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Final Practise - Winter 2010.pdf

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Department
Economics (Arts)
Course
ECON 295
Professor
Christopher Ragan
Semester
Winter

Description
100ȱRandomȱPractice,ȱMacroeconomics 100ȱpracticeȱquestionsȱrandomlyȱchosenȱbyȱcomputerȱfromȱtheȱtextȇsȱtestȱbankȱforȱChaptersȱ19ȱthroughȱ30ȱplusȱ32ȱandȱ35. TheȱProf.ȱhasȱnotȱseenȱtheseȱquestions,ȱsoȱasȱtoȱavoidȱthemȱinfluencingȱhisȱchoiceȱofȱquestionsȱforȱtheȱFinal.ȱAsȱsuch,ȱheȱcanȇt stateȱwhetherȱtheȱdegreeȱof ȱdifficultyȱofȱtheseȱpracticeȱquestions,ȱonȱavereage,ȱisȱmore,ȱlessȱorȱtheȱsameȱasȱyouȱshouldȱexpect forȱtheȱfinal.ȱTheȱanswersȱareȱlistedȱatȱtheȱend. MULTIPLEȱCHOICE.ȱȱChooseȱtheȱoneȱalternativeȱthatȱbestȱcompletesȱtheȱstatementȱorȱanswersȱtheȱquestion. 1) SupposeȱCanadaȇsȱexchangeȱrateȱwithȱtheȱeuroȱrisesȱfromȱ1.2ȱtoȱ1.4.ȱThisȱriseȱindicatesȱa(n) 1) ________ȱofȱtheȱCanadianȱdollar,ȱwhichȱmeansȱitȱtakesȱ________ȱCanadianȱdollarsȱtoȱpurchaseȱone euro. A) depreciation;ȱfewer B) appreciation;ȱmore C) depreciation;ȱmore D) appreciation;ȱfewer 2) Mostȱeconomistsȱbelieveȱthatȱtheȱsingleȱlargestȱcauseȱofȱrisingȱmaterialȱlivingȱstandardsȱoverȱlong 2) periodsȱofȱtimeȱis A) realȱGDPȱgrowth. B) productivityȱgrowth. C) risingȱrealȱwages. D) growthȱinȱtheȱcapitalȱstock. E) risingȱemployment. 3) EconomistsȱexpectȱsomeȱunemploymentȱtoȱexistȱevenȱatȱtimesȱofȱȈfullȱemploymentȈȱforȱallȱofȱthe 3) followingȱreasonsȱEXCEPT: A) thereȱisȱsometimesȱaȱmismatchȱbetweenȱtheȱcharacteristicsȱofȱtheȱsupplyȱofȱlabourȱandȱthe demandȱforȱlabour. B) asȱtheȱeconomyȱchanges,ȱtheȱstructureȱofȱtheȱexistingȱlabourȱforceȱisȱnotȱtheȱsameȱas ȱthe structureȱofȱlabourȱdemand. C) thereȱareȱalwaysȱsomeȱpeopleȱwhoȱquitȱtheirȱpresentȱjobsȱtoȱlookȱforȱotherȱjobs. D) actualȱGDPȱisȱrarelyȱequalȱtoȱpotentialȱGDP. E) peopleȱenteringȱtheȱlabourȱforceȱtypicallyȱtakeȱsomeȱtimeȱtoȱfindȱaȱjob. 4) Ifȱaȱcountryȇsȱlabourȱforceȱisȱ15ȱmillionȱpeople,ȱandȱ1.35ȱmillionȱofȱthoseȱareȱunemployed,ȱthe 4) countryȇsȱunemploymentȱrateȱis A) 2.5ȱpercent. B) 3.3ȱpercent. C) 4.5ȱpercent. D) 6.7ȱpercent. E) 9.0ȱpercent. 5) Aȱworkerȱcurrentlyȱearningȱ$3000ȱperȱmonthȱhasȱnegotiatedȱaȱ4%ȱwageȱincreaseȱinȱanticipationȱof 5) aȱ4%ȱinflationȱrateȱinȱtheȱnextȱyear.ȱUnderȱwhatȱscenarioȱwillȱtheȱworkerȱhaveȱaȱhigherȱpurchasing power? A) ifȱnextȱyearȇsȱinflationȱrateȱisȱ4% B) ifȱnextȱyearȇsȱinflationȱrateȱisȱ3% C) ifȱnextȱyearȱsomeȱpricesȱincreaseȱbyȱȱonlyȱ5% D) ifȱnextȱyearȇsȱinflationȱrateȱisȱ5% E) ifȱnextȱyearȱsomeȱpricesȱincreaseȱbyȱȱonlyȱ4% 1 ȱ100ȱRandomȱpractice,ȱMacoreconomics 6) SupposeȱApplianceȱMartȱbuysȱaȱusedȱrefrigeratorȱforȱ$100,ȱrepairsȱit,ȱandȱresellsȱitȱforȱ$250.