Exam

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Econ 1010 O, T -- MID TERM TEST Winter 2014-- Version 3MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) If aggregate planned expenditure exceeds real GDP, then inventories 1)A) remain constant and real GDP remains constant.B) decrease and real GDP decreases.C) decrease and real GDP increases.D) increase and real GDP increases.E) increase and real GDP falls.

Use the table below to answer the following question.

Table 27.1.1

The following table shows the relationship between consumptionexpenditure (C) and disposable income (YD) for a hypothetical economy.

YD (dollars) C (dollars)100200300400500600

225300375450525600

2) Refer to Table 27.1.1. If YD is $400, then saving is 2)A) -$50. B) $50. C) $100. D) -$125. E) zero.

3) Real GDP ________. 3)A) grows at a constant 3 percent per yearB) fluctuates around potential GDPC) equals potential GDP in the base yearD) equals potential GDP when the price level is constantE) fluctuates from year to year but is always below potential GDP

4) A decrease in the marginal propensity to import ________, everything else remaining the same. 4)A) sometimes increases the multiplier and sometimes decreases the multiplierB) makes the multiplier smallerC) increases the marginal propensity to consumeD) has no effect on the multiplierE) makes the multiplier larger

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5) The creation of a successful movie illustrates choices made in self-interest that also achieve thesocial interest if ________.

5)

A) the movie is produced in a country where workers typically earn less than workers in NorthAmerica

B) the movie is an Academy award winner because an Academy award winning movie is mostpopular with the movie-going public

C) the movie is produced at the lowest possible cost, and the movie gives the greatest possiblebenefit

D) the movie has a higher attendance than any other movie produced that yearE) the movie addresses a social issue

6) In a recent study, the University of Underfunded argued that it created four times as many jobs aspeople that it hired directly. This argument illustrates the idea

6)

A) of the tax multiplier.B) of the marginal propensity to consume.C) that universities are wasting taxpayers' dollars.D) of the multiplier.E) of government spending.

7) For the aggregate economy, income equals 7)A) expenditure equals GDP.B) GDP, but expenditure is generally less than these.C) expenditure equals GDP only if there is no government or foreign sectors.D) expenditure, but these are not generally equal to GDP.E) expenditure equals GDP only if there is no depreciation.

8) Which one, if any, of the following events shift the short-run aggregate supply curve but not thelong-run aggregate supply curve?

8)

A) A change in factor prices.B) An advance in technology.C) A change in the quantity of capital.D) An increase in the full-employment quantity of labour.E) None of the above.

9) To derive net domestic income at market prices from gross domestic product, we 9)A) subtract the statistical discrepancy from GDP.B) subtract depreciation from GDP.C) add the statistical discrepancy to GDP.D) add depreciation to GDP.E) subtract gross investment from GDP.

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Use the figure below to answer the following questions.

Figure 26.3.1

10) Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is adifference between ________ real GDP and potential GDP of $________ billion.

10)

A) below full-employment equilibrium; 40B) below full-employment equilibrium; 20C) above full-employment equilibrium; 20D) full-employment equilibrium; 0E) above full-employment equilibrium; 40

11) Refer to Figure 26.3.1. Consider statements (1) and (2) and select the correct answer.(1) The actual unemployment rate exceeds the natural unemployment rate.(2) Short-run aggregate supply will automatically shift leftward as the economy adjusts tolong-run equilibrium.

11)

A) (1) is true; (2) is true if the money wage rate falls.B) (2) is true; (1) is false.C) (1) and (2) are true.D) (1) is true; (2) is false.E) (1) and (2) are false.

12) The purchase of a new home is categorized as ________. 12)A) investment only if the home owners take out a mortgageB) consumption expenditureC) investmentD) consumption expenditure only if the home owners do not take out a mortgageE) consumption expenditure and investment

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13) Which one of the following people is structurally unemployed? 13)A) a Nova Scotia fishery worker who is searching for a better job closer to homeB) an office worker who has lost her job because of a general slowdown in economic activityC) a steel worker who is laid off but who expects to be called back soonD) a Saskatchewan welder who lost her job when her company relocated to B. C. and is currently

looking for a jobE) none of the above

Use the figure below to answer the following questions.

Figure 27.1.1

This figure describes the relationship between consumption expenditure and disposable income for a model economy.

14) Refer to Figure 27.1.1. When disposable income is $500 billion, saving is equal to 14)A) disposable income.B) $20 billion.C) consumption expenditure.D) zero.E) $40 billion.

15) Which one of the following variables has an induced component? 15)A) government expenditure on goods and servicesB) exportsC) investmentD) consumptionE) all of the above

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16) If the working-age population increases, then 16)A) the number of people employed will increase.B) the unemployment rate will increase.C) the size of the labour force will increase.D) the labour force participation rate will increase.E) the total number of people aged 15 years and above will increase.

17) Suppose Angela falls in love with and subsequently marries her regularly employed housekeeper,Tony. What effect would this action have on GDP?

