Midterm 2 Macro Flashcards
How is Rachel, a homemaker who works as a volunteer at the local United Way 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
d
What is the unemployment rate?
Labour Market Conditions
Employed 177 000
Unemployed 13 000
Discouraged searchers 2000
Homemakers 20 000
Full-time students 15 000
Retirees 19 000
Disabled 5000
Labour force 190 000
Adult population 15 and over 249 000
a. 5.3 percent
b. 6.0 percent
c. 6.8 percent
d. 7.9 percent
c
What is the employment rate?
Labour Market Conditions
Employed 177 000
Unemployed 13 000
Discouraged searchers 2000
Homemakers 20 000
Full-time students 15 000
Retirees 19 000
Disabled 5000
Labour force 190 000
Adult population 15 and over 249 000
a. 92.1 percent
b. 93.2 percent
c. 94.3 percent
d. 95.4 percent
b
What is the size of the labour force?
Labour Market Conditions
Employed 177 000
Unemployed 13 000
Discouraged searchers 2000
Homemakers 20 000
Full-time students 15 000
Retirees 19 000
Disabled 5000
Adult population 15 and over 249 000
a. 177 000
b. 249 000
c. 72 000
d. 190 000
d
What is the labour-force participation rate?
Labour Market Conditions
Employed 177 000
Unemployed 13 000
Discouraged searchers 2000
Homemakers 20 000
Full-time students 15 000
Retirees 19 000
Disabled 5000
Labour force 190 000
Adult population 15 and over 249 000
a. 73.1 percent
b. 74.1 percent
c. 75.3 percent
d. 76.3 percent
d
Many economists believe that the Employment Insurance (EI) program may increase
a. frictional unemployment.
b. cyclical unemployment.
c. the number of discouraged workers.
d. structural unemployment.
a
Which statement best describes minimum-wage laws?
a. They are the major cause of natural unemployment.
b. They probably reduce teenage employment.
c. They mainly affect skilled workers.
d. They encourage employers to spend more on on-the-job training.
b
When a union bargains with an employer, which statement best describes what then happens in that industry?
a. Unemployment and wages both rise.
b. Unemployment and wages both fall.
c. Unemployment rises and wages fall.
d. Unemployment falls and wages rise
a
According to economists, what is the result of efficiency wages?
a. a reduction in labour-force participation rates
b. a reduction in the natural rate of unemployment
c. a reduction in the incentive to shirk
d. an increase in worker turnover
c
Which statement best describes the natural unemployment rate?
a. It is always at 0 percent.
b. It is the amount of unemployment in the economy, adjusted for the effects of inflation.
c. It is decided upon by the federal government.
d. It is the amount of unemployment that the economy normally experiences.
d
Which statement best explains why some frictional unemployment is inevitable?
a. Government labour market policies are inadequate.
b. Unions push the wage above its equilibrium level.
c. In a functioning economy, there is always some expansion and contraction.
d. The number of unemployed and the number of jobs available are equal.
c
What happens when a policy forces the wage to remain above the equilibrium level?
a. The quantity of labour demanded and the quantity of labour supplied are equal.
b. The quantity of labour demanded is higher than the quantity of labour supplied.
c. The labour market is in equilibrium.
d. The quantity of labour supplied is higher than the quantity of labour demanded.
d
Suppose an unemployed person quits looking for work. All else being equal, which of the following likely ensues?
a. The unemployment rate decreases and the size of the labour force falls.
b. The unemployment rate increases and the size of the labour force increases.
c. The unemployment rate decreases and the size of the labour force increases.
d. The unemployment rate increases and the size of the labour force falls.
a
During the COVID-19 pandemic, the unemployment rate increased much less in Atlantic Canada than other Canadian provinces.
a. True
b. False
a
Discouraged searchers are individuals who continually search for work even though they cannot find employment.
a. True
b. False
b
The natural rate of unemployment is the rate of unemployment that is natural to any economy and can never change.
a. True
b. False
b
Employment Insurance is a government program intended to ease the burden of those who are permanently unemployed.
a. True
b. False
b
What must a medium of exchange be?
a. legal tender
b. issued by the government
c. a commodity that is as valuable as a commodity as it is as money
d. generally accepted by people for goods and services
d
You put some of your summer earnings into a safety deposit box at the bank. What function of money are you using?
a. a store of value
b. a unit of account
c. a medium of exchange
d. a standard of value
a
Which of the following is NOT a function of money?
a. inflation
b. unit of account
c. medium of exchange
d. store of value
a
Which of the following best explains the open market operation by the Bank of Canada to increase the money supply?
a. selling Treasury securities and lowering the bank rate
b. selling Treasury securities and raising the bank rate
c. purchasing Treasury securities and lowering the bank rate
d. purchasing Treasury securities and raising the bank rate
c
Which statement best describes the relationship between the reserve ratio and the money multiplier?
