Midterm 1 Macro Flashcards
For most students, what is the largest single cost of a university education?
a. the income given up to attend school
b. the cost of tuition, fees, and books
c. the cost of room and board
d. transportation, parking, and entertainment
a
Which of the following statement is true?
a. Diamonds are essential to survive.
b. Water is scarce, but diamonds are not.
c. The marginal benefit of an extra diamond is small.
d. The marginal benefit of an extra diamond is large.
d
Which of the following is NOT a benefit from trade?
a. the ability to specialize
b. an increase in the variety of goods and services available
c. reduced competition
d. lower prices
c
What is the opportunity cost of the purchase of submarines by the Government of Canada from the United States?
a. the amount of money spent on repairs
b. the purchase price of the submarines plus the cost of repairs
c. the loss to the Canadian public of another item that could have been purchased with the money used for submarines
d. the increase in taxes that Canadians had to pay in order to purchase the submarines
c
What is the most likely result of trade between two countries?
a. It can make both countries better off.
b. It allows one country to enjoy a greater variety of goods and services but not both.
c. It causes one country to gain and the other country to lose.
d. It has, at best, no impact on the everyday lives of ordinary citizens.
a
In economics, efficiency refers to the property of society getting the most it can from its scarce resources.
a. True
b. False
a
Inflation is an increase in the overall level of prices in the economy and is usually caused by growth in the quantity of money.
a. True
b. False
a
Productivity is the amount of goods and services produced by one unit of labour input.
a. True
b. False
a
Why do economists make assumptions?
a. We cannot predict economic events without making assumptions.
b. Assumptions can simplify the complex world.
c. Households make assumptions while purchasing goods and services.
d. Economic variables such as prices change continuously.
b
Which statement is most relevant to the circular-flow diagram?
a. Households are buyers in the resource market.
b. Firms are buyers in the product market.
c. Households are sellers in the resource market.
d. Firms are sellers in the resource market.
c
Which of the following is a normative statement?
a. Minimum-wage laws cause unemployment.
b. In an economy, inequality between rich and poor should be reduced.
c. Households sell resources in the market for factors of production.
d. Firms earn revenue by selling goods and services.
b
Which statement best illustrates the concept of positive economics?
a. When the money supply grows at a faster rate, the average price level will rise.
b. A system of wage subsidies should be used to reduce poverty.
c. The economy should grow at a faster rate.
d. The rate of inflation should be lowered.
a
What is a common source of disagreement among economists?
a. the lack of fads in economics
b. the lack of differences in values
c. differences in scientific judgments
d. perceptions of reality are always correct
c
The circular-flow diagram is a visual model of how the government directs and controls the economy of a nation.
a. True
b. False
b
In the market for factors of production, households buy factors of production, and firms sell factors of production.
a. True
b. False
b
Which of the following most likely occurs when GDP falls?
a. Income and expenditure must both fall.
b. Income and expenditure can both rise.
c. Income must fall, but expenditure may rise or fall.
d. Expenditure must fall, but income may rise or fall.
a
Which statement best explains why income equals expenditure?
a. GDP does not include all expenditures.
b. GDP does include all expenditures.
c. The income of the seller must be equal to the expenditure of the buyer.
d. GDP does include the influence of governments on individual markets.
c
Which of the following best defines gross domestic product?
a. the market value of all final goods and services produced within a country during a given period of time
b. the income in the hands of individuals after deducting income taxes
c. the value of goods and services purchased by all levels of government
d. the market value of all final goods and services produced by Canadians in foreign countries
a
Suppose that a province makes the production and sale of illicit drugs legal. Which statement best describes the effect this will have on GDP?
a. It must increase.
b. It must decrease.
c. It does not change.
d. It may increase or decrease.
a
Suppose that a government provides subsidies to encourage growth of small businesses. Which statement best describes how the subsidies would relate to GDP?
a. They would be included in GDP because they are invested by businesses.
b. They would be included in GDP because they are a form of government spending.
c. They would not be included in GDP because they are transfer payments.
d. They may or may not be included in GDP depending on how the funds are used.
c
Valentina, a Canadian citizen, works only in France. How is the value added to production from her employment included in GDP?
a. It is only included in Canadian GDP.
b. It is only included in French GDP.
c. It is included in both French and Canadian GDP.
d. It is included in neither French nor Canadian GDP.
b
An Italian company opens a pasta company in Toronto. Where are the profits from this pasta company included?
a. It is only included in Canadian GDP.
b. It is only included in Italian GDP.
c. It is included in both Canadian and Italian GDP.
d. It is included in neither Canadian nor Italian GDP.
a
Suppose that nominal GDP is $6000 billion and real GDP is $3000 billion. What is the GDP deflator?
a. 125
b. 150
c. 200
d. 250
c
Which term best defines the purchase of final goods and services by households?
a. investment
b. public sector expenditure
c. consumption
d. net exports
c
Which statement best describes how transfer payments relate to GDP?
