Midterm 2 Flashcards

Question 1

Q

If one wants to know how the material well-being of the average person has changed over time in a given country, which of the following should one look at?
A. the level of real GDP
B. the growth rate of nominal GDP
C. the growth rate of real GDP
D. the growth rate of real GDP per person

Question 2

Q

Over the past century in Canada, by how much has average income as measured by real GDP per person grown?
A. about 3.5 percent per year, which implies a doubling about every 20 years
B. about 2 percent per year, which implies a doubling about every 35 years
C. about 4 percent per year, which implies a doubling about every 17.5 years
D. about 1 percent per year, which implies a doubling about every 70 years

Question 3

Q

Which of the following statements best describes the relationship between the initial wealth and the growth rate of a country?
A. Countries with the highest growth rates over the last 100 years are the ones that had the highest level of real GDP 100 years ago.
B. Countries that were rich a century ago had little fluctuation around their average growth rates during the past 100 years.
C. Though the catch-up effect may suggest otherwise, the data show no strong relationship between initial conditions and growth rates.
D. Over the last 100 years, Japan had the highest real GDP growth rate, and now it has the highest real GDP per person.

Question 4

Q

How is a nation's standard of living determined?
A. by its productivity
B. by its gross domestic product
C. by its national income
D. by how much it has relative to others

Question 5

Q

Which of the following is a correct way to measure productivity?
A. divide the number of hours worked by output
B. divide output by the number of hours worked
C. compute output growth
D. divide the change in output by the change in number of hours worked

Question 6

Q

Laurie works 8 hours and produces 7 units of goods per hour. Iris works 6 hours and produces 10 units of goods per hour. Which of the following can we conclude?
A. Laurie’s productivity and output are greater that Iris’s.
B. Laurie’s productivity is greater than Iris’s, but Laurie’s output is less.
C. Iris’s productivity and output are greater than Laurie’s.
D. Iris’s productivity is greater that Laurie’s, but Iris’s output is less.

Question 7

Q

Which of the following would be considered physical capital?
A. the pizza oven at the Liquidity Preferences Tavern
B. soy beans used to make soy milk
C. the skills and knowledge of a barber
D. the number of hours people spend in the gym

Question 8

Q

Jessica Smith is a teacher. Which of the following is a part of her human capital?
A. her work experience
B. the textbooks she uses
C. the software she uses when delivering her lectures
D. the amount of time she spends with her students

Question 9

Q

In the country of Krypton, the price of lead increased from $20 per kilogram to $22 per kilogram during a time when the overall price level increased by 8 percent. During this period, what happened to the real price of lead?
A. It increased.
B. It decreased.
C. It stayed the same.
D. It might have increased, decreased, or stayed the same; more information is needed to be sure.

Question 10

Q

Suppose that real GDP grew more in Country A than in Country B last year. Which of the following does this imply concerning productivity or standard of living?
A. Country A must have a higher standard of living than country B.
B. Country A’s productivity must have grown faster than country B’s.
C. Country A must have a higher real GDP than Country B.
D. Country A’s productivity must have been higher only if the population in the two countries grew at the same

Question 11

Q

How can a government encourage growth and, in the long run, raise the country’s economic standard of living?
A. by encouraging population growth
B. by encouraging consumption
C. by encouraging saving and investment
D. by increasing government spending

Question 12

Q

What is the effect of a higher saving rate in the long run?
A. It decreases the capital stock.
B. People must consume less in the future.
C. It increases productivity.
D. It leads to higher growth in real GDP.

Question 13

Q

Suppose a country were to increase its saving rate. In the long run, which of the following would also increase?
A. its level of income
B. its growth rate of income
C. its growth rate of productivity
D. its growth rate in capital stock

Question 14

Q

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. Which of the following will happen in the long run?
A. Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital.
B. Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital.
C. Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.
D. Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

Question 15

Q

Which of the following is consistent with the catch-up effect?
A. The United States had a lower growth rate before 1900 than after.
B. Japan has a higher growth rate than Germany.
C. Although Canada has a relatively high level of output per person, its growth rate is still high compared to some poorer countries, such as Pakistan.
D. After World War II, Canada had lower growth rates than war-ravaged European countries.

