Macroeconomics Mid-Term Practice

Refer to Figure 4.1.1, which shows the circular flow of expenditure and income for Venus. During 2017, A was $100, B was $50, C was $30 and D was $10. How much is net exports? A) $10 B) $25 C) $100 D) $30 E) $50

A. $10

Refer to Table 4.2.5. Compute Southton's nominal GDP in the current year. Rubber Ducks (Base Year Price: $1.00, Quantity: 100) Beach Towels (Base Year Price: $10.00, Quantity: 10) Rubber Ducks (Current Year Price: $2.00, Quantity: 150) Beach Towels (Current Year Price: $8.00, Quantity: 10) A) $380 B) $250 C) $200 D) $280 E) $209

A. $380

Refer to Table 4.2.8. The base year is 2017 and the table gives the quantities produced and the prices in 2017 and 2018. Real GDP in 2018 using the base-year method is 2017 (Bananas, quantity: 900, price: $3) 2017 (Coconuts, quantity: 400, price: $8) 2018 (Bananas, quantity: 600, price: $2) 2018 (Coconuts, quantity: 500, price: $10) A) $5,800. B) $6,100. C) $6,000. D) $6,200. E) $5,900.

A. $5,800.

Suppose that the natural unemployment rate is 4.5 percent and the actual unemployment rate is 3.5 percent. Then cyclical unemployment is A) -1 percent. B) 0 percent. C) 1 percent. D) 3.5 percent. E) 8 percent.

A. -1 percent.

In a country with a working-age population of 20 million, 14 million are employed, 1.5 million are unemployed, and 1 million of the employed are working part-time, half of whom wish to work full-time. The size of the labour force is A) 15.5 million. B) 20 million. C) 12.5 million. D) 14.5 million. E) 14 million.

A. 15.5 million.

Choose the correct statement. A) Nominal GDP is just a more precise name for GDP. B) Nominal GDP and real GDP both increase when the average level of prices increases. C) Nominal GDP is just a more precise name for real GDP. D) We measure the change in production by comparing nominal GDP in one year with real GDP in the previous year. E) When nominal GDP increases, real GDP decreases.

A. Nominal GDP is just a more precise name for GDP.

Which of the following increases Canadian GDP? A) The ice cream I buy from my grocery store B) The production and sale of flour to a bakery C) I shovel my own driveway. D) I sell my used Honda. E) The purchase of a CD made in China

A. The ice cream I buy from my grocery store

One of the reasons why real GDP grows is that A) capital grows as a result of investment. B) people have more income. C) prices increase. D) governments collect more taxes. E) imports increase.

A. capital grows as a result of investment.

The largest component of GDP using the expenditure approach is A) consumption expenditure. B) imports. C) government expenditure. D) investment. E) exports.

A. consumption expenditure.

If the inflation rate is negative, the price level in an economy is A) falling. B) rising slowly. C) negative. D) constant. E) rising rapidly.

A. falling.

The firm that printed your textbook bought the paper from XYZ Paper Mills. This purchase of paper ________ part of GDP because the paper is ________ good. A) is not; an intermediate B) is; a nonrenewable C) is; an intermediate D) is; a final E) is not; a final

A. is not; an intermediate

The annual inflation rate measures A) the annual percentage change in the price level. B) the annual percentage change in production. C) the annual change in the price level. D) the average price level. E) the annual percentage change in the wage rate.

A. the annual percentage change in the price level.

The reference base period is 2002. A consumer price index of 122 in 2018 means that A) the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services was 22 percent higher in 2018 than it was on average during 2002. B) prices of consumer goods have gone up by a factor of 12.2. C) the market basket of consumer goods that cost $122 in 2002 can be purchased for $100 in 2018. D) if the price of a good was $100 in 2002, its price in 2018 is $122. E) prices of consumer goods have more than doubled.

A. the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services was 22 percent higher in 2018 than it was on average during 2002.

The labour force participation rate is A) the percentage of the working-age population who are either unemployed or employed. B) the percentage of the labour force who are unemployed or employed. C) the percentage of the labour force who are employed. D) the percentage of the working-age population who are employed. E) equal to the employment rate plus the unemployment rate.