ȱThe 6) resultȱofȱthisȱtransactionȱisȱto A) increaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$150. B) increaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$250. C) decreaseȱtheȱvalueȱofȱnationalȱproductȱbyȱ$100. D) leaveȱtheȱvalueȱofȱnationalȱproductȱunchanged. E) insufficientȱinformationȱtoȱknow. 7) Inȱtheȱstudyȱofȱshor- runȱfluctuationsȱinȱnationalȱincome,ȱpotentialȱincomeȱ(output)ȱisȱusually 7) assumedȱtoȱbe A) fallingȱatȱitsȱaverageȱgrowthȱrate. B) irrelevant,ȱasȱtheȱeconomyȱisȱrarelyȱthere. C) constant. D) equalȱtoȱactualȱincome. E) movingȱtogetherȱwithȱpotentialȱoutputȱinȱneighbouringȱcountries. 8) TheȱȈvalueȱaddedȈȱforȱanȱindividualȱfirmȱisȱcalculatedȱby 8) A) addingȱtheȱcostȱofȱtheȱintermediateȱgoodsȱusedȱbyȱtheȱfirm. B) addingȱupȱtheȱincomeȱreceivedȱbyȱtheȱfactorsȱofȱproductionȱusedȱbyȱtheȱfirm. C) subtractingȱtheȱincomeȱthatȱgoesȱtoȱtheȱfactorsȱofȱproductionȱusedȱbyȱtheȱfirmȱfromȱtheȱfirmȇs revenue. D) calculatingȱtheȱrevenueȱgeneratedȱbyȱtheȱfirm. E) calculatingȱtheȱprofitȱgeneratedȱbyȱtheȱfirm. 9) Inȱtheȱnationalȱincomeȱandȱproductȱaccounts,ȱaȱreductionȱofȱinventoriesȱcountsȱas 9) A) negativeȱinvestment. B) saving. C) positiveȱinvestment. D) depreciation. E) consumption. Theȱtableȱbelowȱshowsȱtotalȱoutputȱforȱanȱeconomyȱoverȱ2ȱyears. 2007 Price Quantity GoodȱA $1.00 100ȱunits GoodȱB $2.00 200ȱunits GoodȱC $5.00 100ȱunits 2008 Price Quantity GoodȱA $2.00 120ȱunits GoodȱB $3.00 200ȱunits GoodȱC $10.00 98ȱunitsȱ TABLEȱ20-3 10) ReferȱtoȱTableȱ20-3.ȱTheȱnominalȱGrossȱDomesticȱProductȱinȱ2008ȱwas 10) A) $ȱȱȱ700. B) $ȱȱȱ840. C) $ȱȱȱ980. D) $1ȱ740. E) $1ȱ820. 2 ȱ100ȱRandomȱpractice,ȱMacoreconomics 11) Whichȱofȱtheȱfollowingȱisȱtheȱmostȱappropriateȱmeasureȱforȱevaluatingȱtheȱaverageȱmaterialȱliving 11) standardsȱofȱCanadianȱresidents? A) perȱcapitaȱGrossȱDomesticȱProduct B) perȱcapitaȱNetȱNationalȱProduct C) disposableȱincome D) perȱcapitaȱGrossȱNationalȱProduct E) NetȱDomesticȱIncomeȱatȱFactorȱCost 12) StatisticsȱCanadaȱexcludesȱfromȱGDPȱtheȱvalueȱofȱgoodsȱandȱservicesȱexchangedȱȈunderȱthe 12) counterȈȱbecause A) satisfactoryȱmethodsȱforȱtheirȱmeasurementȱhaveȱnotȱbeenȱdeveloped. B) theseȱgoodsȱareȱallȱintermediateȱgoods. C) theirȱproductionȱhasȱzeroȱopportunityȱcost. D) StatisticsȱCanadaȱisȱresponsibleȱforȱmakingȱanȱethicalȱdecisionȱaboutȱwhichȱactivitiesȱto excludeȱfromȱnationalȱincome ȱmeasures. E) theseȱgoodsȱdoȱnotȱcontributeȱtoȱwell-being. FIGUREȱ20-1 13) ReferȱtoȱFigureȱ2- 1.ȱWhichȱofȱtheȱfollowingȱyearsȱwasȱusedȱasȱtheȱbaseȱyearȱforȱconstructingȱreal 13) GDP? A) 1980 B) 1985 C) 1990 D) 1993 E) 1995 14) Considerȱaȱsimpleȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevelȱandȱdemand de-erminedȱoutput.