Name:________________________________________________ Student Number:_______________
(Family Name) (Given Names)
Practice Test #2, Winter, 2013
This test was given during the Winter 2012 term. Your “Test #1” will consist of
50 multiple choice questions, not 40. You will have 90 minutes to complete the
Sections C01, C03, C04
This examination paper includes 11 pages including the tt ile page and 43 questions. You are responsible for
ensuring that your copy of the paper is complete. Please bring any discrepancy to the attention of your
Only the McMaster Standard (Casio - FX991) Calculator may be used. This test paper must be
returned along with the scan sheet. Write your name and student number on the test paper and
the scan sheet. If you are writing in the wrongroom or at the wrong time, you will lose 3 points off
your test score. If you are wearing a baseball cap, please turn it so the peak is in the back.
Please turn off all cell phones. There should be no electronic devices at your seat other than a
calculator. All books and bags must be left at the front of the room. You will need your student
ID card at your desk, along with your calculator, a pencil, and a pen. If you complete the short
answer section in pencil your test will not be re-graded if there is a dispute. Use an HB pencil to
fill in the scan sheet. If a TA has to grade your scan sheet by hand, you will lose 3 points off your
test score. You cannot fill in the version number of your test paper on the scan sheet.
OMR EXAMINATION - STUDENT INSTRUCTIONS
NOTE: IT IS YOUR RESPONSIBILITY TO ENSURE THAT THE ANSWER SHEET IS
PROPERLY COMPLETED: YOUR EXAMINATION RESULT DEPENDS UPON
PROPER ATTENTION TO THESE INSTRUCTIONS.
The scanner, which reads the sheets,senses the shaded areas by their non-reflection of light. A
heavy mark must be made, completely filling the circular bubble, with a HB pencil. Marks made
with a pen or felt-tip marker will NOT be sensed. Erasures must be through or the scanner may
still sense a mark. Do NOT use correction fluid on the sheets. DoNOT put any unnecessary
marks or writing on the sheets.
1. Print your name, student number, course name, section number and the date in the
space provided at the top of Side 1 (red side) of the form.
2. Mark your student number in the space provided on the sheet on Side 1 and fill in
the corresponding bubbles underneath.
3. Mark only ONE choice from the alternatives (1,2,3,4,5, or A,B,C,D,E) provided
for each question. If there is a True/False question, enter response of 1 (or A) as
True, and 2 (or B) as False. The question number is to the left of the bubbles.
Make sure that the number of the question on the scan sheet is the same as the
question number on the test paper.
4. Pay particular attention to the Marking Directions on the form.
5. Begin answering questions using the first set of bubbles, marked “1".
Part A - Multiple Choice (40 points)
Identify the choice that best completes the statement or answers the question. Answer on the scan sheet provided.
1. Which of the following best describes the relationship between government deficit and government debt?
a. If the government currently has a budget deficit, national savings must be higher.
b. If the government currently has a budget deficit, government expenditures must be less than
c. If the government currently has a budget deficit, the debt is increasing.
d. If the government currently has a budget deficit, currently it must have also a debt.
Table 29-4 The following information pertains to the Bank of Edmonton.
Reserves $100 Deposits $1000
2. Refer to Table 29-4.If the Bank of Canada requires banks to hold 5 percent of deposits as reserves, how much in
excess reserves does the Bank of Edmonton now hold?
3. What is the effect of minimum wage laws on unemployment?
a. Minimum wage laws have no impact on unemployment.
b. Minimum wage laws mainly affect skilled workers.
c. Minimum wage laws are the major cause of natural unemployment.
d. Minimum wage laws probably increase teenage unemployment.
4. Given a nominal interest rate of 10 percent, in whichof the following cases would you earn the highest after-tax real
a. Inflation is 6 percent, and the tax rate is 20 percent.
b. Inflation is 5 percent, and the tax rate is 30 percent.
c. Inflation is 4 percent, and the tax rate is 40 percent.
d. Inflation is 2 percent, and the tax rate is 50 percent.
5. How does Statistics Canada define the unemployment rate?
a. as the percentage of the adult population that is unemployed
b. as the percentage of the labour force that is unemployed
c. as the percentage of those unemployed relative to the percentage employed
d. as the percentage of the labour force without full-time employment
6. Suppose the market for loanable funds is in equilibrium. Using the table below, what is the quantity of funds
billion GDP $100
billion Consumption $65
Taxes minus Transfers $15 billion
Government Purchases $20 billion
7. Which of the following people would NOT be included in the labour force?
a. Beth, who is waiting for her new job at the bank to start
b. Karen, who works most of the week in a steel factory
c. Dave, who does not have a job, but is looking for work
d. Jeremiah, who does only voluntary work for charity organizations
8. What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?
a. the Fisher Effect
b. the Ricardian equivalence effect
c. the Friedman Effect
d. the Hume Effect
9. Which of the following is consistent with the catch-up effect?
a. The United States had a lower growth rate before 1900 than after.
b. After World War II, Canada had lower growth rates than war-ravaged European countries.
c. Although Canada has a relatively high level ofoutput per person, its growth rate is still high
compared to some poorer countries, such as Pakistan.
d. Japan has a higher growth rate than Germany.
10. What do economists use the word "money" to refer to?
a. income generated by the production of goods and services
b. the value of a person's assets
c. the value of stocks and bonds
d. those assets regularly used to buy goods and services
11. In a fractional reserve banking system with no excess reserves and no currency holdings, suppose the central bank
buys $100 million of bonds. Which of the following best describes the effects of this open market operation?
a. Reserves increase by $100 million and the money supply increases by $100 million.
b. Reserves increase by $100 million and the money supply increases by more than $100
c. Both reserves and the money supply increase by more than $100 million.
d. Reserves and the money supply increase by less than $100 million.
12. In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries
increased the money supply. How might the central banks have done this?
a. by purchasing bonds on the open market, which would have lowered the value of money
b. by selling bonds on the open market, which would have raised the value of money
c. by purchasing bonds on the open market, which would have raised the value of money
d. by selling bonds on the open market, which would have raised the value of money
13. Which of the following expressions represents national saving in a closed economy?
a. Y – C – G
b. Y – I – C
c. Y – I – G – NX
d. G + C – Y
14. At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was
established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form
of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the
people of Freedonia now hold?