains unchanged.

D) the Canadian armed forces reduces the size of the army.

19) Potential or full-employment output is A) the maximum GDP that an economy actually achieves throughout its entire history. B) achieved during periods when all of the labour force is employed. C) 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.

D) the GDP that would be produced if the economy's resources were fully employed at a normal intensity of use.

125) 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.

D) the change that is measured in GDP from one year to the next is a good indication of the change in economic activity.

39) 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.

D) the main trend of the economy has been one of growth in employment that roughly matches the growth in the labour force.

77) 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%.

D) the price level has declined by about 10%.

21) The term "investment" in macroeconomics means A) the total amount of capital goods in the country. B) the production of goods for immediate consumption. C) the same thing as profits. D) the production of goods not for immediate consumption use. E) money spent in markets for financial capital.

D) the production of goods not for immediate consumption use.

90) 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 of all goods and services produced in an economy per year adjusted for price changes. E) the nominal value of GNP multiplied by the GDP deflator.

D) the value of all goods and services produced in an economy per year adjusted for price changes.

7) 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.

D) the value of the income generated by the production of total output.

41) 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.

D) their pre-tax salaries, or factor incomes.

54) 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.

D) to increase the value of GDP by $1000.

8) 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.

D) to increase the value of GDP by $5000.

8) Consider the government's budget balance. Suppose G = 600 and the government's net tax revenue is 10% of Y. The government budget is balanced when Y equals A) 660. B) 1320. C) 3000. D) 4500. E) 6000.

E Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

 Disposable Income Desired Consumption 0 10 30 34 70 66 130 114 TABLE 21-2 33) Refer to Table 21-2. The marginal propensity to save is equal to A) 0.8. B) 0.67. C) 0.6. D) 0.4. E) 0.2.

E Comment: An algorithmic version of this question appears in MyEconLab Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User1: Table User2:

58) Consider the simplest macroeconomic model, with a closed economy and no government. If we assume that desired investment is autonomous with respect to national income, then the investment function (which graphs desired investment against actual national income) will be A) negatively sloped. B) positively sloped and relatively steep. C) positively sloped and relatively flat. D) vertical. E) horizontal.

E Diff: 1 Topic: 21.1e. desired investment Skill: Recall User2:

63) Refer to Figure 22-2. What is total autonomous expenditure? A) $0 B) $75 C) $100 D) $175 E) $250

E Diff: 1 Topic: 22.3a. the AE function Skill: Applied User1: Graph User2:

44) The AE function for an open economy with government can be written as A) AE = C + I - G + (X-IM). B) AE = C + I + G - (X-IM). C) AE = C + I - G - (X+IM). D) AE = C + I + S + (X+IM). E) AE = C + I + G + (X-IM).

E Diff: 1 Topic: 22.3a. the AE function Skill: Recall User2:

111) Fiscal policy involves the government's use of ________ to affect economic outcomes. A) exchange rate changes B) interest rate changes C) price level changes D) private investment expenditures E) expenditures and taxation

E Diff: 1 Topic: 22.4c. fiscal policy Skill: Recall User2:

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

E Diff: 2 Topic: 21.1b. the consumption function Skill: Recall User2:

44) Bob Tetley's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 500. It can be concluded that his A) average propensity to consume is constant. B) average propensity to save is always 0.25. C) marginal propensity to consume decreased. D) marginal propensity to consume is 0.25. E) marginal propensity to save is 0.25.

E Diff: 2 Topic: 21.1c. average and marginal propensities to consume Skill: Applied Objective: REVISED User2:

100) 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) $4.5 million. E) $6 million.

E Diff: 2 Topic: 21.2. equilibrium national income Skill: Applied User2:

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

E Diff: 2 Topic: 21.2. equilibrium national income Skill: Applied User2:

115) 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 Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

131) 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 Diff: 2 Topic: 21.3b. the simple multiplier Skill: Applied User2:

55) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y. The vertical intercept of the AE function is A) 120.0. B) 420.0. C) 600.0. D) 828.8. E) 1120.0.

E Diff: 2 Topic: 22.3a. the AE function Skill: Applied User2:

57) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The vertical intercept of the AE function is A) 60.0. B) 210.0. C) 300.0. D) 414.4. E) 560.0.

