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Midterm1eanbw12

Student:___________________________________________________________________________
1.Whenthenominalexchangeincreasesfrom78yenperdollarto80yenperdollar,thedollarhas
A.appreciated.
B.depreciated.
C.becomeovervalued.
D.becomeundervalued.
E.beendevalued.

2.Theprincipalsupplier(s)ofCanadiandollarstotheforeignexchangemarketis/are
A.foreignerswishingtopurchaseCanadiangoodsorassets.
B.foreignerswishingtopurchaseforeigngoodsorassets.
C.CanadianhouseholdsorfirmswishingtopurchaseCanadiangoodsorassets.
D.Canadianhouseholdsorfirmswishingtopurchaseforeigngoodsorassets.
E.theBankofCanada.

3.Holdingallelseconstant,anincreaseinthepreferencesofCanadiansforMexicangoodswill_________the
supplyofdollarsintheforeignexchangemarketand_________theequilibriumMexicanpesodollarexchange
rate.
A.increase;increase
B.increase;decrease
C.notchange;notchange
D.decrease;increase
E.decrease;decrease

4.Holdingallelseconstant,anincreaseintherealinterestrateonU.S.assetswill_________thesupplyof
Canadiandollarsintheforeignexchangemarketand_________theequilibriumU.S.dollarCanadiandollar
exchangerate.
A.increase;increase
B.increase;decrease
C.notchange;notchange
D.decrease;increase
E.decrease;decrease

5.Holdingallelseconstant,anincreaseinpreferencesbyAmericansforCanadiangoodswill_________the
demandforCanadiandollarsintheforeignexchangemarketand_________theequilibriumU.S.dollar
Canadiandollarexchangerate.
A.increase;increase
B.increase;decrease
C.notchange;notchange
D.decrease;increase
E.decrease;decrease

6.Holdingallelseconstant,tightermonetarypolicyinCanadawill_________thedemandfordollarsinthe
foreignexchangemarketand_________theequilibriumMexicanpesodollarexchangerate.
A.increase;increase
B.increase;decrease
C.notchange;notchange
D.decrease;increase
E.decrease;decrease

7._________policyfocusesonthegovernment'sbudget,while_________policyaimsatchangingthe
underlyingstructuresorinstitutionsoftheeconomy.
A.Monetary;structural
B.Monetary;fiscal
C.Fiscal;monetary
D.Fiscal;structural
E.Structural;monetary

8.Whenagovernmentcollectsmoreintaxesthanitspends,itrunsa
A.tradedeficit.
B.tradesurplus.
C.budgetdeficit.
D.budgetsurplus.
E.tradeimbalance.

9.Thetotalofallfederalgovernmentbondsoutstandingisthe
A.unemploymentdebt.
B.tradedebt.
C.federalgovernmentdeficit
D.federalgovernmentdebt
E.unconventionalmonetarydebt

10.Unconventionalmonetarypolicytypicallyoccurswhentheeconomyexperiences
A.tradesurpluses
B.tradedeficits
C.governmentdeficits
D.governmentsurpluses
E.financialpanicorsevererecession

11.Adecisionbyagovernmenttosellbusinessescurrentlyoperatedbythegovernmenttoprivateinvestorsis
anexampleof________policy.
A.aggregation
B.fiscal
C.monetary
D.structural
E.productivity

12.Whichofthefollowingwouldbeconsideredanexampleoffiscalpolicy?
A.Abroadgovernmentinitiativetoreducethecountry'srelianceonagricultureandpromotehightechnology
industries.
B.Areductioninincometaxrates.
C.Theprovisionofadditionalcashtothebankingsystem.
D.Interestratehikesgeneratedbyareductioninthemoneysupply.
E.Adecisionbyadevelopingcountrytoreducegovernmentcontroloftheeconomyandtobecomemore
marketoriented.

13.Whichofthefollowingwouldbeconsideredanexampleofmonetarypolicy?
A.Abroadgovernmentinitiativetoreducethecountry'srelianceonagricultureandpromotehightechnology
industries.
B.Areductioninincometaxrates.
C.Theprovisionofadditionalcashtothebankingsystem.
D.Anattempttoreducethegovernmentbudgetdeficitbyreducingspending.
E.Adecisionbyadevelopingcountrytoreducegovernmentcontroloftheeconomyandtobecomemore
marketoriented.