A. the percentage of the working-age population who are either unemployed or employed.

Nominal consumption expenditure is $1,500 billion and Real consumption expenditure is $1,200 billion.The CPIC is A) 1.25. B) 125. C) 80. D) 150. E) 0.80.

B. 125.

The CPI basket of Econoland consists of 10 units of A, 20 units of B, and 30 units of C. Current prices are $1 per unit of A, $2 per unit of B, and $3 per unit of C. Base-year prices are $1 for each unit of A, B, and C. What is the CPI in the current year? A) 100 B) 233 C) 140 D) 430 E) 43

B. 233

Which one of the following people is structurally unemployed? A) a Nova Scotia fishery worker who is searching for a better job closer to home B) a Saskatchewan welder who lost her job when her company relocated to B. C. and is currently looking for a job C) a steel worker who is laid off but who expects to be called back soon D) a student who recently graduated and is looking for work E) an office worker who has lost her job because of a general slowdown in economic activity

B. a Saskatchewan welder who lost her job when her company relocated to B. C. and is currently looking for a job

The underground economy is any economic activity that A) produces intermediate goods or services. B) is hidden to avoid taxes and regulations because it is illegal. C) is not taxed. D) has negative social value. E) is conducted underground.

B. is hidden to avoid taxes and regulations because it is illegal.

In any year, real GDP A) always equals potential GDP. B) might be greater than, less than, or equal to potential GDP. C) increases if potential GDP increases, and decreases if potential GDP decreases. D) will always be greater than potential GDP because of the tendency of nations to incur inflation. E) must always be less than potential GDP.

B. might be greater than, less than, or equal to potential GDP.

Real GDP will increase only if the A) unemployment rate rises. B) quantity of goods and services produced increases. C) employment rate falls. D) average level of prices rises. E) employment rate rises.

B. quantity of goods and services produced increases.

Counting discouraged searchers as unemployed would A) raise the full employment rate. B) raise the measured unemployment rate. C) not change the measured unemployment rate. D) raise the natural unemployment rate. E) lower the measured unemployment rate.

B. raise the measured unemployment rate.

Potential GDP is A) the same as nominal GDP. B) the maximum amount of GDP that can be produced while avoiding shortages of labour, capital, land, and entrepreneurship that would bring rising inflation. C) equal to nominal GDP multiplied by the price level. D) the same as real GDP. E) equal to real GDP multiplied by the price level.

B. the maximum amount of GDP that can be produced while avoiding shortages of labour, capital, land, and entrepreneurship that would bring rising inflation.

Intermediate goods are A) sold to their ultimate user. B) purchased this year but consumed in future years. C) not included in the measure of GDP because they are usually imported. D) produced by one firm, bought by another firm, and used as a component of a final good or service. E) included directly in the measure of GDP.

D. produced by one firm, bought by another firm, and used as a component of a final good or service.

Refer to Table 5.3.2. What is Southton's consumer price index in the current year? Base year (Beach, quantity: 100, price: $1) Base year (Towels, quantity: 12, price: $9) Current year (Beach, quantity: 100, price: $1.25) Current year (Towels, quantity: 14, price: $6) A) 94.7 B) 105.6 C) 100.5 D) 100 E) 112

C. 100.5

Refer to Table 4.4.1. At 2018 prices, the value of production from 2017 to 2018 has increased by 2017: (CD players, quantity: 10, Price: $100) 2017: (Bananas, quantity: 50, Price: $2) 2018: (CD players, quantity: 25, Price: $110) 2018: (Bananas, quantity: 100, Price: $3) A) 56 percent. B) 1.455 percent. C) 144.0 percent. D) 1.44 percent. E) 145.5 percent.