a. The smaller the reserve ratio, the less of each deposit banks loan out, and the smaller the money multiplier.
b. The higher the reserve ratio, the less of each deposit banks loan out, and the smaller the money multiplier.
c. The smaller the reserve ratio, the less of each deposit banks loan out, and the higher the money multiplier.
d. The higher the reserve ratio, the less of each deposit banks loan out, and the higher the money multiplier.
b
What is likely to occur when the Bank of Canada purchases government bonds in the open market?
a. The money supply will decrease.
b. Interest rates will increase.
c. The money supply will increase.
d. Interest rates will be unaffected.
c
Suppose the Bank of Canada increases the percentage reserve requirement from 10 percent to 12 percent. Which of the following will occur?
a. Bank reserves will increase.
b. Bank lending will increase.
c. Bank reserves will decrease.
d. Interest rates will decrease.
a
Which statement best describes liquidity?
a. It is the ease with which an asset can be converted into a medium of exchange.
b. It is a measure of the amount of income an asset earns.
c. It is positive net worth.
d. It is something that only legal tender can possess.
a
Assume that Bank A receives a deposit of $4000. If the required reserve ratio is 10 percent, how much can Bank A lend?
a. $3600
b. $4000
c. $36 000
d. $40 000
a
Which statement best describes fiat money?
a. It is not decreed by the government to be money.
b. It has no intrinsic value.
c. It is backed by a commodity such as gold.
d. It can be used as a medium of exchange only in a barter economy.
b
Which statement does NOT describe how the monetary authorities can influence the money supply?
a. Central banks can change bank reserves through the sale or purchase of government securities.
b. Central banks can change the quantities of excess reserves by persuading banks to alter their desired reserve ratio.
c. Central banks can change the bank rate so as to encourage or discourage chartered banks in borrowing from the central banks.
d. Central banks can determine the interest rates on credit cards of other financial institutions.
d
Liquidity refers to the ease with which an asset flows through the bank.
a. True
b. False
b
The money multiplier is the amount of money that the banking system generates with each dollar of reserves.
a. True
b. False
a
If the money supply is increased, what effect does this have on the price level and the quantity of money demanded in the long run?
a. Both the price level and the quantity of money demanded increase.
b. The price level increases, but the quantity of money demanded decreases.
c. The price level decreases, but the quantity of money demanded increases.
d. Both the price level and the quantity of money demanded decrease.
a
Which of the following is correct about money supply?
a. A decrease in the overnight rate reduces the quantity of reserves in the banking system and reduces the money supply.
b. A decrease in the overnight rate increases the quantity of reserves in the banking system and reduces the money supply.
c. An increase in the overnight rate reduces the quantity of reserves in the banking system and reduces the money supply.
d. An increase in the overnight rate increases the quantity of reserves in the banking system and reduces the money supply.
c
According to the classical theory of inflation, because of a monetary injection,
a. the quantity of money supplied increases, the demand for goods and services increases, and prices increase.
b. the quantity of money supplied decreases, the demand for goods and services increases, and prices increase.
c. the quantity of money supplied decreases, the demand for goods and services increases, and prices decrease.
d. the quantity of money supplied decreases, the demand for goods and services decreases, and prices increase.
a
Which statement best describes the outcome when a government prints money to finance its expenditures?
a. This increases the value of money.
b. This imposes an “inflation tax” on everyone who holds money.
c. This is the principal method by which the Canadian government finances its expenditures.
d. This leaves the value of money unchanged.
b
If the nominal interest rate is 8 percent and the inflation rate is 3 percent, what is the real interest rate?
a. –5 percent
b. 3 percent
c. 5 percent
d. 11 percent
c
If the demand for money increases, which of the following occurs?
a. Equilibrium value of money will rise.
b. Equilibrium value of money will fall.
c. Money supply will follow the movement of money demand.
d. There is no change in the equilibrium value of money.
a
If the price is $5, the quantity of money is $200, and the velocity of money is 10, how much is the real GDP?
a. 200
b. 400
c. 600
d. 800
b
If the price is $5, the quantity of money is $200, and the velocity of money is 10, how much is the nominal GDP?
a. 200
b. 400
c. 1000
d. 2000
d
If the supply of money increases, which of the following occurs?
a. The price level falls.
b. Real output falls.
c. Expenditures increase.
d. Velocity increases
c
What best explains the revenue the government raises by creating money?
a. regressive taxation
b. the deadweight loss of taxation
c. the neutrality of taxation
d. an inflation tax
d
What happens when the money demand decreases?
a. The value of money increases.
b. The supply for money increases.
c. The value of money decreases.
d. The supply for money decreases.
c
According to the classical dichotomy, which of the following is influenced by monetary factors?