ȱIfȱthe 14) marginalȱpropensityȱtoȱspendȱinȱsuchȱaȱmodelȱisȱbetweenȱzeroȱandȱone,ȱtheȱsimpleȱmultiplierȱis A) zero. B) aȱpositiveȱnumberȱbetweenȱzeroȱandȱone. C) one. D) aȱpositiveȱnumberȱgreaterȱthanȱoneȱbutȱlessȱthanȱinfinity. E) infinitelyȱlarge. 3 ȱ100ȱRandomȱpractice,ȱMacoreconomics FIGUREȱ21 1- 15) ReferȱtoȱFigureȱ2- 1.ȱDesiredȱconsumptionȱexpendituresȱwillȱequalȱdisposableȱincomeȱatȱan 15) incomeȱlevelȱof A) Y2. B) Y . 3 C) Y1. D) moreȱthanȱY 3 E) zero. 16) Inȱtheȱsimpleȱmacroeconomicȱmodel,ȱȈautonomousȱexpendituresȈȱare 16) A) thoseȱwhichȱareȱconstant. B) dependentȱonȱnationalȱincome. C) inducedȱexpenditures. D) non-domesticȱexpenditures. E) notȱdependentȱonȱnationalȱincome. 17) Considerȱaȱsimpleȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevelȱandȱdemand d-terminedȱoutput. 17) Supposeȱtheȱlevelȱofȱactualȱnationalȱincomeȱisȱlessȱthanȱdesiredȱaggregateȱexpenditure.ȱȱInȱthisȱcase, A) nationalȱincomeȱmayȱincreaseȱorȱdecrease,ȱdependingȱonȱtheȱrelativeȱsizesȱofȱtheȱaverage propensityȱtoȱconsumeȱandȱtheȱaverageȱpropensityȱtoȱsave. B) shortagesȱofȱgoodsȱandȱreductionsȱinȱinventoriesȱwillȱcauseȱproducersȱtoȱincreaseȱoutputȱand nationalȱincomeȱtoȱrise. C) nationalȱincomeȱwillȱfall,ȱbecauseȱdesiredȱexpendituresȱareȱlessȱthanȱactualȱexpenditures. D) inventoriesȱwillȱbuildȱup,ȱcausingȱnationalȱincomeȱtoȱrise. E) thereȱwillȱbeȱnoȱchangeȱinȱnationalȱincomeȱbecauseȱonlyȱactualȱexpenditureȱisȱlevant. 4 ȱ100ȱRandomȱpractice,ȱMacoreconomics 18) JeanȱBrisboisȇȱdisposableȱincomeȱroseȱfromȱ$40ȱ000ȱperȱyearȱtoȱ$42ȱ000ȱandȱhisȱdesired 18) consumptionȱexpenditureȱroseȱfromȱ$38ȱ000ȱtoȱ$39ȱ600.ȱItȱcanȱbeȱconcludedȱthatȱhis A) averageȱpropensityȱtoȱsaveȱdecreasedȱfromȱ0.950ȱtoȱ0.943. B) marginalȱpropensityȱtoȱsaveȱisȱ0.80. C) marginalȱpropensityȱtoȱconsumeȱincreasedȱfromȱ0.050 ȱtoȱ0.058. D) averageȱpropensityȱtoȱconsumeȱdecreasedȱfromȱ0.950ȱtoȱ0.943. E) marginalȱpropensityȱtoȱconsumeȱisȱ0.050. 19) Totalȱdesiredȱsavingȱdividedȱbyȱtotalȱincomeȱisȱcalledȱthe 19) A) totalȱpropensityȱtoȱsave. B) averageȱpropensityȱtoȱconsume. C) averageȱpropensityȱtoȱsave. D) marginalȱpropensityȱtoȱsave. E) averageȱpropensityȱtoȱspend. 20) WeȱwouldȱexpectȱrealȱnationalȱincomeȱtoȱbeȱȈdemandȱdeterminedȈȱwhen 20) A) theȱpriceȱlevelȱisȱassumedȱtoȱbeȱconstant. B) firmsȱhaveȱexcessȱcapacity. C) thereȱareȱunemployedȱresourcesȱinȱtheȱeconomy. D) firmsȱareȱpriceȱsetters. E) allȱofȱtheȱabove 21) Transferȱpaymentsȱmadeȱbyȱtheȱgovernmentȱaffectȱitsȱnetȱtaxȱrevenues 21) A) indirectlyȱthroughȱgovernmentȱpurchases. B) indirectlyȱthroughȱtheȱconsumptionȱfunction. C) indirectlyȱthroughȱnetȱexports. D) indirectlyȱthroughȱtheȱinvestmentȱfunction. E) directly. 