Practice Final Winter 2014

PRACTICE FINAL WINTER 2014
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) In determining the economy's real GDP growth rate between two time periods,
A) potential national income should be used.
B) real national income, which is equal to nominal national income corrected for price- level changes, should
be used.
C) only the real national product from the latest time period is relevant.
D) nominal national income should be used because it compares actual output in each time period.
E) we should ignore prices completely, in order to examine output alone.
2) In macroeconomics, if the value of the national product increases, there is

A) a decrease in the value of income claims on that output, due to importing.
B) an equal increase in the value of income claims on that output.
C) a decrease in the value of income claims on that output, due to household saving.
D) an even larger increase in the value of income claims on that output, due to value added.
E) a decrease in value of income claims on that output, due to taxation.
3) An output gap with Y < Y*

A) occurs when there is excess demand.
B) tends to force prices up.
C) represents a loss of output due to unemployed resources.
D) is desirable because it keeps wage costs low.
E) is known as an inflationary boom.
4) 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%.
5) If 27 million people are employed and 3 million people are unemployed, what is the unemployment rate?
A) 11%
B) 89%
C) 90%
D) 10%
E) Not able to determine from the information provided
6) If the cyclical unemployment rate is negative, then the

A) real- wage unemployment rate is negative.
B) economy is operating at less than full employment.
C) frictional unemployment rate is greater than the structural unemployment rate.
D) frictional unemployment rate is negative.
E) economy is operating beyond full employment.
7) What is the approximate measure (2011 data) of Canada's productivity in terms of real GDP per hour worked
(expressed in 2012 dollars)?
A) $200 B) $475 C) $45 D) $10 E) $92
8) 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) 1.67%. C) 20%. D) 0%. E) 2.0%.
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9) 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 some prices increase by only 5%
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's inflation rate is 4%
10) 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) 9%. B) 4%. C) 5%. D) 1%. E) 10%.
11) 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) $400. B) $0. C) $300. D) $500. E) $1200.
12) Consider the circular flow of income and expenditure in the Canadian economy. Which of the following is a
withdrawal from the circular flow?
A) government purchases
B) consumption
C) exports
D) saving
E) investment
13) 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
14) 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) not included in the national accounts.
E) described as actual fixed investment.
15) In national- income accounting, what does the term Ia represent?

A) actual gross investment (including depreciation)
B) actual net investment minus depreciation
C) actual net investment
D) actual fixed investment minus depreciation
E) actual inventory investment
16) If a firm's depreciation exceeds its gross investment, then its
A) net investment will be positive.
B) gross investment will be negative.
C) capital stock will be growing.
D) depreciation cannot exceed gross investment.
E) capital stock will be shrinking.
The table below includes data for a one- year period required to calculate GDP from the income side for a teeny- tiny economy.
Gross investment expenditure $402.00

Wages and salaries $1741.00
Consumption expenditure $1302.40
Interest and investment income $99.40
Business profits $70.40
Depreciation $199.20
Indirect taxes less subsidies $175.20
Net exports $94.00
TABLE 20-3
17) 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) investment expenditure, consumption expenditure, net exports.
B) wages and salaries, business profits, indirect taxes less subsidies.
C) interest and investment income, business profits, depreciation.
D) wages and salaries, interest and investment income, business profits, depreciation, indirect taxes less
subsidies.
E) interest and investment income, business profits, depreciation, indirect taxes less subsidies.
18) In the national- income accounts, disposable personal income

A) includes undistributed corporate profits.
B) includes capital consumption allowances.
C) equals personal income, minus personal income taxes, plus transfer payments and interest on public debt.
D) is equal to wages.
E) is the part of national income that is available to households to spend or save.
19) The best measure of total income received by Canadian citizens is

A) net domestic income at factor cost.
B) GNP.
C) nominal GDP.
D) real GDP.
E) disposable personal income.
20) 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) Hollywood movies
B) chocolate
C) consumer electronics
D) forest products
E) bananas
21) Undesired or unplanned inventory decumulation is likely to occur when

A) autonomous expenditure exceeds induced expenditure.
B) consumption exceeds investment.
C) desired aggregate expenditure exceeds actual aggregate expenditure.
D) investment exceeds consumption.
E) actual aggregate expenditure exceeds desired aggregate expenditure.
FIGURE 21- 2
22) Refer to Figure 21- 2. The slope of the consumption function in the figure is equal to
A) - 1.0. B) 1.0. C) - 0.5. D) 0.5. E) 0.67.
Disposable Income Desired Consumption

0 10
30 34
70 66
130 114
TABLE 21- 2
23) Refer to Table 21- 2. The marginal propensity to save is equal to

A) 0.8. B) 0.6. C) 0.4. D) 0.2. E) 0.67.
24) 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 only B) 2 and 3 C) 1 and 2 D) 1 and 3 E) 1, 2, and 3
25) Investment expenditure is the volatile component of GDP, and changes in investment are
associated with business- cycle fluctuations.
A) least; not
B) least; strongly
C) least; weakly
D) most; strongly
E) most; weakly
26) A decrease in the marginal propensity to spend out of national income will cause
A) a movement to the left along the AE curve.
B) an increase in the slope of the AE curve, which rotates it upward.
C) a movement to the right along the AE curve.
D) a decrease in the slope of the AE curve, which rotates it downward.
E) a parallel downward shift in the AE curve.
Consider the following information describing a closed economy with no government and where aggregate output is demand determined.
All dollar figures are in billions.
1. the equilibrium condition is Y = C + I