C. 144.0 percent.

Refer to Table 5.3.1. The reference base period is 2002. The CPI in 2017 is 2002 (Pop, quantity: 100, price: $0.75) 2002 (Crackers, quantity: 300, price: $1.25) 2002 (Cucumbers, quantity: 200, price: $2) 2017 (Pop, quantity: 120, price: $1.10) 2017 (Crackers, quantity: 280, price: $2.10) 2017 (Cucumbers, quantity: 190, price: $3) A) 63. B) 100. C) 158. D) 1,340. E) 96.

C. 158.

In a country with a working-age population of 30 million, 18 million are employed, 2 million are unemployed, and 2 million of the employed are working part-time, half of whom wish to work full-time. If 1 million of the unemployed are cyclically unemployed, what is the natural unemployment rate? A) 5.6 percent B) 6.7 percent C) 5 percent D) 1 percent E) 11.1 percent

C. 5 percent

Which one of the following people would be counted as unemployed in Canada? A) Doris works only 5 hours a week but is looking for a full-time job. B) Taylor is a homemaker. C) Sharon recently began looking for work after staying at home for 10 years to look after her children. D) Kanhaya has stopped looking for work since he was unable to find a suitable job during a two-month search. E) Maurice is on a two-month vacation out of the country but is still looking for a job using the Internet.

C. Sharon recently began looking for work after staying at home for 10 years to look after her children.

If there is a 5 percent increase in the CPI, then there will most likely be A) a more than 5 percent rise in the cost of living because of the introduction of new goods. B) a more than 5 percent rise in the cost of living because consumers substitute away from goods whose relative prices rise towards other goods. C) a less than 5 percent rise in the cost of living because consumers substitute away from goods whose relative prices rise towards other goods. D) a 5 percent rise in the cost of living. E) a less than 5 percent rise in the cost of living because of falling quality of goods over time.

C. a less than 5 percent rise in the cost of living because consumers substitute away from goods whose relative prices rise towards other goods.

Which of the following is not a reason for GDP incorrectly measuring the value of total output? A) underground economic activity B) household production C) depreciation D) leisure time E) environmental quality

C. depreciation

The circular flow diagram illustrates the expenditures made by A) households and investors only. B) households only. C) households, firms, governments, and the rest of the world. D) households and firms only. E) firms, households, and governments only.

C. households, firms, governments, and the rest of the world.

Suppose the working-age population in Tiny Town is 100 people. If 25 of these people are not in the labour force, the ________ equals ________. A) employment rate; 25 percent B) employment rate; 75 percent C) labour force; 75 people D) unemployment rate; 33 percent E) unemployment rate; 25 percent

C. labour force; 75 people

If prices at Wendy's rise, more consumers buy their meals at McDonald's and fewer consumers buy their meals at Wendy's. This is an example of A) consumers' action to boycott Wendy's. B) quality change bias. C) outlet substitution. D) commodity substitution. E) new good bias.

C. outlet substitution.

Some unemployment is unavoidable because A) many part-time workers would like to have full-time work. B) often people become discouraged searchers. C) people are making transitions through the stages of life and businesses are making transitions. D) many people in the working-age population attend school and are unemployed. E) there is always some cyclical unemployment.

C. people are making transitions through the stages of life and businesses are making transitions.

If the unemployment rate is 4.5 percent and the natural unemployment rate is 5.5 percent, then A) potential GDP equals real GDP. B) real GDP is greater than nominal GDP. C) potential GDP is less than real GDP. D) potential GDP is greater than real GDP. E) we have mismeasured the natural unemployment rate.

C. potential GDP is less than real GDP.

The consumer price index is a measure of A) the consumer prices paid by average households for a fixed basket of goods and services. B) the lowest prices paid by urban consumers for a fixed basket of consumer goods and services. C) the average of the prices paid by urban consumers for a fixed basket of consumer goods and services. D) the average of the prices paid by all consumers for a fixed basket of consumer goods and services. E) the lowest prices paid by all consumers for a fixed basket of consumer goods and services.

C. the average of the prices paid by urban consumers for a fixed basket of consumer goods and services.

Refer to Table 4.2.1. Gross domestic product equals. When (Wages, salaries, and supplementary labour income = $800, Other factor incomes = $250, Government expenditures on goods and services = $250, Depreciation = $240, Investment = $400, Personal income taxes net of transfer payments = $140, Indirect taxes = $120, Net exports = $100, Consumption expenditure = $600) A) $1,290. B) $1,150. C) $2,910. D) $1,350. E) $1,360.

