Final Review iC Questions Flashcards
In Canada, in February 2020, the median nominal wage was $25.00. In February 2025, the median nominal wage was $30.60. During this time, the consumer price index increased from 137.4 to 163.0. In the last 5 years, median wages have:
a) Decreased
b) Not Changed
c) Increased
25 X 163/137.4 = 29.66 < 30.60
c) Increased
All else equal, a decrease in Canadian interest rates will cause:
a) Canadian dollar depreciates, and net exports fall
b) Canadian dollar depreciates, and net exports rise
c) Canadian dollar appreciate, and net exports fall
d) Canadian dollar appreciates, and net exports rise
e) None of the above
b) Canadian dollar depreciates, and net exports rise
The long-run equilibrium unemployment rate is estimated to be 6% and the current unemployment rate is measured at 9%. According to Okun’s rule of thumb, what is the output gap?
a) -9%
b) -1%
c) 1%
d) 9%
e) None of the above
a) -9%
Consider the IS-MP-PC model starting in long-run equilibrium. If government spending rises, and the Bank of Canada is attempting to maintain 2% inflation, they will:
a) Lower tax rates
b) Lower interest rates
c) Raise tax rates
d) Raise interest rates
e) None of the above
d) Raise interest rates
Assume the Bank of Canada estimates the real neutral rate as 1% inflation is measured at 2% and the output gap is -3%. What would be the expected overnight inflation rate according to the rule-of-thumb in the text?
0%
Consider the AD/AS model. An increase in investment will cause:
a) A decrease in the price level and a decrease in output
b) A decrease in the price level and an increase in output
c) An increase in the price level and a decrease in output
d) An increase in the price level and an increase in output
e) None of the above
d) An increase in the price level and an increase in output
Consider the loanable funds model. What would be the effect of a permanent decrease in government spending?
a) Lower interest rates and more investment
b) Lower interest rates and less investment
c) Higher interest rates and more investment
d) Higher interest rates and less investment
e) None of the above
a) Lower interest rates and more investment
Canada’s potential GDP is roughly $3,000 billion. If government spending increases by $50 billion, and the multiplier is 1.5, the effect on the unemployment rate in Canada would be:
1.5 = ΔGDP / $50B
ΔGDP = $75B
ΔO.G = $75B / $3000B = 2.5%
= 0.83%
As of February, the labour force in Canada (15+) is 22,500,000 people. If the unemployment rate falls by 0.8%, what is the change in the number of people employed? Assume the unemployment rate is -0.8%
0.8% X 22,500,000 = 180000