2. the marginal propensity to consume is 0.90
3. the autonomous part of C is $300
4. investment is autonomous and is $100
TABLE 21-3
27) 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 saving will rise and equilibrium national income will therefore rise.
B) autonomous consumption will fall below $300 and equilibrium national income will therefore fall.
C) autonomous investment will rise and equilibrium national income will therefore rise.
D) autonomous saving will fall and equilibrium national income will therefore fall.
E) autonomous consumption will rise above $300 and equilibrium national income will therefore rise.
FIGURE 21- 3
28) 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 marginal propensity to consume.
B) a rise in the multiplier.
C) a decrease in desired investment expenditures.
D) an increase in desired investment expenditures.
E) a fall in the marginal propensity to consume.
29) 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) $100 million B) $75 million C) $500 million D) $400 million E) $25 million
30) 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.
31) 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) 1.67. B) 0. C) 2.5. D) 0.4. E) 4.0.
Consider the following information concerning an economy with demand- determined output. There is no government or foreign trade.
1. Y=C+I
2. C = 100 + 0.5Y
3. I = 200
TABLE 21-7
32) Refer to Table 21-7. This economy's equilibrium level of national income is
A) 750. B) 1000. C) 600. D) 500. E) 1500.
33) 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) 2.5. B) 0.6. C) - 2.5. D) 0.4. E) - 0.6.
34) 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) 35% B) 30% C) 25% D) 20% E) 40%
35) 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) less than 40.
B) greater than 40.
C) greater than 30.
D) less than 30.
E) Not enough information to know.
36) 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) decreases, exports will decrease.
C) increases, imports will decrease.
D) decreases, net exports will decrease.
E) increases, net exports will decrease.
37) Suppose exports are $200 and imports are given by IM = 0.2Y. At what level of national income will net exports
equal zero?
A) $1000 B) $200 C) $1250 D) $250 E) $0
38) 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 + S + (X+IM).
D) AE = C + I - G + (X- IM).
E) AE = C + I + G + (X- IM).
39) 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) 1.00. B) 0.49. C) 0.70. D) 0.58. E) 0.90.
40) 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) 300.0. B) 60.0. C) 560.0. D) 414.4. E) 210.0.
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
41) Refer to Figure 22- 2. What is total autonomous expenditure?