D. $1,350.

Refer to Table 4.2.5. Compute Southton's nominal GDP in the base year. Rubber Ducks (Base Year Price: $1.00, Quantity: 100) Beach Towels (Base Year Price: $10.00, Quantity: 10) Rubber Ducks (Current Year Price: $2.00, Quantity: 150) Beach Towels (Current Year Price: $8.00, Quantity: 10) A) $280 B) $208 C) $380 D) $200 E) $250

D. $200

A south sea island produces only coconuts. In 2005, the price of a coconut is $2.00 and the quantity produced is 400. In 2017, the price of a coconut is $1.50 and the quantity produced is 350. 2005 is the reference base year. Real GDP in 2017 in terms of base-year prices is A) $750. B) $800. C) $600. D) $700. E) $525.

D. $700.

If the CPI was 95 at the end of 2016 and 105 at the end of 2017, what was the inflation rate in 2017? A) 9.5 percent B) 10 percent C) 5 percent D) 10.5 percent E) 105 percent

D. 10.5 percent

Government expenditure on goods and services A) includes transfer payments. B) plus consumption expenditure equals aggregate expenditure. C) is always greater than consumption expenditure. D) includes expenditure by all levels of government on goods and services. E) plus consumption expenditure plus investment equals aggregate expenditure.

D. includes expenditure by all levels of government on goods and services.

Suppose a union and a firm agree to increase the wage rate by the same percentage as the increase in the Consumer Price Index. If the CPI increases by 5 percent, then the real income of workers will A) increase by more than 5 percent, accounting for bias in the calculation of the CPI. B) increase by 5 percent. C) remain unchanged, accounting for bias in the calculation of the CPI. D) increase by less than 5 percent, accounting for bias in the calculation of the CPI. E) decrease by 5 percent, accounting for bias in the calculation of the CPI.

D. increase by less than 5 percent, accounting for bias in the calculation of the CPI.

Suppose the economy's capital increases over the year. It must be true that A) depreciation was greater than gross investment. B) depreciation was greater than net investment. C) depreciation is less than zero. D) net investment was positive. E) net investment was greater than gross investment.

D. net investment was positive.

Caitlin is working part-time at the Mr. G store, but wants to work full-time. She is A) frictionally unemployed. B) structurally unemployed. C) not in the labour force. D) cyclically unemployed. E) counted as employed.

E. counted as employed.

Which one of the following would be included in the calculation of GDP by the expenditure approach? A) the purchase of 20 shares of a new issue of IBM stock B) the income you pay to your gardener C) the purchase of an eighteenth century work of art D) the cost of new kitchen cupboards when you renovate your house E) the value of your brother's services when he mows the lawn for the family

D. the cost of new kitchen cupboards when you renovate your house

The employment rate is A) equal to 100 minus the unemployment rate. B) the percentage of the working-age population who are unemployed or employed. C) the percentage of the labour force who are employed. D) the percentage of the working-age population who are employed. E) the percentage of the labour force who are unemployed or employed.

D. the percentage of the working-age population who are employed.

The expenditure approach measures GDP by adding together A) wages, salaries and supplementary labour income, and other factor incomes. B) the total expenditures of consumers and firms. C) compensation of employees, rental income, corporate profits, net interest, proprietors' income, indirect taxes paid, and capital consumption expenditures, and by subtracting subsidies paid by the government. D) the total expenditures of consumers, firms, net exporters, and by governments at all levels. E) wages, salaries and supplementary labour income, other factor income, subsidies paid by the government, indirect taxes paid, and income of nonfarm unincorporated businesses.

D. the total expenditures of consumers, firms, net exporters, and by governments at all levels.

Nominal GDP is $1,800 billion and real GDP is $1,600 billion. The GDP deflator is A) 11.25. B) 8.88. C) 88.8. D) 1125. E) 112.5.