22) Considerȱaȱmacroȱmodelȱwithȱdemand det-rminedȱoutput.ȱTheȱequationsȱare:ȱȱCȱ ȱ150= ȱ0.+Yd,ȱYd 22) = ȱY-Tȱ,ȱȱ=ȱ ȱ400,ȱ=ȱ ȱ700,=Tȱ ȱ0.2Y,=Xȱ ȱ130,ȱandȱ=Mȱ ȱ0.14Y.ȱEquilibriumȱnationalȱincomeȱinȱthis modelȱisȱ________. A) 1ȱ120 B) 1ȱ350 C) 2ȱ240 D) 2ȱ760 E) 5ȱ400 23) Considerȱaȱmacroȱmodelȱinȱwhichȱoutputȱisȱassumedȱtoȱbeȱdemand det-rmined.ȱOneȱsituation 23) whichȱmayȱjustifyȱthisȱassumptionȱisȱwhen A) netȱexportsȱareȱnegative. B) theȱmarginalȱpropensityȱtoȱconsumeȱoutȱofȱdisposableȱincomeȱisȱequalȱtoȱtheȱmarginal propensityȱtoȱspendȱoutȱofȱnationalȱincome. C) netȱexportsȱareȱpositive. D) theȱeconomyȱis ȱoperatingȱwithȱsomeȱunemployedȱresources. E) allȱresourcesȱinȱtheȱeconomyȱareȱfullyȱemployed. 24) WhenȱdeterminingȱtheȱAEȱfunctionȱforȱanȱopenȱeconomyȱwithȱgovernment,ȱitȱisȱgenerallyȱassumed 24) thatȱasȱrealȱnationalȱincome A) increases,ȱnetȱexportsȱwillȱdecrease. B) decreases,ȱexportsȱwillȱdecrease. C) increases,ȱimportsȱwillȱdecrease. D) increases,ȱexportsȱwillȱdecrease. E) decreases,ȱnetȱexportsȱwillȱdecrease. 5 ȱ100ȱRandomȱpractice,ȱMacoreconomics FIGUREȱ23 2 - 25) ReferȱtoȱFigureȱ23-2.ȱSupposeȱthatȱanȱincreaseȱinȱgovernmentȱpurchasesȱbyȱ50ȱcausesȱtheȱADȱcurve 25) toȱshiftȱtoȱtheȱright,ȱasȱshown.ȱTheȱsimpleȱmultiplierȱisȱ________ȱandȱtheȱmultiplierȱisȱ________. A) 6;ȱ1.2 B) 2.8;ȱ1.2 C) 4;ȱ3.2 D) 4;ȱ2.8 E) 4;ȱ1.2 26) Otherȱthingsȱbeingȱequal,ȱwhenȱtheȱdomesticȱpriceȱlevelȱfallsȱexogenously, 26) A) theȱaggregateȱexpenditureȱfunctionȱshiftsȱdownward. B) importsȱofȱforeignȱgoodsȱrise. C) theȱnetȱexportȱfunctionȱshiftsȱupward. D) theȱnetȱexportȱfunctionȱshiftsȱdownward. E) Canadianȱgoodsȱbecomeȱmoreȱexpensiveȱrelativeȱtoȱforeignȱgoods. 27) AggregateȱsupplyȱshocksȱcauseȱtheȱpriceȱlevelȱandȱrealȱGDPȱtoȱchangeȱin 27) A) oppositeȱdirectionsȱbutȱbyȱtheȱsameȱamount. B) theȱsameȱdirectionȱandȱbyȱtheȱsameȱamount. C) theȱsameȱdirectionȱwithȱpriceȱchangingȱbyȱmoreȱthanȱoutput. D) oppositeȱdirectionsȱwithȱpriceȱchangingȱbyȱlessȱthanȱoutput. E) oppositeȱdirectionsȱbutȱnotȱnecessarilyȱbyȱtheȱsameȱamount. 28) OverȱtheȱhorizontalȱrangeȱofȱtheȱeconomyȇsȱAS curveȱ(ifȱsuchȱaȱrangeȱexists),ȱaȱrightwardȱshiftȱof 28) theȱADȱcurveȱwillȱresultȱin A) anȱincreaseȱinȱrealȱGDPȱandȱnoȱchangeȱinȱprices. B) anȱincreaseȱinȱpricesȱandȱnoȱchangeȱinȱrealȱGDP. C) anȱincreaseȱinȱbothȱrealȱGDPȱandȱprices. D) aȱdecreaseȱinȱrealȱGDPȱbutȱnoȱchangeȱin ȱprices. E) aȱdecreaseȱinȱbothȱrealȱGDPȱandȱprices. 6 ȱ100ȱRandomȱpractice,ȱMacoreconomics 29) Inȱaȱmacroȱmodelȱwithȱaȱconstantȱpriceȱlevel,ȱanȱincreaseȱinȱautonomousȱdesiredȱconsumptionȱwill 29) causeȱtheȱAEȱcurveȱtoȱshift A) downwardȱandȱtheȱ ADȱcurveȱtoȱshiftȱtoȱtheȱright. B) downwardȱandȱtheȱ ADȱcurveȱtoȱshiftȱtoȱtheȱleft. C) upwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱleft. D) upwardȱandȱaȱmovementȱtoȱtheȱrightȱalongȱtheȱ AD curve. E) upwardȱandȱtheȱADȱcurveȱtoȱshiftȱtoȱtheȱright. 