A) $100 B) $75 C) $250 D) $0 E) $175
42) 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) 0.50 B) 0.46 C) 0.60 D) 0.40 E) 0.30
43) 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) 888.89. B) 560.00. C) 1302.33. D) 1142.85. E) 1513.50.
FIGURE 22- 4
44) 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 taxes
B) increase disposable income
C) reduce government spending
D) increase government spending
E) increase transfer payments
45) 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) increase government spending
C) decrease disposable income
D) reduce transfer payments
E) increase taxes
46) Other things being equal, an exogenous rise in the domestic price level will
A) have no effect on the level of desired real expenditure.
B) cause net exports to rise.
C) increase the level of desired real expenditure.
D) decrease desired real expenditure only if it is accompanied by a change in the current income of
households.
E) decrease desired real expenditure because it will affect the real value of wealth.
47) Other things being equal, a rise in the price level will imply in wealth for the bondholder and
in the wealth of the issuer of the bond.
A) an increase; a decline
B) a decline; an increase
C) a decline; no change
D) an increase; an increase
E) a decline; a decline
48) Which of the following would likely cause an upward parallel shift in the AE curve and a rightward shift in the
AD curve?
A) an increase in the price level
B) an increase in the MPC
C) a reduction in government purchases
D) an increase in the business confidence of firms
E) a decrease in the price level
49) One reason why the aggregate demand (AD) curve slopes downward is that
A) aggregate expenditure increases as the price level rises.
B) when the price level falls consumers increase their saving rate.
C) increases in the price level cause consumers to substitute foreign goods for domestic goods.
D) increased production results in lower production costs.
E) when the price level falls firms must be more competitive when output increases.
50) The economy's aggregate supply curve is drawn under two main assumptions. They are
A) firms' unit costs are constant; the state of technology is constant.
B) the prices of all factors of production are constant; productivity improves as the price level rises.
C) the prices of all factors of production are constant; the state of technology is constant.
D) firms will produce more output only if prices rise; technology improves only if prices rise.
E) firms' unit costs are constant; prices of all factors of production are constant.
51) Consider the basic AD/AS model. If their unit costs rise as output increases, price- taking firms will be prepared
to produce only if .
A) more; the economy is in equilibrium
B) less; prices increase
C) more; prices increase
D) more; prices decrease
E) their current output; prices increase
52) The aggregate supply curve will shift as a result of a change in
1) the wage rate;
2) the price level;
3) technology.
A) 1 and 3 B) 3 only C) 2 and 3 D) 2 only E) 1 only
53) If the economy's AS curve is upward sloping, a negative shock to aggregate demand will result in
A) an increase in prices and no change in real GDP.
B) a decrease in both real GDP and prices.
C) a decrease in prices but no change in real GDP.
D) an increase in both real GDP and prices.
E) an increase in real GDP and no change in prices.
54) Which of the following will cause a positive aggregate supply shock?
A) an increase in the price of raw materials
B) a decrease in the price of oil
C) an increase in the price of foreign output
D) a decrease in productivity
E) a decrease in the price of foreign output
55) Consider the AD/AS macro model. Suppose there is an increase in aggregate demand and, simultaneously, a
decrease in aggregate supply. The result will be a
A) rise in real GDP and a fall in the price level.
B) an indeterminate change in real GDP and a rise in the price level.
C) an indeterminate change in real GDP and a fall in the price level.
D) rise in real GDP and a rise in the price level.
E) rise in real GDP but price level changes will be indeterminate.
FIGURE 23-5
56) Refer to Figure 23-5. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the
right, as shown. The simple multiplier is and the multiplier is _ .
A) 6; 1.2 B) 4; 1.2 C) 2.8; 1.2 D) 4; 3.2 E) 4; 2.8
FIGURE 23-3
57) Refer to Figure 23- 3. Which of the two economies, A or B, will experience more volatile fluctuations in national
income in response to aggregate demand shocks?
A) Economy A because the large fluctuations in the price level lead to large fluctuations in national income.
B) Economy A because the multiplier is much larger than in Economy B.
C) Economy B because output is purely demand determined, and there is no offsetting effect from a price
level increase.
D) Economies A and B will experience similar volatility because the slopes of the AD curves are the same.
E) Economy B because the multiplier is much smaller than in Economy A.
58) Which of the following are the defining assumptions of the long run in macroeconomics?
A) Factor prices adjust to output gaps, and technology and factor supplies are constant.
B) Factor prices are exogenous, technology and factor prices are exogenous.
C) Factor prices are exogenous, and technology and factor supplies are changing.
D) Factor prices adjust to output gaps, and technology and factor supplies are changing.
E) Factor prices are exogenous, and technology and factor supplies are constant.
59) Which of the following best describes the concept of potential output?
A) The total output that can be produced when all factors of production (land, labour, and capital) are fully
employed.
B) The total output that can be produced when all productive resources (land, labour, and capital) are used at
their maximum capacity.
C) The total output that can be produced when the economy is in short- run economic equilibrium.
D) The total output that could be produced in the future when technological advances allow for a higher level
of output.
E) The total output that could be produced if no productive resource (land, labour, and capital) was ever left
idle.
60) An inflationary output gap would generate which of the following conditions in the economy?
A) Workers have a relatively large amount of bargaining power with employers.
B) There is downward pressure on wages.
C) Firms are making low profits.
D) There is an unusually small demand for labour.
E) There is much idle capacity.
61) If the short- run macroeconomic equilibrium occurs with real GDP greater than potential output, the economy is
A) operating at full capacity.
B) experiencing an inflationary output gap.
C) at its full- employment level of output.
D) threatened with a demand shock.
E) experiencing a recessionary output gap.
The table below shows data for five economies of similar size. Real GDP is measured in billions of dollars. Assume that potential output
for each economy is $340 billion.
Rate of Wage
Real GDP Change
Economy A 300 - 1.0%
Economy B 320 - 0.5%
Economy C 340 0%
Economy D 360 +3.5%
Economy E 380 +6.0%
TABLE 24- 1
62) Refer to Table 24- 1. Which of the following statements best describes the situation facing Economy B?
A) There is no output gap and wages are stable.
B) There is a recessionary gap of $20 billion and wages are falling slowly.
C) There is an inflationary gap of $40 billion and wages are rising.
D) There is a recessionary gap of $40 billion and wages are falling slowly.
E) There is an output gap of $20 billion and wages are rapidly adjusting.
63) Suppose Canada's economy is in a long- run equilibrium with real GDP equal to potential output. Now suppose
there is an increase in world demand for Canada's goods. In the short run, . In the long run, .
A) real GDP and the price level both rise; real GDP returns to its original level with a higher price level
B) real GDP and the price level both fall; real GDP is below its original level with a lower price level
C) real GDP and the price level both rise; real GDP is above its original level with a higher price level
D) real GDP falls and the price level rises; real GDP is below its original level with a higher price level
E) real GDP rises and the price level falls; real GDP returns to its original level with a lower price level
64) What economists sometimes call the "long- run aggregate supply curve" is
A) nonlinear.
B) negatively sloped.
C) vertical.
D) horizontal.
E) positively sloped.
FIGURE 24- 2
65) Refer to Figure 24- 2. Suppose the economy is in a short- run equilibrium at Y1. An appropriate fiscal policy for
attaining potential output (Y*) is a(n)
A) decrease in personal and corporate taxes.
B) increase in personal and corporate tax rates.
C) increase in government spending.
D) increase in current consumption.
E) decrease in current imports.
The diagram below shows an AD/AS model for a hypothetical economy which is initially in a short- run equilibrium at point A.
FIGURE 24-6
66) Refer to Figure 24-6. If the government takes no action to change the short- run macro equilibrium, then
A) the AS curve will shift to the left until it intersects with the AD curve at point D.
B) the AD curve will shift downward until it intersects with the AS curve at point E.
C) the AS curve can either shift to the right or left depending on the fiscal policy.
D) the AS curve will shift to the right until it intersects with the AD curve at point B.
E) the AD curve will shift upward until it intersects with the AS curve at point C.
67) Suppose the economy is experiencing an inflationary gap in the short run. The advantage of using a
contractionary fiscal policy rather than allowing the economy's natural adjustment process to operate is that
A) it will reduce the upward pressure on the price level that would otherwise occur.
B) it will close the output gap.
C) it will shorten what might otherwise be a long recession.
D) it will reduce the downward pressure on the price level that would otherwise occur.
E) if private- sector expenditures increase on their own, the policy will stabilize real GDP.
68) The use of government purchases (G) as a fiscal policy tool can have an effect on long- run growth in the
economy. Under what circumstances might an increase in G cause the level of potential output (Y*) to increase?
A) If the increase in G is offset by an equal decrease in C, I, and NX.
B) If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a
permanent rightward shift of the AD curve.
C) If the increase in G crowds out private investment.
D) If the increase in G leads to a permanent increase in the level of autonomous saving in the economy.
E) If the increase in G is spent on public infrastructure that increases the productivity of private- sector
production.
69) Long- run increases in real national income can generally be traced to
A) excess of demand in the labour market that increases employment.
B) growing availability of factors and/or growing factor productivity.
C) growing supply because higher wages will increase the participation rate.
D) growing demand that lead to increases in output and prices.
E) growing demand which causes continuous growth in consumer spending.
70) Consider the basic AD/AS model. In the short run, a shift of the aggregate supply curve would lead to a change
in real GDP by mostly changing
A) the amount of labour employed.
B) the amount of land (natural resources) available to the economy.
C) the level of investment.
D) the productivity of capital.
E) the prices of factors of production.
71) A decrease in short- run real GDP that leaves potential GDP unaffected would be most likely caused by a (an)
A) decrease in interest rates.
B) decrease in unemployment rates.
C) decrease in factor- utilization rates.
D) increase in factor productivity.
E) None of the above are likely to cause a reduction in real GDP.
72) Which of the following may increase real GDP in the short run but may actually decrease the long- run growth
rate of GDP?
A) increase in factor- utilization rates in the short run
B) increase in the unemployment rate
C) decrease in factor productivity
D) decrease in households' desired saving
E) increase in factor supplies
73) The level of aggregate output is determined in the short run by but in the long run by the level of
.
A) the AD and AS curves; Y*
B) the AS curve; potential output
C) the AD curve; interest rates
D) the output gap; factor productivity
E) the AD and AS curves; factor utilization
74) Which of the following provides the best explanation for why GDP may increase over long periods of time?
A) increase in interest rates
B) increase in emigration
C) increase in unemployment
D) increase in mortality rates
E) increase in capital stock
75) GDP can be represented by the equation: GDP = F × (Fe/F) × (GDP/Fe). In this equation, the term (Fe/F)
represents
A) factor supply per level of output.
B) income per person.
C) output per capita.
D) factor productivity.
E) the factor- utilization rate.
76) Suppose there are 7000 people in the labour force of an economy and the unemployment rate is 6%. If GDP per
worker in this economy is $15, then GDP is equal to
A) $98 700. B) $35 000. C) $12 800. D) $6300. E) $105 000.
77) Which of the following policies is most likely to have an effect on GDP in the long run?
A) increase consumption
B) increase government purchases
C) change factor utilization rates
D) increase labour productivity
E) reduce unemployment rates
78) One of the benefits of long- run economic growth is

