Chapter 6B MCQ

Question 1

Back in 1911, it took more hours of work to earn enough money to buy sausages than it takes today. T  F

Answer 1

True. See examples in text.

Question 2

Back in the 1970s, the cell phone was invented. This increased the quality of labour. T  F

Answer 2

False. The invention of the cell phone, a technological change, increased the quality of capital.

Question 3

An old friend of mine, Farmer Fred, started using fertilizer back in 1941. This increased the quality of the land. T  F

Answer 3

False. Fertilizer is a capital input, so Fred increased the quality of capital.

Question 4

My sister put $1000 in a savings account in 1935 with a fixed annual interest rate of 1 percent per year, then left the account alone. With compound interest, the savings account balance reached $2000 in 2005. T  F

Answer 4

True. Use the rule of 70.

Question 5

The economy expanded in the early 2000s and hit a peak in 2008. T  F

Answer 5

True. High point before the Global Financial Crisis.

Question 6

Back in my youth, I remember a three quarter contraction in real GDP. This was a recession. T  F

Answer 6

True. Two consecutive quarters (or more) of decrease in real GDP is a recession.

Question 7

If underground economic activity were included in GDP calculations, measured GDP levels would be higher. T  F

Answer 7

True. Real GDP omits the underground economy.

Question 8

Real GDP per person in the United States is much higher than in Canada. Americans are therefore better off than Canadians. T  F

Answer 8

False. GDP per person is the best measure of material standards of living, but doesn’t account for many other factors affecting well-being.

Question 9

If two economies have the same real GDP per person, then the overall well-being must be the same in each economy. T  F

Answer 9

False. Real GDP per person is an imperfect measure of well-being: does not include crime, pollution, and freedom

Question 10

When real GDP equals potential GDP,

all inputs are fully employed.

everyone is getting the most bang per buck for their choices.

the whole is equal to the sum of the well-functioning parts.

all of the above.

Answer 10

d) Definitions of potential GDP = full employment GDP.

Question 11

If real GDP per person this year is $41 000, and real GDP per person last year was $40 000, then the economic growth rate is

−5.0 percent.

 2.5 percent.

−2.5 percent.

 5.0 percent.

Answer 11

b) $1000 ÷ $40 000 = 0.025 per person.

Question 12

Which is not a source of economic growth?

More workers

Better educated workers

Higher stock market prices

Growing quantities of capital equipment

Answer 12

c) Financial assets not part of real GDP and measures of growth

Question 13

Our long-run standard of living depends most on increases in

population growth.

employment growth

productivity.

land.

Answer 13

c) Getting more for less work.

Question 14

A recession occurs when real GDP

is negative.

growth is negative.

growth is negative for two quarters in a row.

growth is negative for two years in a row.

Answer 14

c) Definition of recession.

Question 15

An output gap is

negative if real GDP is above potential GDP.

negative for an inflationary gap.

positive if real GDP equals potential GDP.

positive for an inflationary gap.

Answer 15

d) Real GDP > potential GDP.

Question 16

Maud and her three sons belong to a church in their hometown of Springfield. The church provides benefits to the community, such as counselling, worship services, and distribution of food and clothing to the poor. Suppose that Maud’s New Year’s resolution for 2020 is to give up her $50 000 a year job to devote all of her time to fundraising for the church. As a result, GDP in 2020

increases by $150 000.
increases by $200 000.
decreases by $50 000.
decreases by $150 000.

Answer 16

c) Voluntary, non-market work is not counted in GDP

Question 17

Economists estimate the size of the underground economy in Canada to be between 5 and 15 percent ofGDP. Which activities are part of the undergroundeconomy?

Ecstasy sales
Bartender tips
Taxi driver tips
All of the above

Answer 17

d) Income that is illegal or unreported to tax authorities.

Question 18

Moby goes from a stay-at-home father to a paid worker. He now earns $200 a week but pays $100 a week for day care and $100 a week for a housekeeper. Moby is better off by

$0 and GDP increases by $0.
$0 and GDP increases by $400.
$200 and GDP increases by $0.
$200 and GDP increases by $400.

Answer 18

b) Market transactions are $400, but Moby earns and spends $200 per week.

Question 19

If real GDP is growing at 7 percent per​ year,
A.
real GDP will double in 10 years.
B.
potential GDP will double in 5 years.
C.
real GDP will double in 5 years.
D.
nominal GDP will double in 10 years.

Answer 19

A.
real GDP will double in 10 years.

According to the Rule of​ 70, the number of years it takes for an initial amount to double is roughly 70 divided by the annual percentage growth rate of the amount. In this​ case, 70 divided by 7 equals 10 years for real GDP to double.

Question 20

What is the key measure of our standard of​ living?
A. increasing the size of the labour force

B. productivity

C. increasing the land base

D. real GDP per person

Answer 20

D. productivity

Question 21

What is the key measure of our standard of​ living?

A. increasing the size of the labour force

B. productivity

C. increasing the land base

D. real GDP per person

Answer 21

D. real GDP per person

Question 22

What is the key measure of our standard of​ living?
A. increasing the size of the labour force

B. productivity

C. increasing the land base

D. real GDP per person

Answer 22

D. productivity

Question 23

If real GDP per person this year is ​$31 comma 500​, and real GDP per person last year was ​$30 comma 000​, then the economic growth rate is
A.
9.00​%
B.
4.76​%
C.
4.00​%
D.
5.00​%

Answer 23

D. 5%

31,500 - 30,000 / 30,000 = 0.05 X 100%

Question 24

In​ 2013, nominal GDP was ​$350 and real GDP was ​$200. In​ 2014, nominal GDP was ​$420 and real GDP was ​$220. What is the growth rate of real GDP between 2013 and​ 2014?
A.
20​%
B.
110​%
C.
75​%
D.
10​%

Answer 24

d. 10%

220 - 200 / 200 = .10 x 100%

Question 25

Which of the following is not a source of economic​ growth?
A. immigration into Canada

B. increasing stock market prices

C. growing stock of capital equipment

D. better educated workers

Answer 25

B. increasing stock market prices

Economic growth is caused by increases in the quantity or quality of a​ country’s inputs long dashits ​labour, capital,​ land/resources, and entrepreneurship. In this​ sense, increasing stock market prices are not a source of economic growth.