14.Microlandhasapopulationof50people;40ofthemworkedlastyear,withatotaloutputof$200,000.
OutputperpersonofMicrolandwas
A.$200,000.
B.$200.
C.$4,000.
D.$40,000.
E.$5,000.

15.InEconland,exportsequal25%oftotaloutput,whileimportsequal20%oftotaloutput.Econlandhas
A.abudgetsurplus.
B.abudgetdeficit.
C.atradesurplus.
D.atradedeficit.
E.balancedtrade.

16.InEconland,populationandaveragelabourproductivityareconstant.Ifalargerproportionofthe
populationbecomesemployedworkers,thentotaloutputwill_________andoutputperpersonwill______.
A.increase;increase
B.decrease;decrease
C.remainconstant;remainconstant
D.decrease;remainconstant
E.remainconstant;decrease

17.Bradleyisauniversitygraduateinterestedinfindingfulltimeemploymentinhisareaofspecialty.After
lookingforseveralweeks,Bradleyisdiscouragedandbeginstoworkthreedaysaweekasalawncareworker
intheneighbourhood.Bradleywouldbeclassifiedas
A.adiscouragedworker.
B.involuntarilyunemployed.
C.employed.
D.seasonallyunemployed.
E.notinthelabourforce.

18.Whoofthefollowingwouldbeclassifiedasunemployed?
A.BrendaSmith,an18yearoldfulltimeuniversitystudent.
B.MarioFaubert,aNHLhockeyplayerathomesickwiththeflu.
C.JackLittle,a21yearoldnewcollegegraduateactivelylookingforhisfirstjob.
D.SarahLopez,apublicschoolteacheronvacation.
E.AmandaPie,afulltimehomemaker.

19.Dataforaneconomyshowthattheunemploymentrateis10%,theparticipationrateis80%,and200
millionpeople15yearsorolderarenotinthelabourforce.Howmanypeopleareunemployedthiseconomy?
A.20million.
B.80million.
C.200million.
D.800million.
E.1,000million.

20.Thelabourforcedividedbytheworkingagepopulationequalsthe
A.unemploymentrate.
B.employmentrate.
C.participationrate.
D.populationrate.
E.durationrate.

21.Thenumberofpeopleunemployedandemployedequalsthe
A.workingagepopulation.
B.labourforce.
C.employmentrate.
D.unemploymentrate.
E.participationrate.

22.WhoofthefollowingwouldbecountedasunemployedbyStatisticsCanada?
A.Apersonwithaparttimejob.
B.Apersonwithafulltimejob.
C.Apersonwithnojobwhoiswillingtoworkandhadlookedforajobinthelastfourweeks.
D.Apersonwithnojobwhoiswillingtoworkandhadnotlookedforajobintwomonths.
E.Aretiredperson.

23.RealGDPpercapitaispositivelyassociatedwithallofthefollowingEXCEPT
A.moreandbettergoodsandservices.
B.betterhealthandlifeexpectancies.
C.bettereducation.
D.highernetexports.
E.ahigherstandardofliving.

24.Peg'sManicureManordid4,000setsofnailsintheyear2011and4,500setsofnailsintheyear2012.The
priceofasetofnailswas$20in2011and$22in2012.Iftheyear2011isthebaseyear,Peg'scontributionto
realGDPin2012was_________andtonominalGDPin2012was________.
A.$80,000;$88,000
B.$80,000;$90,000
C.$80,000;$99,000
D.$90,000;$99,000
E.$99,000;$99,000

25.Peg'sManicureManordid4,000setsofnailsintheyear2011and4,500setsofnailsintheyear2012.The
priceofasetofnailswas$20in2011and$22in2012.Iftheyear2011isthebaseyear,Peg'scontributionto
realGDPin2011was_________andin2012was________.
A.$80,000;$88,000
B.$80,000;$90,000
C.$80,000;$99,000
D.$88,000;$90,000
E.$90,000;$99,000

26.Ifafirmproduces100unitsofaparticulargoodduringayearand,ofthese,only90unitsaresoldduring
thesameyear,thenthe10unsoldunitsaretreatedasthefirm'sinventoryinvestmentexpenditurefortheyear,as
ifthefirmhadboughttheitemsforitsstockofinventoriesfromitself.Fortheeconomyasawhole,this
accountingpracticeensuresthat
A.productionequalsexpenditureeachyear.
B.inventoryinvestmentisalwayspositiveeachyear.
C.capitalconsumptionallowancesarezeroeachyear.
D.savingandinvestmentareequaleachyear.
E.netprivatesectorinvestmentiszeroeachyear.