A) decreased current saving and increased current consumption.
B) decreased productive capacity.
C) growth in nominal GDP greater than real GDP.
D) a greater ability to reduce inequality.
E) increased future interest rates.
79) Suppose the government has a budget surplus of $2 billion. If the country's level of private saving is $1.2 billion,
then national saving must be
A) $800 million
B) $0.
C) - $1.2 billion.
D) $3.2 billion
E) - $800 million.
80) An increase in the government budget surplus, everything else constant, will cause a(n)
A) decrease in the growth rate.
B) increase in national saving.
C) equal decrease in private investment.
D) equal increase in private consumption.
E) decrease in national saving.
81) Consider the long- run theory of investment, saving, and growth. For a given level of national income, a
decrease in private consumption or government purchases will cause the equilibrium interest rate to
A) increase and the flow of investment to decrease.
B) decrease and the flow of national saving to increase.
C) decrease and the flow of national saving to decrease.
D) increase and the flow of national saving to decrease.
E) increase and the flow of investment to increase.
The diagram below show the market for financial capital assuming that national income is constant at potential GDP, Y*.
FIGURE 26- 2
82) Refer to Figure 26- 2. Suppose national saving is reflected by NS0 and investment demand is reflected by I0D. If
the real interest rate is i1, there is which will drive the interest rate down until it reaches i*.
A) an excess demand for investment B) an excess supply of financial capital
C) an excess demand for financial capital D) an excess supply of public saving
83) In the Neoclassical growth model, if capital and labour grow at the same rate, we will observe
A) rising GDP but no change in living standards.
B) increasing living standards but only for workers using labour- intensive production.
C) rising GDP but falling living standards.
D) rising GDP and increasing living standards.
E) increasing living standards but only for workers using capital- intensive production.
84) According to the Neoclassical growth model, it is most likely that GDP would increase, but that average
material living standards would fall, as a result of
A) an increase in the working population.
B) a growing capacity to develop and incorporate new innovations.
C) a fast- growing capital stock.
D) a better educated labour force.
E) an increase in the availability of natural resources.
85) Real GDP is not a good measure of average material living standards because
A) it does not take into account the size of the population.
B) it is sensitive to the base year chosen in its calculation.
C) it is biased by the changes in the inflation rate.
D) it excludes the role of imported goods.
E) the price level may be changing, which affects what people can afford to buy.
86) According to some modern theories of long- run economic growth, successive increments of investment have
returns since some fixed costs are for subsequent firms.
A) decreasing; higher
B) increasing; higher
C) constant; identical
D) increasing; lower
E) decreasing; lower
87) In order for money to be successfully used as a medium of exchange, it must

1) be readily acceptable;
2) be easily divisible;
3) have a high value- weight ratio.
A) 1 only B) 1, 2, and 3 C) 1 and 2 D) 2 only E) 3 only
88) Most Canadians accept Canadian dollars in payment for goods and services in Canada because they have
confidence that the dollar
A) is fully backed by the British pound sterling.
B) is fully convertible into American dollars at a set exchange rate.
C) will be accepted in the future.
D) is fully convertible into gold.
E) is accepted by foreigners as more stable than their own currency.
89) Which of the following statements about deposit money is true?

A) The quantity of fiat money in the Canadian economy far exceeds the quantity of deposit money.
B) Deposit money can legally be created solely by the Bank of Canada.
C) The quantity of deposit money in the Canadian economy far exceeds the quantity of fiat money in
circulation.
D) Deposit money is recorded as an asset on the balance sheet of a commercial bank.
E) Deposit money is the paper money or coinage that is decreed by the government to be accepted as legal
tender.
90) Which of the following entries would appear on the assets side of a commercial bank's balance sheet?
A) chequable deposits
B) shareholders' equity
C) Government of Canada securities
D) savings deposits
E) Government of Canada deposits
91) A commercial bank's actual reserve ratio is the
A) fraction of its deposit liabilities that are backed by gold.
B) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank
of Canada.
C) ratio of chequable deposits to term deposits that it holds on its books.
D) ratio of Canadian dollars to foreign currencies that it holds on its books.
E) fraction of its deposit liabilities that it actually holds as gold, other precious metal or cash in its own
vaults.
92) Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.
This bank's is/are $75 million.
A) reserve ratio
B) excess reserves
C) fractional reserves
D) cash drain
E) profits
93) A new deposit to the banking system can result when