a. real GDP
b. unemployment
c. nominal interest rates
d. the real wage rate
c
What best describes the relationship of the money–demand curve to the value of money?
a. its downward slope
b. its upward slope
c. its horizontal position
d. its vertical position
a
What would be the primary effect of an increase in the money supply?
a. an increase in real GDP
b. a reduction in velocity
c. a decrease in the unemployment rate
d. a proportional increase in prices
d
What determines the quantity of money that individuals and businesses want to hold?
a. how much they rely on credit
b. the quantity theory of money
c. the resources available in the economy
d. an increase in real GDP
a
If a nation buys fewer goods and services from other countries than what it sells abroad then
a. the nation is said to have a trade deficit.
b. the nation’s net imports are positive.
c. the nation is said to have balanced trade.
d. the nation’s net exports are positive.
d
When Bombardier, the Canadian aircraft manufacturer, sells its planes to Air France, what effect does that have on Canada?
a. Canadian net exports increase, and Canadian net capital outflow increases.
b. Canadian net exports increase, and Canadian net capital outflow decreases.
c. Canadian net exports decrease, and Canadian net capital outflow increases.
d. Canadian net exports decrease, and Canadian net capital outflow decreases.
a
If a country has $50 million of net exports and $70 million of saving, what must be net capital outflow and domestic investment?
a. Net capital outflow is $50 million, and domestic investment is $70 million.
b. Net capital outflow is $120 million, and domestic investment is $70 million.
c. Net capital outflow is $50 million, and domestic investment is $20 million.
d. Net capital outflow is $120 million, and domestic investment is $50 million.
c
What happened to Canada’s international trade with the onset of the COVID-19 pandemic in 2020?
a. Canada maintained a balanced trade.
b. International trade fell sharply.
c. There was a sharp increase in both Canadian exports and imports.
d. Only Canadian exports rose sharply.
b
What is the difference between foreign direct investment and foreign portfolio investment?
a. Foreign portfolio investment refers to actively managing the investment in a foreign country whereas foreign direct investment refers to a more passive role of the owner.
b. Foreign direct investment refers to actively managing the investment in a foreign country whereas foreign portfolio investment refers to a more passive role of the owner.
c. Foreign direct investment refers to Canadian residents buying assets in a foreign country; foreign portfolio investment refers to Canadian residents buying assets in Canada.
d. Foreign portfolio investment refers to Canadian residents buying assets in a foreign country; foreign direct investment refers to Canadian residents buying assets in Canada.
b
Which term comprises all saving in the Canadian economy?
a. investment in the Canadian economy
b. Canadian net capital outflow
c. investment in the Canadian economy minus Canadian net capital outflow
d. investment in the Canadian economy plus Canadian net capital outflow
d
n an imaginary economy, if national saving is $20 and domestic investment is $22, which of the following is correct?
a. Net capital inflow is negative, indicating that the nation is using some of its saving to buy assets abroad.
b. Net capital outflow is negative, indicating that foreigners are financing some of this investment by purchasing domestic assets.
c. Net capital outflow is positive, indicating that foreigners are financing some of this investment by purchasing domestic assets.
d. Net capital inflow is positive, indicating that the nation is using some of its saving to buy assets abroad.
b
What is the nominal exchange rate?
a. the price of foreign goods in a country
b. the price of a country’s exports in the foreign country
c. the price of one currency in terms of another currency
d. the price of one good in terms of another good
c
If the exchange rate changes from 180 yen per dollar to 120 yen per dollar, what effect does it have on the value of the dollar?
a. It appreciates and so buys more Japanese goods.
b. It appreciates and so buys fewer Japanese goods.
c. It depreciates and so buys more Japanese goods.
d. It depreciates and so buys fewer Japanese goods.
d
What occurs when a currency appreciates?
a. Prices in that country fall.
b. Prices in that country rise.
c. Currency buys fewer units of another currency.
d. Currency buys more units of another currency.
d
Which statement best describes an open economy?
a. It is an economy that occurs in a developed nation that is growing.
b. It is an economy that effectively prevents imports.
c. It is an economy that occurs where the population is growing rapidly due to immigration.
d. It is an economy that interacts freely with other economies around the world.
d
Which of the following relationships is correct?
a. S = I – NX
b. Y = C – I – G – NX
c. Y – C – G = I + NX
d. NCO = S + I
c
Which term refers to the acquisition of foreign assets by domestic residents minus the acquisition of domestic assets by foreigners?
a. balance of trade
b. net capital outflow
c. real exchange rate
d. purchasing-power parity
b
The value of a nation’s net capital inflow always equals the value of its net exports.
a. True
b. False
b
Purchasing-power parity is a theory of exchange rates that states that a unit of any given currency is always equal to a unit of another country’s currency.
a. True
b. False
b