30) AnȱimportantȱautomaticȱfiscalȱstabilizerȱinȱCanadaȱis 30) A) theȱmarginalȱpropensityȱtoȱimport. B) theȱexchangeȱrate. C) governmentȱȱpurchasesȱofȱgoodsȱandȱservices. D) theȱmarginalȱpropensityȱtoȱconsume. E) theȱincome -axȱsystem. TheȱdiagramȱbelowȱshowsȱanȱAD/ASȱmodelȱforȱaȱhypotheticalȱeconomy.ȱTheȱeconomyȱbeginsȱinȱlo-g runȱequilibriumȱatȱpointȱA. FIGUREȱ24 4- 31) ReferȱtoȱFigureȱ2- 4.ȱAfterȱtheȱpositiveȱaggregateȱsupplyȱshockȱshownȱinȱtheȱdiagram,ȱwhichȱofȱthe 31) followingȱwouldȱshiftȱtheȱASȱcurveȱleftwardȱduringȱtheȱeconomyȇsȱadjustmentȱprocess? A) anȱincreaseȱinȱtheȱunemploymentȱrate B) anȱincreaseȱinȱwagesȱandȱotherȱfactorȱprices C) anȱincreaseȱinȱlabourȱproductivity D) anȱincreaseȱinȱfactorȱsupplies E) aȱdecreaseȱinȱwagesȱandȱotherȱfactorȱprices 7 ȱ100ȱRandomȱpractice,ȱMacoreconomics FIGUREȱ24 3- 32) ReferȱtoȱFigureȱ2- 3.ȱTheȱeconomyȱcannotȱbeȱinȱlong-runȱequilibriumȱatȱE becauseȱthe 32) 1ȱ A) AD 1curveȱwillȱshiftȱbackȱtoȱtheȱleftȱdueȱtoȱaȱfallȱinȱcurrentȱconsumption. B) ASȱwillȱshiftȱtoȱtheȱleftȱdueȱtoȱanȱincreaseȱinȱwages. C) ASȱwillȱshiftȱtoȱtheȱleftȱdueȱtoȱanȱincreaseȱinȱtheȱpriceȱlevel. D) AD 1curveȱwillȱshiftȱbackȱtoȱAD 0ueȱtoȱanȱincreaseȱinȱtheȱpriceȱlevel. E) ASȱwillȱshiftȱtoȱtheȱrightȱdueȱtoȱaȱdecreaseȱinȱtheȱpriceȱlevel. 33) WhichȱofȱtheȱfollowingȱdescribesȱtheȱdistinctionȱbetweenȱtheȱPhillipsȱcurveȱandȱtheȱASȱcurve? 33) A) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱtheȱrateȱof wageȱchangesȱonȱtheȱverticalȱaxis. B) TheȱASȱcurveȱhasȱtheȱrateȱofȱpriceȱinflationȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhas theȱrateȱofȱwageȱchangesȱonȱtheȱverticalȱaxis. C) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱtheȱrateȱof changeȱinȱtheȱinterestȱrateȱonȱtheȱverticalȱaxis. D) TheȱASȱcurveȱhasȱtheȱpriceȱlevelȱonȱtheȱverticalȱaxisȱwhereasȱtheȱPhillipsȱcurveȱhasȱthe interestȱrateȱonȱtheȱverticalȱaxis. E) Thereȱisȱnoȱdistinction:ȱtheȱtwoȱcurvesȱareȱessentiallyȱtheȱsameȱthing. 34) ConsiderȱtheȱAD/ASȱmodel,ȱandȱsupposeȱthatȱtheȱeconomyȱbeginsȱatȱpotentialȱoutput.ȱTheȱeffectȱof 34) aȱpositiveȱASȱshockȱonȱrealȱGDPȱwillȱbeȱreversedȱinȱtheȱlongȱrunȱwithȱaȱ________ȱshiftȱinȱ________. A) rightward;ȱAD B) leftward;ȱAS C) leftward;ȱȱY* D) leftward;ȱD E) rightward;ȱȱAS 8 ȱ100ȱRandomȱpractice,ȱMacoreconomics 35) GDPȱcanȱbeȱrepresentedȱbyȱtheȱequation:ȱGDPȱ Fȱx=(Fe/F)ȱxȱ(GDP/Fe).ȱInȱthisȱequation,ȱtheȱterm 35) (Fe/F)ȱrepresents A) incomeȱperȱperson. B) factorȱsupplyȱperȱlevelȱofȱoutput. C) theȱfactor-utilizationȱrate. D) factorȱproductivity. E) outputȱperȱcapital. 