A) the Bank of Canada sells a government security to a firm which then maintains the asset in a bank.
B) the Bank of Canada buys a government security from a firm, which then deposits the proceeds from the
sale in its account at a commercial bank.
C) a new immigrant to Canada sends cash to his or her home country.
D) an individual stashes cash in a mattress.
E) the Bank of Canada buys a government security from a firm, which keeps the proceeds from the sale in a
company vault.
Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits $2000
Loans $2200 Capital $500
$2500 $2500
TABLE 27-2
94) Refer to Table 27-2. Assume that Bank North is operating with no excess reserves. What is their actual reserve
ratio?
A) 15% B) 12% C) 13.67% D) 25% E) 20%
95) Suppose you found a $100 bill that was lost for many years under your grandmother's mattress. If the banking
system has a cash drain of 5%, its target reserve ratio is 20%, and all excess reserves were lent out, your new
deposit of the $100 bill would lead to an eventual expansion of the money supply of
A) $20. B) $25. C) $400. D) $200. E) $500.
96) Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a target reserve ratio of
1.0% and no cash drain, the maximum change in deposits for the entire banking system would be
A) $70 000.00. B) $682.50. C) $17 500.00. D) $700.00. E) $28 000.00.
97) Consider a new deposit of $10 000 to the Canadian banking system. Assuming that all Canadian banks have a
target reserve ratio of 2%, and that there is no cash drain, the banking system as a whole could create
as a result of this single new deposit.
A) $10 000 of new deposits
B) $980 000 of additional loans
C) $500 000 of new deposits
D) $1 000 000 of additional loans
E) $50 000 of new deposits
98) If the Bank of Canada enters the open market and purchases $1000 of government securities, what will be the
eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?
A) increase of $5000
B) decrease of $1000
C) increase of $10 000
D) decrease of $10 000
E) decrease of $5000
99) Suppose Bank ABC has a target reserve ratio of 10%, no excess reserves, and it receives a new deposit of $500
000. This bank will initially expand its loans by
A) $4.5 million. B) $5 million. C) $50 000. D) $450 000. E) $500 000.
100) The present value of a bond is determined by the

A) market rate of interest, the date of maturity, and the face value.
B) rate of inflation.
C) market rate of interest only.
D) face value and the date of maturity.
E) marginal rate of income tax.
101) In a competitive financial market, the equilibrium price of an asset will equal the
A) future value of the asset.
B) present value of the asset.
C) future value of the asset multiplied by the interest rate.
D) sum of present value of the asset multiplied by the interest rate.
E) issue price of the asset.
102) An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000
in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale
at a price of $9400. The analyst should recommend
A) purchasing the bond because the purchase price is more than its present value and is therefore profitable.
B) purchasing the bond because the purchase price is less than its present value and is therefore profitable.
C) not purchasing the bond because the purchase price is less than its present value.
D) not purchasing the bond because the buyer could earn an additional $376 by investing the $9400
elsewhere.
E) not purchasing the bond because the buyer could earn an additional $224 by investing the $9400
elsewhere.
FIGURE 28- 1
103) Refer to Figure 28- 1. A leftward shift in the money demand curve can be caused by:
A) an increase in real GDP.
B) a decrease in real GDP.
C) an increase in the rate of interest.
D) an increase in the price level.
E) a decrease in the rate of interest.
104) If the economy is currently in monetary equilibrium, an increase in the money supply will
A) not change the equilibrium conditions.
B) lead to a movement down the money demand curve to a lower rate of interest.
C) cause an increase in the demand for money, leading to a lower rate of interest.
D) cause an excess demand for money and a decrease in the rate of interest.
E) cause a reduction in the demand for money, leading to a higher rate of interest.
FIGURE 28- 2
105) Refer to Figure 28- 2. Suppose the market interest rate is i2. The situation in this market is as follows:
A) firms and households are attempting to increase their money holdings by buying bonds.
B) firms and households are attempting to decrease their money holdings by selling bonds.
C) firms and households are attempting to decrease their money holdings by buying bonds.
D) firms and households are attempting to increase their money holdings by selling bonds.
E) the market is in equilibrium and no change will occur.
106) The linkage between changes in monetary equilibrium and changes in aggregate demand is called the
A) monetary transmission mechanism.
B) liquidity preference function.
C) simple multiplier.
D) equilibrium mechanism.
E) transactions mechanism.
107) The monetary transmission mechanism describes the process by which changes in
A) interest rate affect the demand for money.
B) monetary equilibrium influence the interest rate.
C) personal consumption affect real GDP.
D) monetary equilibrium influence real GDP through changes in desired investment.
E) business investment influence real GDP.
108) If the Bank of Canada were to reduce the money supply, other things being equal, we would expect the
aggregate expenditure curve to shift
A) downward but the aggregate demand curve will remain unchanged.
B) upward and the aggregate demand curve to shift to the right.
C) upward and the aggregate demand curve to shift to the left.
D) downward and the aggregate demand curve to shift to the left.
E) downward and the aggregate demand curve to shift to the right.
109) If real GDP is greater than potential GDP, the output gap could be eliminated by
1) an increase in government purchases;
2) an upward shift in the AE curve;
3) a reduction in the money supply.
A) 1 or 2 B) 1 or 2 or 3 C) 1 only D) 3 only E) 2 only
FIGURE 28- 5
0 0
110) Refer to Figure 28- 5. This economy begins in equilibrium with M , M and real GDP equal to potential GDP
S D
(with AD0 and AD1). Now suppose there is an increase in the money supply to $540 billion. The initial response
in this economy is
1
A) an increase in the demand for money, causing a shift of the money demand curve to M D, and a fall in the
interest rate to 2%.

2
B) an increase in the demand for money, causing a shift of the money demand curve to M Dand the interest
rate remains at 4%.

C) a movement down along the money demand curve to a lower interest rate at 2%.
1
D) an increase in the demand for money, causing a shift of the money demand curve to M D, and a fall in
interest rate to 3%.

