Midterm 1 Review iC Questions

Question 1

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

a) Wages paid to a co-op student working for the Bank of Canada
b) A Canadian purchases software from an American company
c) The sale of a car that was produced last year
d) Government payment of scholarship funds to students
e) None of the above

Answer 1

a) Wages paid to a co-op student working for the Bank of Canada

Question 2

The table represents production in a simplified economy:

Good 1
Price in 2023: 12
Price in 2024: 16
Quantity in 2023: 100
Quantity in 2024: 125

Good 2
Price in 2023: 8
Price in 2024: 10
Quantity in 2023: 200
Quantity in 2024: 210

What is the growth rate of real GDP from 2023 to 2024?
(Answer to 1 decimal point)

Answer 2

2024 Real GDP = (14 X 125) + (9 X 210) = 3640
2023 Real GDP = (14 X 100) + (9 X 200) = 3200

RGDP GR = ((2024 RGDP - 2023 RGDP) / 2023 RGDP) X 100
RGDP GR = ((3640 - 3200) / 3200) X 100
RGDP GR = 13.8%

Question 3

Using the Solow growth model, how would an increase in human capital affect GDP and GDP per capita?

a) GDP increases, GDP per capita is unchanged
b) GDP increases, GDP per capita increases
c) GDP increases, GDP per capita decreases
d) GDP is unchanged, GDP per capita decreases
e) GDP decreases, GDP per capita decreases

Answer 3

b) GDP increases, GDP per capita increases

Question 4

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 participation rate for this group?
(Answer to 1 decimal point)

Answer 4

Participation Rate = (Labour Force / Population) X 100
PR = (7,675,600 / 8,400,700) X 100
PR = 91.4%

Question 5

In 1960, the nominal GDP per capita of Canada was $2,197. In 2023, the nominal GDP per capita of Canada was $72,127. Both values in Canadian dollars.)
The consumer price index in 1960 was 15.5, and in 2023 it was 159.
Based on this data, what was the growth rate of real GDP over the past 63 years?
(Answer to 1 decimal point)

Answer 5

Today’s Dollars = Another Time’s Dollars X (Price Level Today / Price Level in Another Time)

Today’s Dollars = 2,197 X (159 / 15.5)
Today’s Dollars = $22,537

Growth Rate = ((GDP/C in 2023) / (GDP/C in 1960))^(1/(Number of years)) - 1
GR = (72,127 / 22,537)^(1/63) - 1
GR = 1.9%

Question 6

During a recession, 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 6

d) Unemployment is high, output gap is negative

Question 7

Which of the following would likely be considered a leading indicator?

a) Real GDP
b) Unemployment rate
c) Building permits
d) Inflation Rate
e) None of the above

Answer 7

c) Building permits

Question 8

Estimates are that frictional unemployment is 3%, structural unemployment is 3.0%, and cyclical unemployment is 3%. What is the estimate of the output gap following Okun’s rule of thumb?

a) -9%
b) -3%
c) -1%
d) 1%
e) 9%

Answer 8

Cyclical Unemployment = -1/3 * Output Gap
3 = -1/3 * OG
OG = -9

Question 9

If current unemployment is 7%, frictional unemployment is estimated as 2%, and the output gap is -6%, using Okun’s Rule, what is the long-run equilibrium unemployment rate:

a) 1%
b) 3%
c) 5%
d) 7%
e) 9%

Answer 9

Cyclical Unemployment = -1/3 X Output Gap
CU = -1/3 X -6
CU = 2%

Total Unemployment = Cyclical Unemployment + Equilibrium Unemployment Rate

7 = 2 + EUR
EUR = 5%
c) 5%