Question 16

Q

In the 1800s, Europeans purchased stock in Canadian companies, which used the funds to build railroads and factories. What type of investments did the Europeans make?
A. foreign portfolio investments
B. indirect domestic investments
C. foreign direct investments
D. foreign indirect investments

Question 17

Q

Which of the following is generally an opportunity cost of investment in human capital?
A. future job security
B. forgone wages at present
C. increased earning potential
D. the costs of living during the years of school

Question 18

Q

Which of the following terms refers to institutions that help to match one person's saving with another person's investment?
A. the Bank of Canada
B. the banking system
C. the monetary system
D. the financial system

Question 19

Q

Which of the following terms refers to a certificate of indebtedness that specifies the obligations of the borrower to the holder?
A. bond
B. stock
C. mutual fund
D. savings plan

Question 20

Q

Suppose Microsoft sells a bond. What is the company doing?
A. borrowing directly from the public
B. borrowing indirectly from the public
C. lending directly to the public
D. lending indirectly to the public

Question 21

Q

What is the face value of a bond?
A. the market price of the bond
B. the difference between the amount owned by the issuer and the market price of the bond
C. the amount owned by the issuer
D. the interest earned by the owner of the bond

Question 22

Q

Which of the following terms refers to the length of time until a bond matures?
A. duration
B. term
C. maturity
D. intermediation

Question 23

Q

Which of the following is a characteristic of the bond market?
A. Some bonds have terms as short as a few months.
B. Because they are risky, bonds pay a low rate of interest.
C. Corporations buy bonds to raise funds.
D. Bonds are rarely used as financial instruments.

Question 24

Q

Assuming that other things remain the same, what will happen to the interest on a bond as the bond’s maturity increases?
A. As maturity increases, the bond will have less interest because it has less risk.
B. As maturity increases, the bond will have less interest because it has more risk.
C. As maturity increases, the bond will have more interest because it has more risk.
D. There is no relation between term to maturity and risk.

Question 25

Q

Stephanie is interested only in the rate of interest and is willing to take a great deal of risk in exchange for a high return. Which of the following bonds she should look for?
A. federal bonds with short terms
B. provincial bonds with long terms
C. corporate bonds with short terms
D. corporate bonds with long terms

Question 26

Q

Papa Mario’s Pizza Company sells common stock. What type of financing are they using?
A. They are using equity financing and the return shareholders earn is fixed.
B. They are using equity financing and the return shareholders earn depends on how profitable the company is.
C. They are using debt financing and the return debt holders earn is fixed.
D. They are using debt financing and the return debt holders earn depends on how profitable the company is.

Question 27

Q

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?
A. Shareholders are paid before bondholders.
B. Shareholders are paid after bondholders.
C. Shareholders and bondholders are paid proportional shares of the company’s assets.
D. Shareholders receive all the company’s assets.

Question 28

Q

Which of the following people purchased the correct asset to meet their objective?
A. Michelle wanted to be a part owner of Mamma Rosa’s Pizza, so she purchased a bond issued by Mamma Rosa’s Pizza.
B. Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric.
C. Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda.
D. George wanted to lend money at a specified rate of interest to Research In Motion (RIM), so he purchased RIM stock.

Question 29

Q

Which of the following determines the price of stocks traded on exchanges?
A. the Corporate Stock Administration
B. the NASDAQ
C. the supply and demand for the stock
D. the Montreal Stock Exchange

Question 30

Q

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. Which of the following would we expect?
A. This would raise the demand for existing shares of the stock, causing its price to rise.
B. This would decrease the demand for existing shares of the stock, causing its price to fall.
C. This would raise the supply of the existing shares of stock, causing its price to rise.
D. This would raise the supply of the existing shares of stock, causing its price to fall.

Question 31

Q

Which of the following expressions represents national saving in a closed economy?
A. Y – I – G – NX
B. Y – C – G
C. Y – I – C
D. G + C – Y

Question 32

Q

In a closed economy, what does (T – G) represent?
A. national saving
B. investment
C. private saving
D. public saving

Question 33

Q

Suppose that in a closed economy GDP is equal to 12,000, taxes are equal to 1500, consumption equals 6800, and government expenditures equal 2500. What is national saving?
A. 4200
B. 2700
C. 1200
D. 1000

Question 34

Q

Suppose that consumption is 7500, taxes are 1800, and government expenditures are 2200. If national savings are 1500 and the economy is closed, what is the GDP?
A. 9500
B. 10 000
C. 10 500
D. 11 200

Question 35

Q

The country of Hykania does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $3 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Hyrkania is $4 billion. What is investment in Hyrkania?
A. $4 billion
B. $3 billion
C. $2 billion
D. There is not enough information to answer the question.

Question 36

Q

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?
A. The supply of loanable funds would shift right.
B. The demand for loanable funds would shift right.
C. The supply of loanable funds would shift left.
D. The demand for loanable funds would shift left.

