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F21 ECO 105 Macro Term Test

True/False

1 One criticism of GDP, even as an economic measure of wealth, is that it does not reflect depreciation of assets, including natural assets like forests and fisheries.

2 The tutorial article on Women's Unpaid Labor found that countries with weak social welfare programs have less gender parity around unpaid labor.

3 According to the Khan Academy video on the AS/AD model, a positive demand shock moves a country down and to the right along its Phillips Curve.

4 Government spending (G) is the largest component of GDP.

5 An economy must have enough money, multiplied by the velocity of money, to allow for sales equal in value to nominal GDP.

6 In calculating Canadian GDP, imports are subtracted from aggregate spending because these products and services are bought by people who live in other countries.

7 Government transfer payments are part of government spending (G).

8 The velocity of money is 5. The quantity theory of money suggests that an 8 percent increase in the money supply results in a 40 percent increase in average prices.

9 Over long periods of time, a growth rate of 3 percent per year is considered to be very good.

10 The tutorial graph showing a positive correlation between inclusive measures of welfare and real GDP reinforces the shortcomings of real GDP as a measure of well-being.2

Answers

1 TRUE

2 TRUE

3 FALSE

4 FALSE

5 FALSE

6 FALSE

7 FALSE

8 FALSE

9 TRUE

10 FALSE

Multiple Choice

1) Hands-on economists believe that

A) market failure is worse than government failure.

B) markets adjust quickly.

C) external events are the major cause of business cycles.

D) supply creates its own demand.

E) demand creates its own supply.

2) Macroeconomists disagree

A) about how quickly markets adjust without government policy.

B) about the causes of business cycles.

C) on the role of government in a market economy.

D) on all of the above.

E) on none of the above.

3) Which statement about GDP is incorrect?

A) Standards of living are better measured by real GDP per person than nominal GDP per person.

B) Canadian real GDP includes products and services produced by Canadian-owned businesses, no matter where in the world they are located.

C) Real GDP is measured as a flow.

D) Nominal GDP is measured as a flow.

E) If real GDP is higher this year than last year, there is economic growth.

4) For a business, the difference between the value of its output and the value of intermediate products and services bought from other businesses equals

A) net exports.

B) net profits.

C) net taxes.

D) investment in inventories.

E) inputs' incomes.

5) A macro production possibilities frontier shifts outward from

A) rising input prices.

B) falling input prices.

C) rising output prices.

D) falling output prices.

E) none of the other answers.

6) In 2019, nominal GDP was $250 and real GDP was $200. In 2020, nominal GDP was $350 and real GDP was $240. What is the growth rate of nominal GDP between 2019 and 2020?

A) 60%

B) 40%

C) 25%

D) 20%

E) none of the other answers are correct

7) In Bieberville, real GDP fell continuously from $200 billion in 2019 to $160 billion in 2020. Potential GDP remained constant at $180 billion. Between 2019 and 2020, Bieberville

A) had a growth rate of -20 percent.

B) had a contraction but not a recession.

C) went from a deflationary gap to an inflationary gap.

D) went from a negative output gap to a positive output gap.

E) had none of the other answers.

8) Which item below, if included in a country's measured GDP, would have an unclear effect (up or down) on well-being, or quality of life?

A) unreported legal productive activities

B) unreported tips for restaurant servers

C) non-market production

D) political freedom

E) environmental damage

9) Economists define the natural rate of unemployment as the

A) rate where the unemployment rate is 0 percent.

B) same as the rate of cyclical unemployment.

C) rate where frictional unemployment equals 0 percent.

D) rate where cyclical unemployment equals 0 percent.

E) rate where frictional plus structural unemployment equals 0 percent.

10) Deflation -- a negative inflation rate -- means that the value of money in the economy is

A) positive.

B) falling.

C) rising.

D) constant.

E) negative.

11) The quantity theory of money predicts that a decrease in the quantity of money causes

A) both average prices and real GDP to decrease.

B) average prices to decrease but nominal GDP to increase.

C) both average prices and nominal GDP to increase.

D) both average prices and nominal GDP to decrease.

E) average prices to decrease but nominal GDP will not change.

12) Stagflation can be explained by ________ inflation.

A) cost-pull

B) cost-push

C) demand-pull

D) demand-push

E) push-pull

13) Increases in the quality of inputs that do not affect the quantity of those inputs,

A) shift LAS rightward but not SAS.

B) increase short run aggregate quantity supplied.

C) shift both LAS and SAS rightward.

D) shift SAS rightward but not LAS.

E) shift LAS rightward and increase short run aggregate quantity supplied.

14) When consumers save their income instead of spending it,

A) Say's Law cannot be true.

B) there must be a mismatch between short-run aggregate supply and aggregate demand.

C) the interest rate in the loanable funds market can match business investment spending with consumer savings.

D) there must be less economic growth.

E) all of the other answers are true.

15) Falling average prices and higher unemployment most likely come from

A) investor pessimism.

B) investor optimism.

C) lower exchange rates.

D) lower interest rates.

E) lower income tax rates.

16) The language of output gaps — recessionary gaps and inflationary gaps —

A) applies only to outcomes of demand shocks.

B) applies only to outcomes of supply shocks.

C) applies to outcomes of both demand shocks and supply shocks.

D) does not apply to outcomes of demand shocks or supply shocks.

E) applies only to economic growth.

17) Hands-On economists argue that

A) expectations are more important than interest rates for business investment decisions.

B) most shocks are external to the economy.

C) supply shocks are more important than demand shocks for explaining business cycles.

D) business expectations are rational.

E) government is part of the problem of business cycles.

18) Hands-Off economists

A) focus on the long-run.

B) believe in Say's Law.

C) believe in the economy's ability to hit macroeconomic performance targets.

D) recognize that business cycles do happen.

E) do all of the above.

Answers

1) A

2) D

3) B

4) E

5) E

6) B

7) A

8) D

9) D

10) C

11) D

12) B

13) C

14) C

15) A

16) A

17) A

18) E