36) Atȱanyȱgivenȱtime,ȱtheȱlevelȱofȱpotentialȱGDPȱdependsȱon 36) A) theȱproductivityȱofȱfactorsȱofȱproduction. B) normalȱratesȱofȱutilizationȱforȱlabourȱandȱcapital. C) aȱgivenȱamountȱofȱavailableȱfactorsȱofȱproduction. D) allȱofȱtheȱabove E) noneȱofȱtheȱabove 37) Forȱtheȱeconomyȱasȱaȱwhole,ȱchangesȱinȱtheȱfactor -tilizationȱrateȱareȱassociatedȱwithȱshort -un 37) fluctuationsȱinȱoutputȱbecause A) firmsȱcannotȱchangeȱtheirȱpricesȱinȱtheȱshortȱrun. B) theȱshor- runȱfluctuationsȱinȱfactorȱsuppliesȱandȱproductivityȱcancelȱeachȱotherȱout. C) potentialȱoutputȱisȱaffectedȱbyȱtheȱfacto- utilizationȱrateȱinheȱshortȱrun. D) itȱisȱcheaperȱforȱfirmsȱtoȱletȱtheirȱinventoriesȱaccumulateȱthanȱtoȱemployȱmoreȱworkers. E) factorȱpricesȱcanȱonlyȱfullyȱadjustȱinȱtheȱlongȱrun. 38) Onȱtheȱbasisȱofȱbothȱtheoryȱandȱempiricalȱevidence,ȱmostȱeconomistsȱbelieveȱthatȱchangesȱin 38) monetaryȱpolicyȱhave A) powerfulȱeffectsȱonȱrealȱGDPȱandȱfactorȱpricesȱbothȱinȱtheȱshortȱrunȱandȱinȱtheȱlongȱrun. B) noȱlong-runȱeffectȱonȱrealȱGDPȱbutȱaȱsubstantialȱlong -unȱeffectȱonȱinflation. C) noȱeffectȱonȱrealȱGDPȱorȱinflationȱinȱtheȱlongȱrun. D) noȱeffectȱonȱrealȱGDPȱorȱfactorȱutilizationȱinȱtheȱshortȱrun. E) importantȱlong -unȱeffectsȱbyȱchangingȱrealȱinterestȱrates. 39) TheȱfourȱfundamentalȱdeterminantsȱofȱeconomicȱgrowthȱincludeȱallȱofȱtheȱfollowingȱEXCEPT: 39) A) growthȱinȱfinancialȱcapital B) growthȱinȱhumanȱcapital C) growthȱinȱphysicalȱcapital D) growthȱinȱtheȱlabourȱforce E) technologicalȱimprovement 40) OneȱimportantȱassumptionȱofȱtheȱNeoclassicalȱgrowthȱmodelȱisȱthat,ȱwithȱaȱgivenȱstateȱof 40) technology, A) increasesȱinȱtheȱuseȱofȱsingleȱfactorȱbringȱdiminishingȱreturns. B) increasesȱinȱtheȱuseȱofȱaȱsingleȱfactorȱresultȱinȱconstantȱreturns. C) increasesȱinȱGDPȱareȱpossibleȱonlyȱifȱallȱfactorsȱareȱincreasedȱatȱanȱequalȱrate. D) theȱreturnȱfromȱsuccessiveȱunitsȱofȱaȱsingleȱfactorȱincreasesȱoverȱtime. E) increasesȱinȱtheȱuseȱofȱaȱsingleȱfactorȱbringȱincreasingȱreturns. 9 ȱ100ȱRandomȱpractice,ȱMacoreconomics 41) Accordingȱtoȱsomeȱmodernȱtheoriesȱofȱlong run-growth,ȱsuccessiveȱincrementsȱofȱinvestmentȱhave 41) ________ȱreturnsȱsinceȱsomeȱfixedȱcostsȱareȱ________ȱforȱsubsequentȱfirms. A) decreasing;ȱlower B) increasing;ȱlower C) decreasing;ȱhigher D) constant;ȱidentical E) increasing;ȱhigher 42) InȱtheȱNeoclassicalȱgrowthȱmodel,ȱifȱcapitalȱandȱlabourȱgrowȱatȱtheȱsameȱrate,ȱweȱwillȱobserve 42) A) risingȱGDPȱbutȱnoȱchangeȱinȱlivingȱstandards. B) risingȱGDPȱandȱincreasingȱlivingȱstandards. C) increasingȱlivingȱstandardsȱbutȱonlyȱforȱworkersȱusingȱlabour int-nsiveȱproduction. D) risingȱGDPȱbutȱfallingȱlivingȱstandards. E) increasingȱlivingȱstandardsȱbutȱonlyȱ forȱworkersȱusingȱcapital -ntensiveȱproduction. 