E) the AD and AS curves shift up simultaneously.
0 0
111) Refer to Figure 28- 5. This economy begins in equilibrium with M , M
and real GDP equal to potential GDP
S D
(with AD0 and AD1). Now suppose there is an increase in the money supply to $540 billion. According to the
Classical economists of the eighteenth and nineteenth centuries,
A) the neutrality of money holds in the long run, but in the short run changes in the money supply cause
significant fluctuations of real GDP.
B) the neutrality of money holds in the long run, but in the short run changes in the money supply cause
significant fluctuations in employment but not real GDP.
C) there is no connection between the "money" and "real" sides of the economy, and the only effect is a rise in
the price level.
D) such increases in the money supply cause long- run disequilibriums in the economy.
E) there is no connection between the "money" and "real" sides of the economy, and the only effect is a
decrease in the interest rate.
112) Consider the monetary transmission mechanism. A relatively steep investment demand curve and a relatively
flat money demand curve
A) make it impossible for the Bank of Canada to change the money supply.
B) imply that large increases in the money supply have little effect on aggregate expenditure.
C) increase the effectiveness of expansionary monetary policy.
D) make the money supply a particularly powerful policy instrument.
E) are believed by many monetarists to be realistic descriptions of the economy.
113) To raise short- term market interest rates, the Bank of Canada could
A) lower the reserve requirement.
B) purchase government securities in the open market.
C) increase the commercial banks' required reserves.
D) adjust the rate paid on Treasury bills.
E) increase its target for the overnight rate.
114) Suppose the actual overnight interest rate is 3.5%. If the Bank of Canada raises its target for the overnight
interest rate to 4%, and longer- term interest rates in the market rise as a result,
A) the demand for loans from commercial banks rises, the commercial banks sell government securities to the
Bank of Canada, and the money supply rises.
B) the demand for loans from commercial banks falls, the commercial banks buy government securities from
the Bank of Canada, and the money supply falls.
C) the demand for loans from commercial banks falls, the commercial banks sell government securities to the
Bank of Canada, and the money supply falls.
D) the demand for loans from commercial banks rises the commercial banks buy government securities from
the Bank of Canada, and the money supply rises.
E) the demand for loans from commercial banks rises, the commercial banks buy government securities from
the Bank of Canada, and the money supply falls.
115) If the Bank of Canada chooses to expand the money supply directly, it could
A) reduce its deposits at commercial banks.
B) buy government securities on the open market.
C) sell government securities on the open market.
D) sell some of its foreign currency assets.
E) change the price level.
116) To remove a recessionary gap, the Bank of Canada would probably seek to
A) increase the bank rate.
B) sell government securities through open- market operations.
C) decrease its target for the overnight interest rate.
D) decrease its target for the money supply.
E) increase its target for the overnight interest rate.
117) If we observe that the bank rate has fallen, we can conclude that the
A) Bank of Canada has abandoned its inflation target.
B) Bank of Canada has adjusted the rate it pays on Treasury bills.
C) Government of Canada has reduced the money supply.
D) Bank of Canada has implemented an expansionary monetary policy.
E) Bank of Canada has implemented a contractionary monetary policy.
118) The Bank of Canada initially implements a contractionary monetary policy by

A) selling government securities on the open market.
B) raising its target for the overnight interest rate.
C) reducing its target for the overnight interest rate.
D) buying government securities on the open market.
E) directly decreasing the money supply.
119) The Bank of Canada's formal policy target is _ _. It's current target is to keep the annual inflation rate
close to %.
A) CPI inflation; 2
B) core inflation; 1
C) the money supply; 1
D) core inflation; 0
E) the money supply; 2
PAGE 28
120) In the short run the Bank of Canada aims to , in an effort to _ _.
A) reduce any positive or negative output gaps; keep inflation close to the official target
B) keep actual output within 1%- 3% of potential output; keep the money supply growing at a constant rate
C) ignore any shocks as they are automatically adjusting; keep inflation within its target band
D) ignore any shocks as they are automatically adjusting; keep GDP growth constant
E) enhance any positive shocks; keep inflation within its target band
121) In 2007 and 2008, Canada was affected by the global financial crisis that had begun with the U.S. housing
collapse. By the spring of 2009, the Bank of Canada had reached a practical minimum for its nominal policy
interest rate of %.
A) 0.25 B) 0.50 C) 0.75 D) 0 E) 1.00
122) If the unemployment rate is greater than the NAIRU,