E. 112.5.

In a country with a working-age population of 22 million, 18 million are employed, 2 million are unemployed, and 1 million of the employed are working part-time, half of whom wish to work full-time. If 500,000 of the unemployed are cyclically unemployed, what is the natural unemployment rate? A) 8.3 percent B) 5.6 percent C) 10.0 percent D) 2.5 percent E) 7.5 percent

E. 7.5 percent

Suppose Angela falls in love with and subsequently marries her regularly employed housekeeper, Tony. What effect would this action have on GDP? A) It would fall. B) It would fall but then increase after the honeymoon was over. C) It would rise. D) It would stay the same. E) It depends on whether he starts to work in the house free of charge or whether she still pays him.

E. It depends on whether he starts to work in the house free of charge or whether she still pays him.

Which of the following items would be included in a current measure of GDP? A) your purchase of a used car B) your labour in fixing a leaky pipe under your sink C) the sale of an illegal drug D) the value of safety on the streets of your community E) a professional gardener who regularly cuts your lawn

E. a professional gardener who regularly cuts your lawn

All of the following are possible sources of bias in using the Consumer Price Index to measure inflation except A) the introduction of new goods. B) rising prices. C) an improvement in the quality of goods. D) commodity substitution. E) an increase in the cost of living.

E. an increase in the cost of living.

With the exception of the real interest rate, all real variables of macroeconomics are calculated by A) adding the inflation rate to the nominal value. B) subtracting off the most volatile components of the variable. C) multiplying the nominal variable by the price level. D) subtracting the inflation rate from the nominal value. E) dividing a nominal variable by the price level.

E. dividing a nominal variable by the price level.

Consumption expenditure includes only A) expenditure by Canadian households and firms on goods and services produced in Canada. B) expenditure by Canadian households on goods and services produced in Canada. C) expenditure by Canadian households and foreigners on goods and services produced in Canada. D) expenditure by Canadian households, firms, and governments on goods and services produced in Canada. E) expenditure by Canadian households on goods and services produced in Canada and in the rest of the world.

E. expenditure by Canadian households on goods and services produced in Canada and in the rest of the world.

Nominal GDP will increase A) only if both the average level of prices rises and the quantity of goods and services produced increases. B) only if the quantity of goods and services produced increases. C) only if the unemployment rate rises. D) only if the average level of prices rises. E) if either the average level of prices rises or the quantity of goods and services produced increases.

E. if either the average level of prices rises or the quantity of goods and services produced increases.

The sum of wages, salaries, and supplementary labour income, and other factor incomes is A) GDP (expenditure approach). B) real GDP. C) GDP (income approach). D) net domestic income at market prices. E) net domestic income at factor cost.

E. net domestic income at factor cost.

The Consumer Price Index measures inflation by using A) only consumption goods and services purchased using a current-year basket. B) all goods and services that are produced using a base-year basket. C) all goods and services produced in the base year and all goods and services produced in the current year. D) all goods and services that are produced using a current-year basket. E) only consumption goods and services purchased using a base-year basket.

E. only consumption goods and services purchased using a base-year basket.

Gross domestic product is A) the average value of output produced in a country in a given time period. B) the final value of all goods produced in a country in a given time period. C) the market value of all goods and services produced in a country during a given time period. D) the market value of all the intermediate goods and services produced in a country during a given time period. E) the market value of all the final goods and services produced in a country during a given time period.

E. the market value of all the final goods and services produced in a country during a given time period.

The method used to calculate the CPI assumes that consumers buy A) goods at discount stores when prices rise. B) relatively more goods with decreasing relative prices. C) more computers and fewer black-and-white TVs than in the base year. D) relatively more goods with increasing relative prices. E) the same quantities of goods as in the base year.

E. the same quantities of goods as in the base year.

In calculating GDP, all of the following are excluded except A) the value of used goods. B) purchases of stocks and bonds. C) subsidies from the government. D) the value of intermediate goods. E) the value of all homes built in the year but not sold.

E. the value of all homes built in the year but not sold.