Question 37

Q

What is the effect of an increase in budget deficit?
A. It changes the supply of loanable funds.
B. It changes the demand for loanable funds.
C. It changes both the supply of and demand for loanable funds.
D. It does not influence the supply of or the demand for loanable funds.

Question 38

Q

What would an increase in the budget deficit most likely do to investment spending?
A. It would make investment spending fall.
B. It would make investment spending rise.
C. It would not affect investment spending.
D. It may increase, decrease, or not affect investment spending.

Question 39

Q

Which of the following best explains how unemployment relates to business cycles?
A. Unemployment can be completely eliminated through economic policies when the economy grows at normal rates.
B. Unemployment only exists during periods of economic slowdown.
C. Cyclical unemployment is inversely related to short-run economic fluctuations.
D. Unemployment is unrelated to short-run economic fluctuations.

Question 40

Q

How often is data on unemployment reported?
A. weekly
B. monthly
C. quarterly
D. yearly

Question 41

Q

Which of the following lists includes all the categories into which Statistics Canada divides the adult population?
A. employed or unemployed
B. discouraged workers, employed, or unemployed
C. employed, unemployed, or not in the labour force
D. discouraged workers, employed, or not in the labour force

Question 42

Q

Which one of the following people would be counted as unemployed according to official statistics?
A. Shasta, who is currently not working and is waiting for her new job to start
B. Mary, who worked only 35 hours last week
C. Karen, who neither has a job nor is looking for one
D. Kevin, who is a retiree

Question 43

Q

Which of the following people would NOT be included in the labour force?
A. Jay, who is on temporary layoff
B. Mike, who has retired and is not looking for work
C. Jane, who does not have a job, but has applied for several in the last week
D. Joan, who has a job but is looking for a new one

Question 44

Q

Which of the following correctly ranks categories from smallest to largest according to recent Canadian statistics?
A. unemployed, employed, not in labour force
B. unemployed, not in labour force, employed
C. not in labour force, employed, unemployed
D. not in labour force, unemployed, employed

Question 45

Q

How is Latoya, a homemaker who works as a volunteer at the local Red Cross and is currently not looking for a job, counted?
A. as employed and in the labour force
B. as unemployed and in the labour force
C. as unemployed and not in the labour force
D. as not in the labour force

Question 46

Q

In 2000 in Japan, based on concepts similar to those used to compute Canadian employment statistics, the unemployment rate was about 4.8 percent, the labour force participation rate was about 62 percent, and the adult population was about 108 million. How many people were employed?
A. about 52 million
B. about 64 million
C. about 67 million
D. about 103 million

Question 47

Q

Tara has just finished school, but she is going to roam around the country awhile before she starts looking for work. Which of the following best characterizes the changes that occur in labour statistics?
A. The unemployment rate increases, and the labour-force participation rate increases.
B. The unemployment rate is unaffected, and the labour-force participation rate is unaffected.
C. The unemployment rate increases, and the labour-force participation rate decreases.
D. The unemployment rate increases, and the labour-force participation rate is unaffected.

Question 48

Q

Between 2006 and 2007, the country of Aquilonia reported an increase in the number of people who were employed. It also reported an increase in the unemployment rate. Which of the following would best explain the two reports?
A. There was an increase in the size of the labour force between 2006 and 2007.
B. There was a decrease in the size of the labour force between 2006 and 2007.
C. There was an increase in the size of the adult population between 2006 and 2007.
D. The two reports are contradictory and cannot be reconciled.

Question 49

Q

The table below shows the 2007 data for males and females aged 15 and over in the country of Dan. Use it to answer questions 49 - 52.

Not in the Labour Force: Men-45 million ; Women-35 million
Unemployed: Men-5 million ; Women-5 million
Employed: Men-85 million ; Women-65 million

What is the adult population in Dan?
A. 90 million
B. 150 million
C. 160 million
D. 240 million

Question 50

Q

The table below shows the 2007 data for males and females aged 15 and over in the country of Dan. Use it to answer questions 49 - 52.

Not in the Labour Force: Men-45 million ; Women-35 million
Unemployed: Men-5 million ; Women-5 million
Employed: Men-85 million ; Women-65 million

What is the adult labour force in Dan?
A. 90 million
B. 150 million
C. 160 million
D. 230 million

Question 51

Q

The table below shows the 2007 data for males and females aged 15 and over in the country of Dan. Use it to answer questions 49 - 52.