A) the AS curve will shift upward.
B) there is an inflationary gap.
C) there is a negative output gap.
D) real national income is above potential GDP.
E) there will be upward pressure on wages.
123) Suppose the NAIRU for Canada is 6%, the actual unemployment rate is 7%, and productivity is constant. We
can conclude that
A) the excess demand for labour will put upward pressure on wages.
B) there is an inflationary gap.
C) the NAIRU will readjust to 7%.
D) the excess supply of labour will put downward pressure on wages.
E) the AD curve will automatically shift up.
124) Suppose the NAIRU for Canada is 6.5%, and the actual unemployment rate is 5%. If the Bank of Canada reduces
its target for the overnight interest rate,
A) the AD curve will shift to the left.
B) it will worsen the existing inflationary gap.
C) it will increase the unemployment rate.
D) it will move real GDP back toward potential GDP.
E) the AS curve will shift upward.
125) When a central bank attempts to stop a sustained inflation, it tries to remove the inflationary gap by
A) shifting the AS curve downward.
B) increasing the outward shift of the AD curve.
C) shifting the AS curve upward.
D) taking no action and allowing the market to correct itself.
E) stopping the outward shift of the AD curve.
126) A rightward shift in the AD curve accompanied by a leftward shift of the AS curve will result in
A) a reduction in unemployment and an uncertain effect on the price level.
B) a reduction in the price level and an uncertain effect on unemployment.
C) an increase in unemployment and an uncertain effect on the price level.
D) a reduction in both unemployment and the price level.
E) an increase the price level and an uncertain effect on unemployment.
127) Beginning from a position of long- run equilibrium, a contractionary monetary policy by the Bank of Canada
causes
A) a fall in most market interest rates.
B) potential output to exceed aggregate demand for goods and services.
C) aggregate demand for goods and services to exceed potential output.
D) an increase in the general price level.
E) an increase in potential output.
128) Assuming that the economy is currently in a long- run equilibrium with real GDP equal to Y*, a positive AD
shock (with no change in the money supply) will eventually result in
A) an ongoing inflation in the economy.
B) a lower price level and GDP below its potential level.
C) a higher price level and GDP at its potential level.
D) no change in the price level.
E) a lower price level and GDP at its potential level.
FIGURE 30-3
129) Refer to Figure 30-3. The movement of the economy from E0 to E1 was likely caused by
A) an increase in the price level.
B) a negative demand shock caused by fall in consumption.
C) a positive demand shock due to an increase in investment.
D) a positive supply shock caused by improved productivity.
E) a negative supply shock caused by higher input prices.
PAGE 30
130) If there is repeated monetary validation to wage- push supply shocks,
A) the supply shocks will reverse themselves.
B) there will be ongoing inflation.
C) workers will have higher real wages.
D) there will be a once- and- for- all rise in the price level.
E) unemployment will continue to rise.
131) If the economy is faced with continued negative supply shocks, such as annual wage increases for unionized
workers, and there is no monetary validation, we can expect
A) peace in labour- management relations.
B) a one- time rise in the price level.
C) rising unemployment until the wage increases cease, or are offset by other wage decreases.
D) an inflationary gap.
E) a shrinking output gap.
132) The view that sustained inflation is possible only with continuous monetary validation is now widely accepted
but was made famous by and is still closely associated with
A) Adam Smith.
B) James Tobin.
C) John Maynard Keynes.
D) Milton Friedman.
E) David Ricardo.
The three figures below show the phases of a disinflation. In part (i), the economy is experiencing a sustained inflation at E1.
FIGURE 30-4
133) Refer to Figure 30-4, part (ii) or (iii). The movement of the economy from E3 to E2 could be due to
A) a contractionary monetary policy.
B) a slow fall in wages due to a recessionary gap.
C) a positive aggregate demand shock.
D) an expansionary monetary policy.
E) a rise in unit costs caused by falling wages.
134) If a central bank is to successfully end a sustained inflation, it is essential that it

A) change people's expectations of future inflation.
B) avoid any loss in national income.
C) maintain the sacrifice ratio at a constant level.
D) do so using a "cold- turkey" approach.
E) avoid any increase in unemployment.
135) The sacrifice ratio reflects the cost of as measured by the .

A) supply shocks; change in the price level
B) the Phillips curve; change in the NAIRU
C) inflationary expectations; change in the rate of inflation
D) validation; change in inflationary expectations
E) disinflation; loss in economic activity
136) When aggregate output is greater than potential output, the unemployment rate the NAIRU.
A) is equal to
B) rises above
C) rises toward but never exceeds
D) falls below
E) falls toward
137) If labour markets had perfectly flexible wages, as the market- clearing theories suggest, involuntary
unemployment would
A) not exist.
B) rise when the labour demand curve shifts to the right.
C) rise when the labour supply curve shifts to the right.
D) rise when the labour supply curve shifts to the left.
E) rise when the labour demand curve shifts to the left.
138) The theory of "efficiency wages" provides

A) many firms with a good reason to dismiss workers.
B) an explanation for the high wages that unions are able to extract from firms.
C) one explanation for why wages do not readily fall in response to excess supply in labour markets.
D) a way in which firms can pay workers less than the market- clearing wage.
E) most workers with a good reason to quit.
139) A decrease in the share of the labour force that is unionized may the degree of wage flexibility, which
would put pressure on NAIRU.
A) decrease; upward
B) decrease; downward
C) increase; downward
D) have no effect on; no
E) increase; upward
140) Other things being equal, many economists believe that more generous employment- insurance benefits would
A) lower structural unemployment.
B) raise structural unemployment.
C) lower frictional unemployment.
D) have no effect on unemployment.
E) raise frictional unemployment.
141) Consider the following variables:

G = government purchases
i = interest rate on government debt
D = stock of government debt
T = net tax revenue
The government's budget deficit can be expressed as
A) deficit = D - (G + iD) + T
B) ̇ D = (G + iD) - T
C) ̇ D = (G - iD) + T
D) deficit = D - T + (G + iD)
E) T = Ḋ - (G + iD)
142) If the economy goes into a recession, the cyclically adjusted deficit is most likely to
A) remain unchanged, unless government actively changes its fiscal policy.
B) increase, because government expenditures and tax revenues will both rise.
C) remain unchanged, although there will be a primary budget surplus.
D) decrease, because government expenditures will decrease and tax revenues will rise.
E) increase, because government expenditures will rise and tax revenues will decline.
143) An illustration of "crowding out" in macroeconomics is best provided by

A) a fiscal expansion raises interest rates and thereby lowers private investment.
B) an increase in tariffs causes a decrease in imports.
C) a decrease in government subsidies for low- cost housing causes an increase in private spending on
housing.
D) an increase in the money supply crowds out the issuance of privately held debt.
E) a decrease in the money supply decreases nominal GDP.
144) Financing a budget deficit by increasing the money supply will

A) reduce the burden of government debt.
B) have no short- run monetary effects on the economy.
C) increase investment over time.
D) allow more flexibility in the design of monetary policy.
E) create greater inflationary pressure.
145) The policy objective of an annually balanced government budget

A) is difficult to achieve and would be destabilizing.
B) would eliminate the swings in real GDP.
C) is feasible and would be stabilizing.
D) would be stabilizing, but is difficult to achieve.
E) is feasible but would be destabilizing.
146) A credit entry in the Canadian balance- of- payments accounts