27.Capitalincomeincludes
A.profits,rent,andinterest.
B.wagesandsalaries.
C.earningsoftheselfemployed.
D.capitalgainsfromstocksales.
E.transferpayments.

28.Ifpricesinthecurrentyeararehigheronaveragethaninthebaseyear,thenrealGDPinthecurrentyear
_________nominalGDPinthecurrentyear.
A.isgreaterthan
B.islessthan
C.isequalto
D.couldbegreaterorlessthan
E.isonethirdof

29.Refertothetableabove.Whataretheeconomy'snetexports?
A.$0.8million.
B.$0.3million.
C.$0.3million.
D.Thereisnotsufficientinformationtocalculatenetexports.
E.$0.8million.

30.Consumptionexpenditureissubdividedintofourcategories,including
A.durables,nondurables,servicesandnewhomes.
B.durables,nondurables,semidurables,andnewhomes.
C.durables,nondurables,semidurables,andservices.
D.durables,nondurables,exportsandimports.
E.durables,nondurables,netexportsandservices.

31.Giventhefollowingdataforaneconomy,computethevalueofGDP.

A.130.
B.140.
C.150.
D.160.
E.320.

32.WhichofthefollowingwouldincreasethenetexportcomponentofCanada'sGDP?
A.AcarproducedinJapanispurchasedinBritishColumbia.
B.AbottleofBritishColumbiawineispurchasedinCalifornia.
C.AbottleofFrenchwineispurchasedinQuebec.
D.AcarproducedinCambridge,OntarioispurchasedinWinnipeg,Manitoba.
E.AbottleofFrenchwineispurchasedinLondon,England.

33.WhichofthefollowingwouldincreasetheprivatesectorinvestmentcomponentofCanada'sGDP?
A.YoupurchaseanewwashingmachineproducedinCanada.
B.YoupurchaseanewwashingmachineproducedinFrance.
C.AlaundryinCalgarypurchasesanewwashingmachineproducedinCanada.
D.AlaundryinMexicopurchasesanewwashingmachineproducedinCanada.
E.TheCanadiangovernmentpurchasesanewwashingmachineproducedinCanadaforrangerstouseina
Canadiannationalpark.

34.GovernmentpurchasesincludeallofthefollowingEXCEPT
A.pensionbenefitspaidbythefederalgovernment.
B.theconstructionofanewcourthousebuiltbyalocalgovernment.
C.thesalarypaidtoanelementaryschoolteacheremployedbyalocalpublicschoolboard.
D.thepurchaseofnewmilitaryhardwarebytheCanadianForces.
E.theconstructionofnewhighwaysbyprovincialgovernments.

35.Goodsandservicesthatareconsumedbytheultimateuserarecalled________goodsandservices.
A.intermediate
B.final
C.valueadded
D.nominal
E.real

36.Longlivedgoodsusedforproducingothergoodsandservicesarecalled
A.consumptiongoods.
B.nonmarketgoods.
C.valueaddedgoods.
D.publiclyprovidedgoods.
E.capitalgoods.

37.IfBountifulOrchardgrows$100,000worthofpeaches,sells$50,000worthofpeachestoconsumers,and
usestheresttomakejamthatissoldtoconsumersfor$100,000,BountifulOrchard'scontributiontoGDPis
A.$50,000.
B.$100,000.
C.$150,000.
D.$200,000.
E.$250,000.

38.Inwhatcircumstanceswouldlendersmostbenefit?
A.Whenthereisanunanticipateddecreaseininflation
B.Whenthereisananticipatedincreaseininflation
C.Whenthereisanunanticipatedincreaseininflation
D.Whenthereisananticipateddecreaseininflation
E.Whenthereiszeroinflation

39.Thezeroboundonnominalinterestratehypothesisclaimsthat
A.iftherateofinflationislow,thenominalinterestratewillbehigh.
B.thenominalinterestratecanbenegative.
C.therealinterestratecannotbenegative.
D.thelowerboundonboththenominalandtherealinterestratesarezero.
E.becausethenominalinterestratecannotbenegative,thecentralbankmaylosetheabilitytostimulatethe
economywithratecutsiftheinflationrateand,therefore,thenominalinterestrateislowtobeginwith.