Not in the Labour Force: Men-45 million ; Women-35 million
Unemployed: Men-5 million ; Women-5 million
Employed: Men-85 million ; Women-65 million

What is the adult unemployment rate in Dan?
A. 4.12 percent
B. 6.25 percent
C. 11.11 percent
D. 12.50 percent

Question 52

Q

The table below shows the 2007 data for males and females aged 15 and over in the country of Dan. Use it to answer questions 49 - 52.

Not in the Labour Force: Men-45 million ; Women-35 million
Unemployed: Men-5 million ; Women-5 million
Employed: Men-85 million ; Women-65 million

What is the adult female unemployment rate in Dan?
A. 4.76 percent
B. 5.56 percent
C. 7.14 percent
D. 7.69 percent

Question 53

Q

What is a rough estimate of the natural rate of unemployment?
A. 1 to 2.5 percent
B. 3 to 5.5 percent
C. 6 to 8 percent
D. 8.5 to 11 percent

Question 54

Q

Suppose that some people report themselves as unemployed when, in fact, they are working in the underground economy. If these persons were counted as employed, how would the labour statistics change?
A. The unemployment rate and the labour-force participation rate would be higher.
B. The unemployment rate and the labour-force participation rate would be lower.
C. The unemployment rate would be higher and the labour-force participation rate would be lower.
D. The unemployment rate would be lower and the labour-force participation rate would be unaffected.

Question 55

Q

Consider two people who are currently out of work. Deb is not currently looking for work but would like a job. Although she is not currently searching for work, she has done so at some time in the recent past. Ted is not looking for work, because he doesn't think there are jobs available for which he would qualify. Who does Statistics Canada consider to be a discouraged worker?
A. both Deb and Ted
B. only Ted
C. only Deb
D. Neither Deb nor Ted

Question 56

Q

According to your text, which of the following is not a reason that actual labour markets experience unemployment?
A. unions
B. job search
C. flexible wages
D. minimum-wage legislation

Question 57

Q

Which of the following impacts does employment insurance have on the labour market?
A. It reduces search effort and raises unemployment.
B. It reduces search efforts and lowers unemployment.
C. It increases search effort and raises unemployment.
D. It increases search effort and decreases unemployment.

Question 58

Q

What is the effect of minimum wage laws on unemployment?
A. Minimum wage laws are the major cause of natural unemployment.
B. Minimum wage laws probably increase teenage unemployment.
C. Minimum wage laws mainly affect skilled workers.
D. Minimum wage laws have no impact on unemployment.

Question 59

Q

If there was no minimum wage and then the government instituted a minimum wage of $6, what would happen to employment in this market? *** see graph on assignment
A. Employment would rise by 10.
B. Employment would fall by 20.
C. Unemployment would increase by 10.
D. Unemployment would increase by 20.

Question 60

Q

Four employers have justified their actions as follows. Whose logic is inconsistent with the logic of efficiency wage theory?
A. Jay develops a new assembly line technology that limits the amount of shirking workers may do, so he reduces what he pays his employees so as to make it closer to the equilibrium wage.
B. Kay pays her workers less than the equilibrium wage so they won’t have the time or money to look for work somewhere else.
C. Ray pays his workers in a developing country more than the going wage, hoping that they will get a better diet and so be more productive.
D. Ms. Fay pays her workers the market wages, but she hires more supervisors to make sure workers do not shirk.

Question 61

Q

Def: Financial System

Answer

A

The group of institution in the economy that help to match one person’s saving with another person’s investment
Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date
Borrowers demand money from the financial system with the knowledge that they will be required to pay it back with interest at a later date

Question 62

Q

What are the two categories of financial institutions?

Answer

A

Financial Markets and Financial Intermediaries

Question 63

Q

Def: Financial Markets

Answer

A

-Financial institutions through which savers can directly provide funds to borrowers

Question 64

Q

What are the two most important financial markets?