17)

A) It would fall.B) It depends on whether he starts to work in the house free of charge or whether she still pays

him.C) It would fall but then increase after the honeymoon was over.D) It would stay the same.E) It would rise.

Use the figure below to answer the following questions.

Figure 2.2.1

18) In Figure 2.2.1, the curve labelled A is the ________ curve and the curve labelled B is the ________curve.

18)

A) production possibilities; tradeB) marginal cost; tradeC) marginal benefit; marginal costD) marginal benefit; tradeE) marginal cost; marginal benefit

19) The aggregate demand curve is a relationship between 19)A) real aggregate expenditure and real GDP.B) real prices and real GDP.C) the price level and the quantity of real GDP demanded.D) real income and real GDP.E) the price level and nominal GDP.

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20) SaskWidget produces plastic parts. At the beginning of the year, they held $24 million worth ofcapital. At the end of the year, they held $20 million worth of capital. One can conclude that

20)

A) gross investment decreased by $4 million.B) net investment increased by $4 million.C) gross investment increased by $4 million.D) depreciation equals $4 million.E) depreciation exceeded gross investment by $4 million.

21) In a country with a working-age population of 30 million, 18 million are employed, 2 million areunemployed, and 2 million of the employed are working part-time, half of whom wish to workfull-time. The labour force is

21)

A) 16 million. B) 20 million. C) 30 million. D) 18 million. E) 22 million.

Use the figure below to answer the following questions.

Figure 27.2.1

There are no exports or imports in this economy.

22) Refer to Figure 27.2.1. When real GDP is equal to Yb, then 22)A) actual expenditure is less than planned expenditure.B) actual expenditure is greater than planned expenditure.C) real GDP decreases.D) planned expenditure is equal to actual expenditure.E) real GDP increases.

23) Some sales managers are talking shop. Which one of the following quotations refers to a rightwardshift of the demand curve?

23)

A) "Since our competitors raised their prices, our sales have doubled."B) "The Green movement has sparked an increase in our sales of biodegradable products."C) "We decided to cut our prices, and the increase in our sales has been remarkable."D) "It has been an unusually harsh winter; our sales of wool scarves are up from last year."E) All of the above except C.

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24) As we increase the production of X, we find we must give up larger and larger amounts of Y perunit of X. Select the best statement.

24)

A) This illustrates increasing opportunity cost.B) The production possibilities frontier for X and Y is a straight line.C) We must be inside the production possibilities frontier.D) Good Y will be more highly regarded by consumers than good X.E) As a result, we should not specialize in the production of X.

25) If a household's disposable income increases from $12,000 to $22,000 and at the same time itsconsumption expenditure increases from $4,000 to $9,000, then

25)

A) the household is dissaving.B) the slope of the consumption function is 0.6.C) the marginal propensity to save over this range is negative.D) the marginal propensity to consume over this range is negative.E) the slope of the consumption function is 0.5.

Use the table below to answer the following questions.

Table 3.5.1The Market for Car-Seat Heaters

Price(dollars per heater)

Quantity Demanded(heaters per month)

Quantity Supplied(heaters per month)

405060708090100

500450400350300250200

300350400450500550600

26) Refer to Table 3.5.1. If the price is set at $80, there will be a 26)A) surplus of 200 units and demand will rise.B) surplus of 200 units and supply will fall.C) shortage of 200 units and price will rise.D) surplus of 200 units and price will fall.E) shortage of 200 units and demand will fall.

27) When the unemployment rate ________ the natural unemployment rate, real GDP ________potential GDP.

27)

A) is greater than; is less thanB) equal; is less thanC) is less than; is less thanD) equals; is greater thanE) is greater than; equals

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Use the figure below to answer the following questions.

Figure 2.1.3

28) Figure 2.1.3 illustrates Mary's production possibilities frontier. If Mary wants to move from point Dto point C,

28)

A) it will be necessary to give up some of good X to obtain more of good Y.B) it will be necessary to give up some of good Y to obtain more of good X.C) she can accomplish this without any opportunity cost.D) it will be necessary to increase the accumulation of capital.E) it will be necessary to improve technology.

Use the table below to answer the following questions.

Table 20.2.3

Item Millions of dollarsWages paid to labour 800,000Consumption expenditure 650,000Taxes paid on wages 200,000Government payments to support unemployed, sick, & aged 50,000Firms' profits 200,000Investment 250,000Taxes paid on profits 50,000Government expenditure on goods and service 200,000Exports 250,000Saving 200,000Imports 300,000

29) Refer to Table 20.2.3. Consider the economy represented in the table. GDP in this economy, inmillions of dollars, is

29)

A) $1,150,000B) $1,050,000.C) $1,350,000.D) $850,000.E) none of the above.