Question 26

The quality of labour inputs increases through
A.
a higher labour force participation rate.
B.
training and education.
C.
increasing stock market prices.
D.
growing stock of capital equipment.

Answer 26

B.
training and education.

Economic growth is caused by increases in the quantity or quality of a​ country’s inputs long dashits ​labour, capital,​ land/resources, and entrepreneurship. Training and education increase the quality of labour inputs.

Question 27

A period of time in which the overall pace of business activity falls is known as
A.
a contraction.
B.
an expansion.
C.
deflation.
D.
inflation.

Answer 27

A. a contraction

An expansion is any period​ (measured in​ quarters, or​ three-month blocks) during which business activity increases. A contraction is any period during which business activity decreases.

Question 28

The business cycle phase that occurs just after the peak is
A.
an expansion.
B.
a contraction.
C.
a trough.
D.
an inflation.

Answer 28

A. a contraction

Question 29

The business cycle phase that occurs just before the peak is
A.
an inflation.
B.
a trough.
C.
a contraction.
D.
an expansion.

Answer 29

D.
an expansion.

The business cycle begins with an expansion in which real GDP increases. The expansion eventually reaches a peak. After that there is a contraction in which real GDP decreases.

Question 30

The output gap is
A.
negative for an inflationary gap.
B.
positive for an inflationary gap.
C.
negative if real GDP is above potential GDP.
D.
positive if real GDP is below potential GDP.

Answer 30

B.
positive for an inflationary gap.

The output gap is the difference between real GDP and potential GDP. A negative recessionary gap occurs when real GDP is below potential GDP. A positive inflationary gap exists when real GDP is above potential GDP.

Question 31

In​ 2013, Adanac produced 25 kilos of apples and 30 kilos of bananas. Both fruits were used exclusively for final consumption and nothing else was produced. In​ 2013, a kilo of apples sold for ​$5 while a kilo of bananas sold for ​$12. In​ 2014, Adanac produced only 15 kilos of apples but produced 45 kilos of bananas. In​ 2014, prices were ​$6 per kilo of apples and ​$10 per kilo of bananas. Using 2013​ prices, economists estimate that potential GDP is ​$500 in 2014. The output gap in 2014 is
A.
-$115.
B.
​$230.
C.
$115.
D.
-$230.

Answer 31

C.
$115.

The output gap is the difference between real GDP and potential GDP. In​ 2014, using 2013​ prices, potential GDP is ​$500. Using 2013​ prices,

real GDP in 2014​ = ​$5 x 15 ​+ ​$12 x 45 ​= ​$615
output gap in 2014​ = ​$615 ​- ​$500 ​= $115

Question 32

Real GDP per person is a limited measure of​ well-being because it excludes
A.
political freedoms.
B.
the growth of GDP.
C.
the size of the country.
D.
the age distribution.

Answer 32

A.
political freedoms.

Real GDP per person is a limited measure of​ well-being because it excludes​ non-market production, the underground​ economy, environmental​ damage, leisure, political​ freedoms, and social justice.

Question 33

Growth rates of real GDP per person are useful for judging economic progress if there are no significant changes over time in
A.
the size of the country.
B.
political freedoms.
C.
the quantity of products.
D.
the age distribution.

Answer 33

B.
political freedoms. / Another answer is LEISURE

As long as there are no significant changes over time in the extent of​ non-market production, the underground​ economy, environmental​ damage, ​ leisure, political​ freedoms, and social​ justice, most economists believe the growth of real GDP per person is still the best measure of the increase in the standard of living and​ well-being for a country.

Question 34

Suppose that Moby went from a​ stay-at-home father to a paid worker. He now earns ​$400 a week but pays ​$100 a week for daycare and ​$50 a week for a housekeeper. Moby is
A.
better off by ​$350 and GDP increases by ​$550.
B.
better off by ​$250 and GDP increases by ​$600.
C.
better off by ​$550 and GDP increases by ​$350.
D.
better off by ​$250 and GDP increases by ​$550.

Answer 34

D.
better off by ​$250 and GDP increases by ​$550.

Moby is better off ​($250​) by his earnings ​($400​) minus the daycare expense ​($100​) and the housekeeper expense ​($50​). GDP increases ​($550​) by​ Moby’s earnings ​($400​), plus the housekeeper expense ​($50​), and the daycare expense ​($100​).

Question 35

The country with the highest real GDP per person
A.
has the highest real GDP also.
B.
has the highest quality of life.
C.
does not necessarily have the highest quality of life.
D.
has the smallest population.

Answer 35

C.
does not necessarily have the highest quality of life.

The country with the highest real GDP per person does not necessarily have the highest quality of life. There are things missing in the measurement of GDP.

Question 36

Growth rates of real GDP per person are useful for judging economic progress if there are no significant changes over time in
A.
the size of the country.
B.
environmental damage.
C.
the ancestry of people.
D.
the age distribution.

Answer 36

B.
environmental damage. ALSO / NON -MARKET PRODUCTION IS AN ANSWER