Answer

A

-bond market and stock market

Answer 5

A

A certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond (an IOU)

Answer 6

A

A) date of maturity: time at which the loan will be paid
B) rate of interest that will be paid periodically until the loan matures
C) principal or face value of a bond (amount of money owed)

Answer 7

A

1) term: length of time until the bond matures
* perpetuity: bond that never matures, pays interest forever but principal never repaid
2) credit risk: probability that the borrower will fail to pay some of the interest or principal
* failure to pay=default by declaring bankruptcy

Answer 8

A

A) long-term bonds are riskier than short-term bonds, but long-term bonds have higher interest rates to compensate for it
B) high risk of default, means higher interest rate to compensate for the credit risk
C) Corporate bonds are riskier than Provincial which is riskier than Federal, so higher interest rate for riskier bonds=junk bond
D) Stocks are both riskier and get a higher return (more profit)
E) a diverse portfolio of stocks and bonds (mutual funds) is less risky than putting all your eggs in one basket

Answer 9

A

A claim to partial ownership in a firm (part-owner, whereas owner of a bond is a creditor to the corporation)

Answer 10

A

Equity finance: sale of stock

Debt finance: sale of bonds

Answer 11

A

A) shareholders enjoy the benefits, bond holders only get the interest on their bonds
B) bondholders are paid what they are due before shareholders receive anything

Answer 12

A

By the supply and demand for the stock in the companies

Answer 13

A

monitor the overall level of stock prices (average of stock prices)
stock prices reflect expected profitability so closely watched

Answer 14

A

financial institutions through which savers can indirectly provide funds to borrowers
stand between savers and borrowers

Answer 15

A

banks

- mutual funds

Answer 16

A

1) a financial intermediary that takes deposits from savers at an interest rate and use them to make loans to borrowers at a higher interest rate
* *difference between these two interest rates covers the bank’s costs and returns some profit to owners of the bank
2) facilitate purchases of goods and services by allowing people to write cheques against their deposits=a special asset called a medium of exchange

Answer 17

A

A special asset that people can easily use to engage in transactions

Answer 18

A

a financial intermediary
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
shareholder of the fund accepts all risk and return associated with the portfolio (value of portfolio rises=benefits, value of portfolio falls=loss)

Answer 19

A

1) allow people with small amounts of money to diversify (don’t put all your eggs in one basket) = less risky to have small stake in a diverse amount of companies
2) give ordinary people access to skills of professional money managers and should increase the return that mutual fund depositors earn on their savings

Answer 20

A

gross domestic product

- total income in an economy and the total expenditure on the economy’s output of goods and services

Answer 21

A

Y=C+I+G+NX

Answer 22

A

Closed economy: an economy that does not interact with other economies, does not engage in international trade in goods and services or international borrowing and lending (NX of the GDP equation is 0)
Open economy: an economy that interacts with other economies around the world

Answer 23

A

Y=C+I+G

*NX is 0

Answer 24

A

National saving (S) = Y-C-G = I
* For the economy as a whole, saving must equal investment.

OR

S=(Y-T-C) + (T-G)
Private saving=Y-T-C
Public saving=T-G

Answer 25

A

Private saving: The income that households have left after paying for taxes and consumption
Public saving: the tax revenue that the government has left after paying for its spending

Answer 26

A

Budget surplus: an excess of tax revenue over government spending (T exceeds G)
Budget deficit: a shortfall of tax revenue from government spending (G exceeds T)

Answer 27

A

Investment: purchase of new capital like equipment or buildings
Saving: deposit unspent income into bank or buy a bond or stock

Answer 28

A

The market in which those who want to save supply funds and those who want to borrow to invest demand funds
loanable funds: all income that people have chosen to save and lend out rather than use for own consumption
has one interest rate for both return to saving and cost of borrowing

Answer 29

A

Saving is the source of the supply of loanable funds (upward sloping)
Investment is the source of the demand of loanable funds (downward sloping)

an increasing interest rate=borrowing more expensive=quantity demanded of loanable funds decreases
an increasing interest rate=saving more attractive=quantity supplied of loanable funds increases

Answer 30

A

creates a surplus, more loanable funds supplied than demanded
lender compete for scarce borrowers, interest rates are then driven down up to the equilibrium interest rate

Answer 31

A

Nominal: usually reported, the monetary return to saving and cost of borrowing
Real: nominal corrected for inflation, more accurately reflects the real return to saving and cost of borrowing
*Real=nominal-inflation rate

Answer 32

A

Policy 1: Saving Incentives
Policy 2: Investment Incentives
Policy 3: Government Budget Deficits and Surpluses

Answer 33

A

if Canada can raise saving rate, growth rate of GDP would increase and Canadians would enjoy a higher standard of living
low saving rate in Canada due to tax laws that discourage saving (on income)
GST and sales taxes(a consumption tax), income saved is not taxed to encourage saving
buying RRSPs reduce amount of income subject to tax, so saving encouraged

Answer 34

A

tax change affects supply of loanable funds
less taxes on savings = supply of loanable funds increases, shift to the right
reform of tax laws encouraged greater saving, lower interest rates and greater investment

