Lec7 iC Questions

Question 1

Which of the following would be counted in Canadian GDP when measuring total expenditure:

a) A purchase of shares in a Canadian company
b) A $200 taxpayer rebate from the Ontario government
c) The production of cars, to be sold in a future year
d) Capital gains income on the sale of shares in a Canadian company
e) None of the above

Answer 1

c) The production of cars, to be sold in a future year

Question 2

In 2000, the GDP per capita of Colombia was $11,011. In 2023, the GDP per capita of Colombia was $18,692. (Both values in 2021 USD, adjusted for PPP.)

What was the average annual growth rate of real GDP per capita in Colombia over this time period?
(Answer to 1 decimal point)

Answer 2

Growth Rate = ((2023 GDP/C) / (2022 GDP/C))^(1/(Number of years)) - 1
GR = (18,692 / 11,011)^(1/23) - 1
GR = 2.3%

Question 3

In December 2024, in Canada, we have the following data for core age (25-54) men:

• Population: 8,400,700
• Labour Force: 7,675,600
• Employment: 7,255,500
• Unemployment: 420,100
• Not in the Labour Force: 725,200

What was the employment rate for this group?
(Round to 1 decimal point)

Answer 3

Employment Rate = (Employment / Population) X 100
ER = (7,255,500 / 8,400,700) X 100
ER = 86.4%

Question 4

Which of the following would cause a larger increase in the consumer price index than in the GDP deflator?

a) An increase in the price of lumber
b) An increase in the price of cars
c) An increase in the price of natural gas
d) An increase in the price of sugar
e) None of the above

Answer 4

d) An increase in the price of sugar

Reason:
CPI measures the cost of a basket of goods and services purchased by typical consumers
GDP deflator measures the price level of all domestically produced goods and services

Question 5

When the economy is at a peak, it is generally true that:

a) Unemployment is low, output gap is positive
b) Unemployment is low, output gap is negative
c) Unemployment is high, output gap is positive
d) Unemployment is high, output gap is negative
e) None of the above

Answer 5

a) Unemployment is low, output gap is positive

Question 6

If the current unemployment rate is 5% and the estimated long-run equilibrium unemployment rate is 6%, what is the estimate of the output gap following Okun’s rule of thumb?

a) -3%
b) -1%
c) 0
d) 1%
e) 3%

Answer 6

e) 3%

Total Unemployment = Cyclical + Structural + Frictional Unemployment
5% = Cyclical + 6%
Cyclical = -1%

Cyclical Unemployment = -1/3 * Output gap
-1 = -1/3 * Output gap
Output Gap = 3%

Question 7

Which of the following represents a reasonable assessment of long-run equilibrium unemployment in Canada?

a) 3%
b) 5%
c) 7%
d) 9%
e) 12%
(There is more than one possible correct answer)

Answer 7

b) 5%
c) 7%

• Lower than 5% (e.g., 3%) is generally unrealistic for long-term equilibrium because economies always have some level of frictional (job transitions) and structural unemployment.
• Higher than 7% (e.g., 9% or 12%) would indicate a weak labor market, likely due to cyclical unemployment rather than long-run equilibrium.

Question 8

Which of the following indicators, on their own, would suggest that the Canadian economy is operating with actual output higher than potential output?

a) Real Canadian GDP is higher than last month
b) Consumer prices are rising at 2% per year
c) Nominal wages are rising 3% per year
d) Capacity utilization is at 83%, when normal is 80%
e) None of the above is related to potential output

Answer 8

d) Capacity utilization is at 83%, when normal is 80%

• Capacity utilization measures how fully businesses are using their productive resources.
• When it exceeds its normal level, it suggests that the economy is producing above potential, leading to overheating and inflationary pressures.

Question 9

If structural unemployment is 2.5% and cyclical unemployment is 1.5% and frictional unemployment is 3.5%, then:

a) Actual output is greater than potential output
b) Actual output is equal to potential output
c) Actual output is less than potential output
d) None of the above

Answer 9

c) Actual output is less than potential output

The positive cyclical unemployment of 1.5% means that the economy is producing below potential output.

Question 10

The estimated long-run equilibrium unemployment rate is 6%, and the output gap is determined to be -6% By Okun’s rule, what would be the expected unemployment rate?

a) 2%
b) 4%
c) 6%
d) 8%
e) 24%

Answer 10

d) 8%

Cyclical Unemployment = -1/3 * Output gap
CU = -1/3 * -6
CU = 2%

Total Unemployment = Cyclical + Structural + Frictional Unemployment
TU = 2% + 6%
TU = 8%