a. They are included in GDP because they are forms of income.
b. They are included in GDP because goods and services have been produced in the transfer.
c. They are not included in GDP because goods and services have not been produced in the transfer.
d. They are included in GDP because they represent the production of transfers of goods and services to foreign countries.
c
Which of the following would be considered a consumption expenditure?
a. The Smiths buy a home built in 1990.
b. The federal government pays the salary of a captain in the armed forces.
c. The Hostlers buy a new car that was manufactured in Germany.
d. The government buys food for its armed forces.
c
Suppose GDP is $50 000, consumption is $15 000, investment is $18 000, government purchases are $20 000, and imports are $12 000, what is the value of exports?
a. $9000
b. $10 000
c. $11 000
d. $12 000
a
Suppose that nominal GDP is $7700 and real GDP is $700. What is the value of the GDP deflator?
a. 1100
b. 1000
c. 1050
d. 1005
a
Which of the following is correct?
a. Real GDP uses current base-year prices to place a value on the economy’s production of goods and services.
b. Nominal GDP uses constant prices to place a value on the economy’s production of goods and services.
c. Both real and nominal GDP use constant prices to place a value on the economy’s production of goods and services.
d. Real GDP is a measure of the economy’s production of goods and services.
d
When a good is added to a firm’s inventory to be used or sold at a later date, this good is considered as a final good and is added to GDP.
a. True
b. False
a
The purchase of new houses by households is included in the calculation of personal consumption expenditures of GDP.
a. True
b. False
b
How is the consumer price index (CPI) calculated?
a. CPI = (Price of basket in last year / Price of basket in current year) × 100
b. CPI = (Price of basket in current year / Price of basket in last year) × 100
c. CPI = (Price of basket in base year / Price of basket in current year) × 100
d. CPI = (Price of basket in current year / Price of basket in base year) × 100
d
What purpose does the consumer price index serve?
a. It monitors changes in the cost of living over time.
b. It adjusts the cost of living over time.
c. It understates the standard of living.
d. It overstates the cost of living.
a
If the prices of Brazilian-made shoes imported into Canada increase, then what will happen?
a. Both Canada’s GDP deflator and its consumer price index will increase.
b. Both Canada’s GDP deflator and its consumer price index will decrease.
c. Canada’s GDP deflator will increase, but its consumer price index remains constant.
d. Canada’s consumer price index will increase, but its GDP deflator remains constant.
d
Which of the following formulas represents inflation?
a. Inflation = (Current year’s CPI – Last year’s CPI) × 100 / Last year’s CPI
b. Inflation = (Last year’s CPI – Current year’s CPI) × 100 / Last year’s CPI
c. Inflation = (Current year’s CPI – Last year’s CPI) × 100 / Current year’s CPI
d. Inflation = (Last year’s CPI – Current year’s CPI) × 100 / Current year’s CPI
a
What information does the real interest rate tell you?
a. how quickly your savings account will grow
b. how quickly the purchasing power of your savings account will grow over time
c. the size of your savings account
d. the purchasing power of your savings account
b
In 2016, the average gas price was 90 cents. CPI values in 2016 and 2021 were 110.22 and 121.59, respectively. What is the 2016 gas price in 2021 dollars?
a. 100 cents
b. 98.54 cents
c. 99.28 cents
d. 102.28 cents
c
Which statement best describes the role of the consumer price index?
a. It measures price changes of raw materials.
b. It adjusts all prices of goods and services for five-year periods.
c. It measures the cost of goods and services bought by a typical consumer.
d. It measures price changes of intangible production, such as services.
c
Suppose the consumer price index (CPI) at the end of 2016 was 125, and the CPI at the end of 2017 was 131. What then was the rate of inflation during 2017?
a. 0 percent
b. 4.8 percent
c. 6.0 percent
d. 125 percent
b
In which indicator will a change in the price of imports bought by consumers be reflected?
a. the GDP deflator
b. the GDP
c. the CPI
d. net national income
c
Which statement best describes the GDP deflator?
a. The GDP deflator is based on a fixed basket of goods and services.
b. The GDP deflator reflects the prices of all domestically produced goods and services.
c. The GDP deflator reflects the prices of all goods and services produced by Canadians.
d. The GDP deflator is subject to substitution bias.
b
Which statement best describes the inflation rate?
a. It is a measure of the cost of a basket of goods and services bought by firms.
b. It is the absolute change in prices between years.
c. It is the percentage change in the price index from the preceding period.
d. It is a measure of changes in incomes from one year to the next.
c
Which of the following is not a problem of the consumer price index?
a. commodity substitution bias
b. core inflation
c. unmeasured quality change
d. introduction of new goods
b
The GDP deflator reflects the prices of goods and services bought by consumers, and the consumer price index reflects the price of all final goods and services produced domestically.