43) AȱcentralȱbankȱcanȱȈcreateȈȱmoneyȱby 43) A) sellingȱsomeȱofȱitsȱforeign-currencyȱreservesȱforȱdomesticȱcurrency. B) increasingȱtheȱrateȱofȱinflation. C) sellingȱgovernmentȱTreasuryȱbillsȱtoȱtheȱcommercialȱbanks. D) purchasingȱgovernmentȱsecuritiesȱonȱtheȱopenȱmarket. E) issuingȱitsȱownȱCentralȱBankȱbonds. 44) Considerȱaȱnewȱdepositȱofȱ$10ȱ000ȱtoȱtheȱCanadianȱbankingȱsystem.ȱTheȱbankȱthatȱinitiallyȱreceives 44) thisȱdepositȱwillȱfindȱitselfȱwith A) noȱexcessȱreservesȱifȱthereȱisȱnoȱreserveȱrequirement. B) $1ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ10ȱpercent. C) $2ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ10ȱpercent. D) $8ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ20ȱpercent. E) $10ȱ000ȱofȱexcessȱcashȱreservesȱifȱitsȱtargetȱreserveȱratioȱisȱ100ȱpercent. 45) IfȱtheȱBankȱofȱCanadaȱentersȱtheȱopenȱmarketȱandȱsellsȱ$1000ȱofȱgovernmentȱsecurities,ȱwhatȱwill 45) beȱtheȱeventualȱchangeȱinȱtheȱmoneyȱsupplyȱgivenȱaȱ10ȱpercentȱtargetȱreserveȱratioȱinȱthe commercialȱbankingȱsystemȱandȱaȱ10ȱpercentȱcashȱdrain? A) increaseȱofȱ$10ȱ000 B) decreaseȱofȱ$1000 C) decreaseȱofȱ$10ȱ 000 D) increaseȱofȱ$5000 E) decreaseȱofȱ$5000 46) ȈExcessȱreservesȈȱforȱaȱcommercialȱbankȱreferȱto 46) A) anyȱsurplusȱinȱtheȱbankȇsȱsupplyȱofȱgold. B) anyȱsurplusȱofȱchequableȱdeposits. C) anyȱreservesȱ(cashȱorȱdepositsȱwithȱtheȱBankȱofȱCanada)ȱthatȱtheȱbankȱholdsȱoverȱandȱabove itsȱdesiredȱreserves. D) excessȱdemandȱforȱmoneyȱfromȱthatȱbank. E) reservesȱ(cashȱorȱdepositsȱwithȱtheȱBankȱofȱCanada)ȱthatȱtheȱBankȱofȱCanadaȱrequiresȱthe bankȱtoȱhold. 10 ȱ100ȱRandomȱpractice,ȱMacoreconomics 47) Supposeȱthatȱatȱaȱgivenȱinterestȱrateȱandȱmoneyȱsupply,ȱallȱfirmsȱandȱhouseholdsȱsimultaneously 47) tryȱtoȱreduceȱtheirȱmoneyȱbalances.ȱTheyȱdoȱthisȱbyȱtryingȱtoȱ________,ȱwhichȱcausesȱanȱexcess ________,ȱwhichȱcausesȱa(n)ȱ________,ȱandȱfinallyȱa(n)ȱ________ȱinȱtheȱinterestȱrate. A) buyȱbonds;ȱsupplyȱofȱbonds;ȱdecreaseȱinȱtheȱpriceȱofȱbonds;ȱincrease B) sellȱbonds;ȱdemandȱforȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease C) buyȱbonds;ȱdemandȱforȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease D) sellȱbonds;ȱsupplyȱofȱbonds;ȱdecreaseȱinȱtheȱpriceȱofȱbonds;ȱincrease E) sellȱbonds;ȱsupplyȱofȱbonds;ȱincreaseȱinȱtheȱpriceȱofȱbonds;ȱdecrease 48) AccordingȱtoȱtheȱviewsȱofȱtheȱClassicalȱeconomists,ȱifȱtheȱmoneyȱsupplyȱdoubles, 48) A) realȱincomeȱwillȱdouble. B) thereȱwillȱbeȱnoȱeffectȱonȱmoneyȱprices. C) moneyȱpricesȱwillȱbeȱhalved. D) relativeȱpricesȱwillȱdouble. E) moneyȱpricesȱwillȱdouble. FIGUREȱ28-2 49) ReferȱtoȱFigureȱ-8 2.