Answer 35

A

-investment tax credit: gives a tax advantage to firms building new factories or buying new equipment

Answer 36

A

tax credit affects demand for loanable funds
a tax credit would shift the demand curve to the right (increase demand)
reform of tax laws encouraged greater investment, higher interest rates and greater saving

Answer 37

A

Budget deficit: government borrows to finance the budget deficit, decreases supply of loanable funds=shifts supply curve to the left
when Government reduces national saving by running a budget deficit, interest rates rise and investment falls
Budget surplus: increases the supply of loanable funds, reduces the interest rate and stimulates investment

Answer 38

A

The sum of all past budget deficits and surpluses

Answer 39

A

A decrease in investment that results from government borrowing during a budget deficit
-crowds out private borrowers who are trig to finance investment

Answer 40

A

all income that people have chosen to save and lend out rather than use for own consumption
the flow of resources available to fund private investment

Answer 41

A

The cycle that results when deficits reduce the supply of loanable funds, increase interest rates, discourage investment and result in slower economic growth
Slower growth leads to lower tax revenue and higher spending on income support programs and the result can be even higher budget deficits

Answer 42

A

The cycle that results when surpluses increase the supply of loanable funds, reduce interest rates, stimulate investment, and result in faster economic growth
faster growth leads to higher tax revenue and lower spending on income support programs, and the result can be even higher budget surpluses

Answer 43

A

The difference between the value of government financial liabilities and financial assets

Answer 44

A

Amount of unemployment that the economy normally experiences
the rate of unemployment to which the economy tends to return in the long-run (only an estimate)
Natural does not mean desirable or is it constant over time or impervious to economic policy
means that this unemployment does not go away on its own even in the long run

Answer 45

A

Year to year fluctuations in unemployment around its natural rate, closely associated with the short-run economic activity
the deviation of unemployment from its natural rate

Answer 46

A

-Statistics Canada surveys 54 000 households every month = Labour Force Survey

Answer 47

A

1) employed: spent some of the previous week working at a paid job
2) unemployed: on temporary layoff or looking for a job
3) not in the labour force: full-time student, homemaker or retired

*order from most to least people in each category:
Employed, Not in Labour Force, Unemployed

Answer 48

A

The total number of workers, including both the employed and the unemployed

Answer 49

A

Labour force=Number of employed + Number of unemployed
Unemployment rate=Number of unemployed/Labour force *100
Labour force participation rate=Labour force/adult population *100

Answer 50

A

1) labour force participation rate of young women is similar to young men, but older women have lower rates than older men (gap is closing)
2) young of age 15-24 have higher unemployment rates than older people
3) similar aged men and women tend to have similar rates of unemployment, but mancession=more men that are unemployed

Answer 51

A

Unemployment rate in the US (age 16+ seeking employment) is defined slightly different than in Canada (age 15+ seeking employment)

Answer 52

A

-Individuals who would like to work but have given up looking for a job, so are reported not in the labour force, don’t show up as unemployed

Answer 53

A

measures how many people of working age have found employment and are able to support their family or themselves
insight into whether the community is able to fund social programs, quality health care system, effective policing and courts
high employment ratio=successful economy

Answer 54

A

Less than 3 months

Answer 55

A

1) frictional unemployment

2) structural unemployment

Answer 56

A

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
explains short spells of unemployment

Answer 57

A

unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one
explains longer spells of unemployment

Answer 58

A

Frictional unemployment (always greater than zero)
1) job search (sectoral shifts, public policy, Employment Insurance)
Structural unemployment
2) minimum wage laws
3) Unions and Collective bargaining
4) the theory of efficiency wages

Answer 59

A

The process by which workers find appropriate jobs given their tastes and skills

Answer 60

A

changes in the composition of demand among industries or regions
inevitable since economy is always changing (agriculture is today only a minor source of employment compared to the past where it was a major source)
temporarily cause frictional unemployment (always greater than zero due to well-functioning economy that rewards innovation and new ideas)

Answer 61

A

Government programs try to facilitate job search by:
government run employment agencies which provide info on job vacancies
public training programs (Employment Insurance program), retrain by acquiring new skills in a new job in a new industry
some say government should not be involved in job search, let the private market do it

Answer 62

A

a government program that partially protects workers’ incomes when they become unemployed (ease their burden when unemployed)
may cause the unemployment rate to be higher (increase frictional unemployment
regions with low unemployment rates need more hours of work to be eligible but EI benefits can be collected much longer
people put in less effort into job search
those who collect benefits tend to quit their job sooner
employers lay off only after workers become eligible for EI
likelihood of finding a job increases as EI recipients near the end of their benefits
it does reduce the income uncertainty faced by those unemployed, also allows people to do a more thorough search for a higher paying job