a. True
b. False
b
Indexation refers to the automatic correction of a dollar amount for the effects of inflation by law or contract.
a. True
b. False
a
Which of the following is NOT a determinant of productivity?
a. technological knowledge
b. consumption
c. human capital
d. natural resources
b
Which term best describes the equipment and structures available to produce goods and services?
a. physical capital
b. human capital
c. the production function
d. technology
a
What is human capital?
a. It is the knowledge and skills that workers acquire through education, training, and experience.
b. It is the stock of equipment and structures that is used to produce goods and services.
c. It is the total number of hours worked in an economy.
d. It is the same thing as technological knowledge.
a
A government can encourage growth. In the long run, which of these factors can a government encourage in order to raise the economy’s standard of living?
a. population growth
b. consumption spending
c. saving and investment
d. trade restrictions
c
Which statement best describes the term diminishing returns?
a. As the stock of capital ages, the extra output produced decreases.
b. As the stock of capital increases, the extra output produced from an additional unit of capital falls.
c. As resources are used to produce capital goods, fewer additional capital goods can be produced.
d. The benefit from an extra unit of an input increases as the quantity of the input increases.
b
Which term best describes a certificate of indebtedness that specifies the obligations of the borrower to the holder?
a. bond
b. stock
c. mutual fund
d. savings account
a
Which statement most accurately describes bonds?
a. Lenders buy bonds, and borrowers sell them.
b. Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.
c. Junk bonds refer to bonds that have been resold many times.
d. Short-term bonds usually pay a lower interest rate than do long-term bonds because short-term bonds are riskier
a
When people become more optimistic about a company’s future profitability, what effect does this have on the stock?
a. Supply of the stock and the price will both rise.
b. Supply of the stock and the price will both fall.
c. Demand for the stock and the price will both rise.
d. Demand for the stock and the price will both fall
c
Which statement most accurately describes bondholders?
a. Bondholders bear higher risk than stockholders.
b. Bondholders are issued shares of a corporation when they buy its bonds.
c. Shareholders enjoy the benefits of a company’s profits.
d. If a company runs into financial difficulty, shareholders are paid what they are due before bondholders receive anything
c
Which statement most accurately describes loanable funds?
a. The source of the supply of loanable funds is saving and the source of demand for loanable funds is investment.
b. The source of the supply of loanable funds is investment and the source of demand for loanable funds is saving.
c. The source of the supply of loanable funds and the demand for loanable funds is saving.
d. The source of the supply of loanable funds and the demand for loanable funds is investment
a
Suppose the current market interest rate for loanable funds is below the equilibrium level. Which of the following best describes this situation?
a. Investment demand is higher than the supply of saving. Thus, the interest rate rises.
b. Saving demand is higher than investment supply. Thus, the interest rate falls.
c. Investment demand is lower than the supply of saving. Thus, the interest rate rises.
d. Investment demand is lower than the supply of saving. Thus, the interest rate falls
a
Suppose that Parliament were to introduce a new investment tax credit. What would happen in the market for loanable funds?
a. The demand for loanable funds would shift left, and interest rates would fall.
b. The demand for loanable funds would shift right, and interest rates would rise.
c. The supply of loanable funds would shift left, and interest rates would rise.
d. The supply of loanable funds would shift right, and interest rates would fall.
b
Suppose Canada increases its budget deficit. What effect would this have on loanable funds?
a. Private saving would fall, and the supply of loanable funds would shift left.
b. Investment would fall, and the demand for loanable funds would shift right.
c. Public saving would fall, and the supply of loanable funds would shift left.
d. Public saving would fall, and the supply of loanable funds would shift right
c
What does the term crowding out refer to?
a. an increase in national saving that occurs when government runs a deficit
b. a decrease in the real interest rate due to government borrowing
c. a reduction in investment spending resulting from government borrowing
d. a decrease in consumption spending resulting from government borrowing
c
Which equation best describes national saving?
a. S = Y + G - C
b. S = (Y – T – C) + (T – G)
c. S = (Y – T – C) – (T – G)
d. S = Y + C – G
b
Which statement best describes the supply curve of loanable funds?
a. It is upward sloping, reflecting the fact that savers need a higher rate of interest to coax them into lending more.
b. It is downward sloping, reflecting the fact that savers will increase their supply for loanable funds at lower rates of interest.
c. It is upward sloping, reflecting the fact that savers will increase their saving at lower rates of interest.
d. It is downward sloping, reflecting the fact that savers will decrease their saving at lower rates of interest.
a
Janet is considering expanding her restaurant business. If the interest rate rises, what effect would this have on her decision to expand?
a. She is less likely to expand. This illustrates why the supply of loanable funds slopes downward.
b. She is less likely to expand. This illustrates why the demand for loanable funds slopes downward.
c. She is more likely to expand. This illustrates why the supply of loanable funds slopes upward.
d. She is more likely to expand. This illustrates why the demand for loanable funds slopes upward
b