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30) Production efficiency is achieved when 30)A) all resources are equally productive in all activities.B) we produce goods and services at the lowest possible cost.C) resources are not equally productive in all activities.D) the production possibilities frontier shifts outward at an even pace.E) there are no more tradeoffs.

Use the figure below to answer the following question(s).

Figure 27.3.1

The economy shown in the graph does not engage in international trade and has no government. Planned aggregateexpenditure equals the sum of consumption expenditure (C) and investment (I).

31) Refer to Figure 27.3.1. If investment increases by $25 billion, then real GDP increases by 31)A) $50 billion.B) $100 billion.C) $75 billion.D) $125 billion.E) $25 billion.

32) Refer to Figure 27.3.1. Autonomous expenditure equals 32)A) $100 billion.B) $50 billion.C) $25 billion.D) $125 billion.E) none of the above.

33) If the money wage rate falls, then 33)A) the AD curve shifts rightward.B) firms hire less labour.C) the SAS curve shifts rightward.D) the LAS curve shifts rightward.E) C and D.

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34) If the CPI was 95 at the end of 2011 and 105 at the end of 2012, what was the inflation rate in 2012? 34)A) 10.5 percentB) 9.5 percentC) 10 percentD) 105 percentE) 5 percent

Use the figure below to answer the following questions.

Figure 20.1.1

35) Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During2012, A was $100, B was $50, C was $30 and D was $10. How much is aggregate expenditure?

35)

A) $50B) $75C) $90D) $100E) None of the above

36) Which of the following situations illustrates how fiscal policy can influence aggregate demand? 36)A) The government reduces the goods and services tax. As a result, consumption expenditure

increases and aggregate demand increases.B) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As

a result, aggregate demand decreases.C) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a

result, the aggregate demand curve shifts leftward.D) The exchange rate value of the Canadian dollar rises. As a result, people living near the

U.S.-Canada border increase their imports of goods and net exports decrease.E) Both A and C are examples of fiscal policy.

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Use the figure below to answer the following questions.

Figure 26.3.3

37) Refer to Figure 26.3.3(a). You might expect the government to 37)A) pursue trade policies that reduce exports.B) do nothing except maintain the current equilibrium.C) raise taxes.D) increase government expenditure.E) cut government expenditure.

38) The value of intermediate goods is not counted in GDP 38)A) because they are not consumed in the current year.B) to keep from including goods that reduce society's welfare.C) because of the tremendous difficulty in keeping track of all the intermediate goods produced

in an economy as large as that of Canada.D) because they are only sold in factor markets.E) to avoid counting their value twice and overstating the value of GDP.

39) If the economy is at full employment, then 39)A) the entire population is employed.B) the only unemployment is frictional unemployment plus discouraged workers.C) the entire labour force is employed.D) all unemployment arises from normal frictions and structural change.E) the unemployment rate is less than 3 percent.

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40) The unemployment rate is supposed to measure ________. It is an imperfect measure because________.

40)

A) the underutilization of labour resources; it excludes some underutilized labour and someunemployment is unavoidable

B) the underutilization of labour resources; it includes part-time workers and excludesdiscouraged workers

C) the number of unemployed plus the number of marginally attached workers expressed as apercentage of the labour force; it excludes the marginally attached workers because StatisticsCanada considers them as employed

D) the percentage of the working-age population who are unemployed; it is impossible to counteveryone in the working-age population

E) the percentage of the labour force who are unemployed; it is impossible to count everyone inthe labour force

41) If there is a decrease in autonomous expenditure, the new AE curve is 41)A) steeper than the original AE curve.B) flatter than the original AE curve.C) parallel and above the original AE curve.D) parallel and below the original AE curve.E) none of the above.

42) Which of the following statements about the Keynesian view of the macroeconomy is incorrect? 42)A) Expectations are the most significant influence on aggregate demand.B) Technological change is the most significant influence on both aggregate demand and

aggregate supply.C) To achieve and maintain full employment, active help from fiscal policy and monetary policy

is required.D) Expectations are based on "animal spirits."E) The money wage rate is extremely sticky in the downward direction so there is no automatic

mechanism for eliminating a recessionary gap.

43) Complete the following sentence. Potential GDP 43)A) is the level of real GDP when unemployment is zero.B) increases as the quantity of money in the economy increases.C) never changes.D) does not vary with the price level.E) increases as the price level rises.

44) Who of the following would be counted as unemployed in Canada? 44)A) Vik, who has been staying at home watching "The Old and the Boring" soap opera, and not

searching since he was laid off at the flour mill.B) Caitlin, who is 14 years old, and looking for a babysitting job.C) Youngmin, who is a part-time hamburger flipper looking for a full-time job.D) Emmanuel, who lost his job at the steel plant when an automated assembly line was

introduced six months ago, and has been job searching every day.E) James, who is a full-time student looking for a part-time job.

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Use the figure below to answer the following questions.

Figure 26.2.1

45) Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditureincreases?

45)

A) (a)B) (b)C) (c)D) (d)E) None of the above

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