Answer 63

A

causes a surplus of labour, more workers than there are jobs =unemployed
not a predominant reason for unemployment due to most earning a wage higher than the minimum
60% of minimum wage earners are not those in poverty, but teenagers who go to school and live at home

Answer 64

A

A worker association that bargains with employers over wages and working conditions
Ask for better wages, better benefits and better working conditions

Answer 65

A

Most unionized=public sector like education, public administration, health care
Least unionized=food and accommodation industry

Answer 66

A

when a union raises the wage above equilibrium, it results in unemployment (surplus of labour)
those who remain employed are better off, but those who who are now unemployed due to having to pay more so need to get rid of workers to cut costs
workers in unions reap the benefit of collective bargaining while workers not in unions bear some of the cost (reduce wages in the rest of the economy)
protects workers from being at the mercy of the firm’s owners
help firms respond efficiently to worker’s concerns

Answer 67

A

The process by which unions and firms agree on the terms of employment as a group

Answer 68

A

The organized withdrawal of labour from a firm by a union if the union and the firm can’t reach an agreement on working terms

reduces production, sales and profit so the firm is likely to agree to pay higher wages
union workers earn 10-20% more than those workers who aren’t part of one

Answer 69

A

Above-equilibrium wages paid by firms in order to increase worker productivity (keep wages high even in the presence of a surplus of labour)

Answer 70

A

-a constraint like the minimum wage and unions put on firms is unnecessary because firms may be better off keeping wages above the equilibrium level

Answer 71

A

1) worker health: better paid workers eat better and are therefore more productive
2) worker turnover: the more a firm pays its workers, the less often its workers are going to leave (expensive to train new workers)
3) worker effort: it costs a lot to hire supervisors to catch workers who are shirking (not working very hard), so pay higher wage so workers are more eager to keep their jobs and gives them incentive to put i best efforts
4) worker quality: a high wage attracts a better pool of workers that apply for the higher paying jobs due to their skills

Answer 72

A

an industrial visionary, founder of Ford Motor Company
built car assembly lines where unskilled workers were taught to perform a simple task over and over again
paid his workers twice the working wage to attract as many people as possible (number of workers willing to work far exceeded the number of workers Ford needed)
improved discipline of workers, gave them more loyal interest in the institution and raised personal efficiency
super important that no workers were absent so low worker turnover, high worker quality, high worker effort

Answer 73

A

wage level that allows the earner to afford shelter, food and other necessities
minimum wage applies to all employees in a jurisdiction (province) vs living wage that applies to workers being able to afford a decent standard of living in their municipality
may increase worker morale=higher productivity
makes firms pay a higher wage than what was in their own best interest
will still create unemployment but may be a small increase
but if goal os to battle poverty, then this may not be the better choice

Answer 74

A

The exchange of one good or service for another to obtain the things they need

Answer 75

A

In barter, it is the unlikely occurrence that two people each have a good or service that the other wants
*so money makes this easier

Answer 76

A

The set of assets in an economy that people regularly use to buy goods and services from other people

Answer 77

A

1) medium of exchange
2) unit of account
3) store of value

Answer 78

A

An item that buyers give to sellers when they want to purchase goods or services

Answer 79

A

The yardstick people use to post prices and record debts

*we use money as the unit of account (in dollars)

Answer 80

A

An item that people can use to transfer purchasing power from the present to the future
*money is far from a perfect store of value since when the prices rise, the value of money falls

Answer 81

A

Total of all stores of value, including both money and non monetary assets

Answer 82

A

The ease with which an asset can be converted into the economy’s medium of exchange
*money is most liquid asset, stocks and bonds, cars and houses are less liquid

Answer 83

A

Money that takes the form of a commodity with intrinsic value (item would have value even if it were not used as money)
Ex) gold = used in industry and in making jewellery
Ex) cigarettes=prisoners of World War II used this as money

Answer 84

A

An economy that uses gold as money

Answer 85

A

Money without intrinsic value that is used as money because of government decree
Ex) Monopoly money can’t be used as money because the dollar has been decreed as valid money

Answer 86

A

The quantity of money circulating in the economy

Answer 87

A

1) currency

2) demand deposits

Answer 88

A

The paper bills and coins in the hands of the public

Answer 89

A

Balances in bank accounts that depositors can access on demand by writing a cheque or using a debit card