E Diff: 2 Topic: 22.3a. the AE function Skill: Applied User2:

45) Consider the general form of the consumption function in a simple macro model. Once government and taxes are included in the model, desired consumption can be expressed as ________, where a = autonomous consumption, t = net tax rate, Y = national income, = disposable income, and MPC = marginal propensity to consume. A) C = a + MPC(1 - t) B) C = a - (1 - t) C) C = a + MPC ∙ Y D) C = a + MPC ∙ t ∙ E) C = a + MPC(1 - t)Y

E Diff: 2 Topic: 22.3a. the AE function Skill: Recall Objective: NEW User2:

52) Consider a simple macro model with a constant price level and demand-determined output. The marginal propensity to spend out of national income, z, can be expressed as ________ (where t = net tax rate and m = marginal propensity to import). A) z = MPC(1 - t - m) B) z = tY - mY C) z = MPC - (1 - t- m)Y D) z = MPC - (1 - t - m) E) z = MPC(1 - t) - m

E Diff: 2 Topic: 22.3a. the AE function Skill: Recall Objective: NEW User2:

Consider the following information for an economy with demand-determined output and a constant price level. There is no government or foreign trade. TABLE 21-8 140) Refer to Table 21-8. This economy's equilibrium level of national income is A) 500. B) 600. C) 750. D) 1000. E) 1500.

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User1: Table User2:

141) Refer to Table 21-8. The simple multiplier in this economy is A) 2.0. B) 2.5. C) 3.0. D) 4.0. E) 5.0.

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User1: Table User2:

110) Consider the simplest macro with demand-determined output. If the marginal propensity to consume out of disposable income (MPC) is equal to the marginal propensity to spend out of national income (z), then A) the marginal propensity to import (m) is larger than the tax rate (t). B) the marginal propensity to import (m) is smaller than the tax rate (t). C) the simple multiplier is smaller in a closed economy with no government. D) the simple multiplier is larger in a closed economy with no government. E) there is no effect on the simple multiplier from imports or tax rates.

E Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

97) An increase in the value of the simple multiplier can be caused by A) a decrease in the marginal propensity to consume. B) an increase in the marginal propensity to import. C) an increase in the net tax rate. D) an increase in the marginal propensity to save. E) a decrease in the net tax rate.

E Diff: 2 Topic: 22.4b. the simple multiplier with taxes (t) and imports (m) Skill: Applied User2:

113) Refer to Figure 22-4. Diagram 2 illustrates an economy that is experiencing a(n) ________ gap. The goal of stabilization policy would be to ________ national income until it is equal to ________. A) recessionary; increase; actual national income B) inflationary; reduce; potential GDP C) inflationary; reduce; actual national income D) inflationary; increase; potential GDP E) recessionary; increase; potential GDP

E Diff: 2 Topic: 22.4c. fiscal policy Skill: Applied User1: Graph User2:

116) If the price level is taken as given in a simple macro model with demand-determined output, it is implicitly being assumed that A) net exports are positive. B) net exports are negative. C) the marginal propensity to consume out of disposable income is equal to the marginal propensity to spend out of national income. D) all resources in the economy are fully employed. E) producers can provide whatever output is demanded of them without requiring higher prices to offset any higher costs.

E Diff: 2 Topic: 22.5. demand-determined output Skill: Recall User2:

117) Consider a macro model in which output is assumed to be demand-determined. One situation which may justify this assumption is when A) net exports are positive. B) net exports are negative. C) the marginal propensity to consume out of disposable income is equal to the marginal propensity to spend out of national income. D) all resources in the economy are fully employed. E) the economy is operating with some unemployed resources.

E Diff: 2 Topic: 22.5. demand-determined output Skill: Recall User2:

34) Refer to Table 21-2. The marginal propensity to consume is equal to A) 0.2. B) 0.4. C) 0.6. D) 0.67. E) 0.8.

E Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied Objective: NEW User1: Table User2:

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

E Diff: 3 Topic: 21.1c. average and marginal propensities to consume Skill: Applied User2:

80) Refer to Table 21-3. Suppose this economy is in equilibrium. There is then a significant decline in house prices across the country. The likely effect is A) autonomous consumption will rise above $300 and equilibrium national income will therefore rise. B) autonomous saving will fall and equilibrium national income will therefore fall. C) autonomous saving will rise and equilibrium national income will therefore rise. D) autonomous investment will rise and equilibrium national income will therefore rise. E) autonomous consumption will fall below $300 and equilibrium national income will therefore fall.

E Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied Objective: NEW User1: Table User2:

Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions. TABLE 21-4 81) Refer to Table 21-4. The equilibrium level of national income will be A) $ 70. B) $ 93. C) $120. D) $160. E) $280.

E Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User1: Table User2:

75) Consider the simplest macro model with demand-determined output, where AE = C + I. Suppose that actual national income is $900 billion and desired consumption plus desired investment is $890 billion. We can expect that A) firms will see a decrease in inventories, and they will respond by increasing output, thereby increasing actual national income. B) firms will decrease autonomous investment by $10 billion until equilibrium national income is reached at $890 billion. C) firms will increase autonomous investment by $10 billion until equilibrium national income is reached at $900 billion. D) actual national income will increase until equilibrium national income is reached at $900 billion. E) firms will see an increase in inventories, and they will respond by decreasing output, thereby decreasing actual national income.

E Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User2:

91) 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) tend to rise if desired aggregate expenditure is less than actual national income. B) remain constant if savings equals consumption. C) be in equilibrium if all of the resources of the economy are fully employed. D) remain constant if firms are accumulating inventories. E) tend to rise if firms have unplanned decumulation of inventories.

E Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User2:

89) Consider the simplest 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 national income must be less than the equilibrium level. C) actual national income must be greater than the equilibrium level. D) inventories will likely begin to rise, causing firms to reduce production. E) both A and B are correct.

E Diff: 3 Topic: 21.2. equilibrium national income Skill: Applied User2:

109) Consider the simplest macro model with demand-determined output. Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million. The marginal propensity to spend in this economy is 0.75. What is the eventual total new expenditure in this economy due to the increase in investment? A) $75 million B) $100 million C) $25 million D) $500 million E) $400 million

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied Objective: NEW User2:

126) 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 $20 billion, the marginal propensity to spend must be A) 2/5. B) 1/3. C) 1/2. D) 2/3. E) 4/5.

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

124) 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 average propensity to save. B) the marginal propensity to save. C) the equilibrium level of national income. D) the marginal propensity not to spend. E) the marginal propensity to spend.

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

142) 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) 0.9. C) 1.0. D) 1.1. E) 10.0.

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

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

E Diff: 3 Topic: 21.3b. the simple multiplier Skill: Applied User2:

7) Consider the government's budget balance. Suppose G = 400 and the government's net tax revenue is 20% of national income (Y). Government saving is negative for all values of Y A) above 10 000. B) above 8000. C) above 2000. D) below 8000. E) below 2000.

E Diff: 3 Topic: 22.1. government expenditure (G) and tax revenue (T) Skill: Applied User2:

21) An upward shift and flattening of the net export (NX) function can be caused by A) an increase in domestic national income. B) a decrease in foreign national income. C) a decrease in domestic prices relative to foreign prices. D) an increase in the Canadian-dollar price of foreign currency. E) both C and D are correct

E Diff: 3 Topic: 22.2. net export function Skill: Applied Objective: REVISED User2:

The diagrams below show the import, export, and net export functions for an economy. FIGURE 22-1 32) Refer to Figure 22-1. The function for desired imports for this economy can be expressed as A) NX = 450 - Y B) IM = 450 - 0.5(Y) C) NX = 0.5(Y) D) IM = 0.5(Y) E) IM = 0.2(Y)

E Diff: 3 Topic: 22.2. net export function Skill: Applied User1: Graph User2:

22) A downward shift and steepening of the net export (NX) function can be caused by A) an increase in domestic national income. B) a decrease in foreign national income. C) an increase in domestic prices relative to foreign prices. D) a decrease in the Canadian-dollar price of foreign currency. E) both C and D are correct.

E Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

24) A rise in domestic prices relative to foreign prices, other things being equal, causes the net export (NX) function to shift ________ and ________. A) upward; become flatter B) upward; become steeper C) downward; become flatter D) downward; keep the same slope E) downward; become steeper

E Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

27) A fall in the Canadian-dollar price of foreign currency, other things being equal, causes Canada's net export (NX) function to shift ________ and ________. A) upward; become flatter B) upward; become steeper C) downward; become flatter D) downward; keep the same slope E) downward; become steeper

E Diff: 3 Topic: 22.2. net export function Skill: Applied User2:

80) Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y. The trade balance at equilibrium national income is A) a deficit of 36.67. B) a deficit of 21.43. C) zero. D) a surplus of 21.43. E) a surplus of 36.67.

E Diff: 3 Topic: 22.3b. equilibrium national income Skill: Applied User2:

The table below shows total output for an economy over 2 years. TABLE 20-5 93) Refer to Table 20-5. The nominal Gross Domestic Product in 2013 was A) $ 700. B) $ 840. C) $ 980. D) $1740. E) $1820.

E) $1820.

72) What is the approximate measure (2011 data) of Canada's productivity in terms of real GDP per hour worked (expressed in 2012 dollars)? A) $10 B) $92 C) $200 D) $475 E) $45

E) $45

35) Refer to Table 19-1. What is the output gap in 2007? A) $408 billion B) $411 billion C) $7.1 billion D) $3 billion E) -$3 billion

E) -$3 billion

2) The economic problems studied in macroeconomics include: 1) the level of economic activity; 2) competition policy; 3) the rate of unemployment. A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 1 and 3

E) 1 and 3

107) Refer to Table 20-8. The implicit GDP deflator in 2012 (using 2011 as the base year) is A) 71.59. B) 100. C) 103.4. D) 114.6. E) 139.7.

E) 139.7.

41) 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

E) 3.4; 12

45) 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%.

E) 9.0%.

44) 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%.

E) 9.0%.

84) The best measure of total income received by Canadian citizens is A) net domestic income at factor cost. B) nominal GDP. C) real GDP. D) disposable personal income. E) GNP.

E) GNP.

36) 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.

E) Housing construction is classified as investment expenditure rather than consumption expenditure.

69) 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

E) Not able to determine from the information provided

10) 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.

E) Statistics Canada.

43) 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%. C) 6.7%. D) 7.1%. E) There is not enough information to know.

E) There is not enough information to know.

15) 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.

E) adding up the payments made to the factors of production used by the firm.

13) 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.

E) an equal increase in the value of income claims on that output.

48) Suppose that in 2012, 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 2012? 1. Yes, since changes in inventories are part of consumption expenditures. 2. Yes, since they are part of the economy's output in 2012. 3. 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

E) both 2 and 3

81) 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.

E) both B and D are correct.

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

E) difference between Y and Y*.

8) 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.

E) economic growth.

114) 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

E) forest products

119) 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.

E) have a large share of nonmarket activities.

102) 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

E) homeowners who had long-term fixed-rate mortgages

17) Consider the circular flow of expenditure and income in the Canadian economy. Which of the following is an injection into the circular flow? A) imports B) taxes C) saving D) consumption E) investment

E) investment

66) 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

E) labour productivity; the number of units of work effort

2) 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.

E) overestimate the value of production in the economy.

85) Which of the following is the most appropriate measure for evaluating the average material living standards of Canadian residents? A) disposable income B) per capita Net National Product C) Net Domestic Income at Factor Cost D) per capita Gross Domestic Product E) per capita Gross National Product

E) per capita Gross National Product

57) 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.

E) structural unemployment.

77) As a measure of Canadian economic activity GDP is ________ to GNP. As a measure of the income accruing to Canadian residents, GDP is ________ to GNP. A) inferior; superior B) superior; equivalent C) equivalent; inferior D) inferior; equivalent E) superior; inferior

E) superior; inferior

89) 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.

E) the general price level has increased.

44) 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.

E) the monthly rental of an apartment.

78) 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%.

E) the price level has increased by approximately 10%.

124) 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

E) the purchase price of illegal drugs sold by a drug dealer

69) Refer to Table 20-3. 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.

E) wages and salaries, interest and investment income, business profits, depreciation, indirect taxes less subsidies.

36) Refer to Table 19-1. In the year 2009, 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

E) working longer than normal hours; operating beyond their normal capacity