1) is a credit in the balance- of- payments accounts for foreign countries;
2) occurs when Canadians receive investment income from foreign countries;
3) is any transaction that results in a payment to other nations.
A) 1 and 2 B) 3 only C) 2 only D) 2 and 3 E) 1 only
147) Suppose a Canadian grocery chain imports one million kilograms of cheese from a Swiss exporter. Ceteris
paribus, the effect is to
A) decrease the number of Canadian dollars needed to buy one Swiss franc.
B) increase the demand for Canadian dollars in the foreign- exchange market.
C) increase the demand for Swiss francs in the foreign- exchange market.
D) increase the supply of Swiss francs in the foreign- exchange market.
E) increase the number of Swiss francs needed to buy one Canadian dollar.
148) If the Bank of Canada pursues an expansionary monetary policy,

A) interest rates will rise, there will be a capital outflow, and the Canadian dollar will depreciate.
B) interest rates will fall, there will be a capital inflow, and the Canadian dollar will depreciate.
C) interest rates will fall, there will be a capital outflow, and the Canadian dollar will depreciate.
D) interest rates will rise, there will be a capital inflow, and the Canadian dollar will appreciate.
E) interest rates will fall, there will be a capital outflow, and the Canadian dollar will appreciate.
149) Purchasing power parity
A) allows for both countries' currencies to appreciate at their own rates of inflation.
B) is an index of the average value of exchange rates.
C) is a theory that says price levels in two countries should be equal when measured in a common currency.
D) holds exactly in the short run but not in the long run.
E) will tend to cause those currencies with lower inflation rates to depreciate.
150) If a basket of goods costs 1000 euros in Europe and the Canadian dollar exchange rate is $1.40 = 1 euro, then
according to the theory of PPP the same basket of goods should cost in Canada.
A) $1000.00 B) $7142.90 C) $ 714.29 D) $1400.00 E) $ 140.00
Answer Key
Testname: PRACTICEFINAL2014
1) B 17) D 33) B 49) C

ID: econ14cr 19.1- 12 ID: econ14cr 20.2- 53 ID: econ14cr 21.4- 44 ID: econ14cr 23.2- 10
Diff: 2 Diff: 2 Diff: 3 Diff: 2
2) B 18) E 34) C 50) C
3) C 19) B 35) A 51) C
4) B 20) D 36) E 52) A
5) D 21) C 37) A 53) B
6) E 22) D 38) E 54) B
7) C 23) D 39) B 55) B
8) B 24) E 40) C 56) B
9) B 25) D 41) C 57) C
10) A 26) D 42) D 58) D
11) C 27) B 43) A 59) A
12) D 28) D 44) C 60) A
13) E 29) B 45) B 61) B
14) A 30) D 46) E 62) B
15) A 31) A 47) B 63) A
16) E 32) C 48) D 64) C
PAGE 36
65) B 81) B 97) C 113) E
66) D 82) B 98) C 114) B
67) A 83) A 99) D 115) B
68) E 84) A 100) A 116) C
69) B 85) A 101) B 117) D
70) A 86) D 102) B 118) B
71) C 87) B 103) B 119) A
ID: econ14cr 25.2- 7 ID: econ14cr 27.1- 13 ID: econ14cr 28.2- 15+ ID: econ14cr 29.3- 15
72) D 88) C 104) B 120) A
73) A 89) C 105) C 121) A
74) E 90) C 106) A 122) C
75) E 91) B 107) D 123) D
76) A 92) B 108) D 124) B
77) D 93) B 109) D 125) E
78) D 94) A 110) C 126) E
79) D 95) C 111) C 127) B
80) B 96) A 112) B 128) C
129) E 145) A
ID: econ14cr 30.4- 7 ID: econ14cr 32.5- 3
Diff: 2 Diff: 2
130) B 146) C
Diff: 3 Diff: 2
131) C 147) C
Diff: 3 Diff: 2
132) D 148) C
Diff: 2 Diff: 3
133) B 149) C
Diff: 3 Diff: 2
134) A 150) D
Diff: 2 Diff: 3
135) E
ID: econ14cr 30.6- 7
Diff: 2
136) D
Diff: 1
137) A
Diff: 2
138) C
Diff: 2
139) C
Diff: 3
140) E
Diff: 2
141) B
Diff: 1
142) A
Diff: 3
143) A
ID: econ14cr 32.3- 18
Diff: 2
144) E
Diff: 2

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PRACTICE FINAL WINTER 2014

2) In macroeconomics, if the value of the national product increases, there is

3) An output gap with Y < Y*

6) If the cyclical unemployment rate is negative, then the

14) In national- income accounting, changes in inventories are

15) In national- income accounting, what does the term Ia represent?

Gross investment expenditure $402.00

18) In the national- income accounts, disposable personal income

19) The best measure of total income received by Canadian citizens is

21) Undesired or unplanned inventory decumulation is likely to occur when

Disposable Income Desired Consumption

23) Refer to Table 21- 2. The marginal propensity to save is equal to

1. the equilibrium condition is Y = C + I

41) Refer to Figure 22- 2. What is total autonomous expenditure?

78) One of the benefits of long- run economic growth is

87) In order for money to be successfully used as a medium of exchange, it must

89) Which of the following statements about deposit money is true?

93) A new deposit to the banking system can result when

Bank North's Balance Sheet

100) The present value of a bond is determined by the

interest rate to 2%.

rate remains at 4%.

interest rate to 3%.

118) The Bank of Canada initially implements a contractionary monetary policy by

122) If the unemployment rate is greater than the NAIRU,

134) If a central bank is to successfully end a sustained inflation, it is essential that it

135) The sacrifice ratio reflects the cost of as measured by the .

138) The theory of "efficiency wages" provides

141) Consider the following variables:

143) An illustration of "crowding out" in macroeconomics is best provided by

144) Financing a budget deficit by increasing the money supply will

145) The policy objective of an annually balanced government budget

146) A credit entry in the Canadian balance- of- payments accounts

148) If the Bank of Canada pursues an expansionary monetary policy,

1) B 17) D 33) B 49) C

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