ȱStartingȱatȱequilibriumȱE ,ȱanȱincreaseȱinȱrealȱGDPȱwillȱleadȱtoȱa 49) 0 A) shiftȱofȱtheȱD ȱcurveȱtoȱtheȱrightȱandȱanȱincreaseȱinȱtheȱinterestȱrate. B) shiftȱofȱthesM ȱcurveȱtoȱtheȱrightȱandȱaȱfallȱinȱtheȱinterestȱrate. C) shiftȱofȱtheȱM ȱcurveȱtoȱtheȱleftȱandȱaȱfallȱheȱinterestȱrate. D D) downwardȱmovementȱalongȱtheȱM D curveȱandȱaȱlowerȱinterestȱrate. E) shiftȱofȱthesM ȱcurveȱtoȱtheȱleftȱandȱanȱincreaseȱinȱtheȱinterestȱrate. 11 ȱ100ȱRandomȱpractice,ȱMacoreconomics 50) Theȱmonetaryȱtransmissionȱmechanismȱdescribesȱhowȱchangesȱinȱtheȱdemandȱforȱorȱsupplyȱof 50) moneyȱcauseȱchangesȱinȱtheȱinterestȱrate,ȱwhichȱthenȱcauseȱchangesȱin A) aggregateȱdemand,ȱrealȱGDPȱandȱtheȱpriceȱlevel. B) desiredȱinvestmentȱandȱnetȱexports. C) theȱinflationȱrate. D) potentialȱoutput. E) bothȱAȱandȱBȱareȱcorrect. 51) Inȱ1994,ȱtheȱfederalȱministerȱofȱfinanceȱ(PaulȱMartin)ȱappointedȱGordonȱThiessenȱasȱtheȱnew 51) governorȱofȱtheȱBankȱofȱCanadaȱ,ȱwhoȱproceededȱto A) increaseȱtheȱovernightȱlendingȱrateȱinȱorderȱtoȱstabilizeȱtheȱCanadian-U.S.ȱexchangeȱrate. B) continueȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessor. C) continueȱtheȱpopular ȱlowȱovernightȱlendingȱpolicyȱofȱhisȱpredecessor. D) abandonȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessorȱin favourȱofȱaȱlow -nterest -ateȱpolicy. E) abandonȱtheȱtoughȱandȱunpopularȱcontractionaryȱmonetaryȱpolicyȱofȱhisȱpredecessorȱin favourȱofȱaȱpolicyȱdesignedȱtoȱdepreciateȱtheȱCanadianȱdollar. 52) Ifȱweȱobserveȱthatȱtheȱbankȱrateȱhasȱfallen,ȱweȱcanȱconcludeȱthatȱthe 52) A) BankȱofȱCanadaȱhasȱadjustedȱtheȱrateȱitȱpaysȱonȱTreasuryȱbills. B) BankȱofȱCanadaȱhasȱimplementedȱanȱexpansionaryȱmonetaryȱpolicy. C) BankȱofȱCanadaȱhasȱimplementedȱaȱcontractionaryȱmonetaryȱpolicy. D) BankȱofȱCanadaȱhasȱabandonedȱitsȱinflationȱtarget. E) Governmentȱ ofȱCanadaȱhasȱreducedȱtheȱmoneyȱsupply. 53) Aȱmeasureȱthatȱhasȱbeenȱdevelopedȱtoȱanalyzeȱtheȱamountȱofȱoutputȱthatȱmustȱbeȱgivenȱupȱin 53) orderȱtoȱreduceȱtheȱinflationȱrateȱbyȱoneȱpercentageȱpointȱisȱcalledȱthe A) Phillipsȱmeasure. B) credibilityȱindex. C) miseryȱindex. D) sacrificeȱratio. E) outputȱgap. 54) SupposeȱtheȱCanadianȱeconomyȱisȱboomingȱdueȱtoȱrisingȱnetȱexportsȱandȱthereȱisȱpoliticalȱpressure 54) toȱmaintainȱtheȱȈgoodȱtimesȈ.ȱIfȱtheȱBankȱofȱCanadaȱdoesȱsoȱbyȱimplementingȱanȱexpansionary monetaryȱpolicy,ȱitȱwould A) causeȱaȱpermanentȱrecessionaryȱgap. B) increaseȱtheȱactualȱinflationȱrate. C) causeȱaȱtemporaryȱdropȱinȱinflation. D) beȱactingȱtoȱde-stabilizeȱtheȱeconomy. E) BothȱBȱandȱDȱareȱcorrect. 55) Theȱsacrificeȱratioȱisȱaȱmeasureȱofȱthe 55) A) theȱcrowdingȱout
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