Answer 90

A

it is a deferring payment, you repay the bank at a later date perhaps with interest
you repay your debt by writing a cheque from your chequing account
people who have credit cards hold less money on average than people who do not

Answer 91

A

An institution designed to regulate the quantity of money in the economy
Ex) Bank of Canada
-controlled by the government of Canada, but is independent
-hand over any profits they earn to the government
-primary responsibility is to act in the national interest

Answer 92

A

1) issue currency (right to issue notes for circulation in Canada)
2) Act as the banker of commercial banks (enable commercial banks to make payments to each other, borrow or lend from other banks)
3) banker to the Canadian government (Canada’s foreign exchange reserves and national debt)
4) control the quantity of money made available to the economy=money supply

Answer 93

A

The quantity of money available in the economy

Answer 94

A

The setting of the money supply by policymakers in the central bank

Answer 95

A

Deposits that banks have received but have not loaned out

*If banks hold all deposits in reserve, banks do not influence the supply of money

Answer 96

A

Assets Liabilities
Reserves $100. Deposits $100

before the bank opens, the money supply is $100 currency (what people are holding in their pockets)
after the bank opens, the money supply is $100 of demand deposits
if bank holds all deposits in reserve, banks do not influence the supply of money

Answer 97

A

A banking system in which banks hold only a fraction of deposits as reserves = reserve ratio

Answer 98

A

The fraction of deposits that banks hold as reserves

-Determined by government regulation and bank policy

Answer 99

A

Central banks place a minimum on the amount of reserves that banks hold

Answer 100

A

Banks hold reserves above the legal minimum

Answer 101

A

Assets Liabilities
Reserves $10. Deposits $100
Loans $90

Money supply=$190 ($100 demand deposits and $90 currency)
When banks hold only a fraction of deposits in reserve, banks create money BUT NOT WEALTH!!!

Answer 102

A

Assets. Liabilities
Reserves $9. Deposits $90
Loans $81

*creates an additional $81 of money

Answer 103

A

Assets. Liabilities
Reserves $8.10. Deposits $81
Loans $72.90

Money supply=$100ratio
=10010 = $1000 of money generated
*money multiplier is 10

Answer 104

A

The amount of money the banking system generates with each dollar of reserves. The money multiplier is the reciprocal of their reserve ratio (1/reserve ratio)
*The higher the reserve ratio, the less each deposit banks loan out, and the smaller the money multiplier.

Answer 105

A

1) open-market operations (used by bank every single day at least twice a day)
2) setting a reserved ratio
3) setting bank rate (every 6 weeks) / overnight rate
2) changes in reserve requirements
3) quantitative easing (emergency tool)

Answer 106

A

The interest rate charged by the Bank of Canada on loans to the commercial banks.
Bank rate - 0.5% = interest paid to commercial banks

Answer 107

A

The interest rate on very short-term loans between commercial banks

always about one quarter of a percent below bank rate
a higher overnight rate rate discourages banks from borrowing
is changed 8 days a year (6 weeks apart)
reserves from the Bank of Canada, reduces quantity of reserves in the banking system, reduces the money supply (contracts) *opposite is true

Answer 108

A

The purchase or sale of government of Canada bonds by the bank of Canada

to increase money supply, Bank of Canada purchase treasury bonds (short-term government bonds) (increases money in circulation)
to decrease money supply, the Bank of Canada sells government bonds to the public (reduces money in circulation)

Answer 109

A

The purchase and sale by the central bank of nongovernmental securities or government securities with long term maturity terms

used to increase bank capital
a tool of monetary policy used by central bank only in extraordinary circumstances

Answer 110

A

The purchase or sale of foreign money by the Bank of Canada

Answer 111

A

The process of offsetting foreign exchange market operations with open-market operations, so that the effect on the money supply is cancelled out

Answer 112

A

1) does not control amount of money households choose to hold as deposits in banks (more money in deposit=more money can be created); if people lose confidence in banks and decide to withdraw all their money then the bank loses reserves and creates less money
2) does not control the amount that commercial bankers choose to lend ; bankers become more cautious about economic conditions and decide to make fewer loans and hold greater reserves =creates less money

Answer 113

A

to make the money supply grow faster, it can lower the overnight rate
to make the money supply grow slower, it can raise the overnight rate

Answer 114

A

When depositors suspect the banks are about to go bankrupt and withdraw their deposits
-Because a bank holds only a fraction of its deposits in reserve, it cannot satisfy withdrawal requests from all depositors, so bank has to close its doors

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Midterm 2 Flashcards

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