40.Thedownwardnominalwagerigidityhypothesissaysthat
A.becausepeopletypicallyresistnominalwagecuts,someamountofinflationcanfacilitaterealwagecutsin
industrieswheretheyareneededwithoutrequiringnominalwagecuts,thusmakingthelabourmarketmore
flexibleandefficient.
B.nominalwagesarerigidbecauseofunionactivism.
C.nominalwagesarerigidbutrealwagesareflexible.
D.bothnominalandrealwagesarerigidbecauseofunionactivism.
E.becausepeopletypicallyresistnominalwagecuts,highratesofinflationareneededtofacilitatedeepreal
wagecutsandgreatereconomicefficiency.

41.Ifworkersandemployersagreetoathreeyearwagecontractexpecting5%inflationandinflationturnsout
tobe3%,then
A.workersgain;employersgain.
B.workersgain;employerslose.
C.workerslose;employersgain.
D.workerslose;employerslose.
E.neitherworkersnoremployersareaffectedbytheunexpectedlylowinflation.

42.TheBankofCanada'stargetinflationrateis_________peryear.
A.3%
B.2%
C.4%
D.1%
E.5%

43.Ifallprices,includingthepriceofbeef,increasedby3%,thentherelativepriceofbeef_______andthere
________inflation.
A.increased;is
B.increased;isno
C.remainedconstant;is
D.remainedconstant;isno
E.decreased;is

44.ThemarketinterestrateinAlphais7%andthemarketinterestrateinBetais10%,buttheinflationratein
Alphais3%andinflationrateinBetais8%.Whichofthefollowingstatementsistrue?
A.TherealinterestrateishigherinAlpha,butthenominalinterestrateishigherinBeta.
B.TherealinterestrateislowerinAlpha,butthenominalinterestrateislowerinBeta.
C.BoththerealandnominalinterestratesarehigherinAlpha.
D.BoththerealandnominalinterestratesarehigherinBeta.
E.TherealandnominalinterestratesarethesameinAlphaandBeta.

45.Theprocessofconvertingcurrentdollarvaluesintorealtermsiscalled_________,whiletheprocessof
adjustingnominalquantitiestomaintaintheirpurchasingpoweriscalled_________.
A.deflation;inflation
B.inflation;hyperinflation
C.inflation;deflation
D.deflating;indexing
E.indexing,;deflating

46.Onefamilyearnedanincomeof$28,000in2000.Overthenextfiveyears,theirincomeincreasedby15%,
whiletheconsumerpriceindex(CPI)increasedby20%.Afterfiveyears,thisfamily'snominalincome
________andtheirrealincome________.
A.decreased;decreased
B.decreased;increased
C.increased;didnotchange
D.increased;increased
E.increased;decreased

47.Iftheconsumerpriceindexincreasedfrom80to84,therateofinflationis
A.4%.
B.5%.
C.10%.
D.20%.
E.30%.

48.Ifthepriceindexis130,thismeansthat
A.pricesare130%higherthaninthebaseyear.
B.pricesare0.13timeshigherthaninthebaseyear.
C.pricesare30%higherthaninthebaseyear.
D.nominalGDPmustbeinflatedtodeterminetherealGDP.
E.pricesare30%lowerthaninthebaseyear.

49.Ifthetotalexpendituresofatypicalfamilywere$40,000peryearin2008andtheexactsamebasketof
goodsandservicescost$45,000intheyear2012,thefamily'scostofliving
A.increasedby11.1%.
B.decreasedby11.1%.
C.increasedby12.5%.
D.decreasedby12.5%.
E.wasunchanged.

50.Overshortperiodsoftime,producerstypicallyvaryproductionatpresetpricestomeetchangesindemand.
Thismeansthatwheneconomywidedemanddecreases,actualoutput________potentialoutputandcreates
a(n)________;andwheneconomywidedemandincreasesactualoutput________potentialoutputandcreates
a(n)_________.
A.fallsbelow;recessionarygap;risesabove;expansionarygap
B.fallsbelow;expansionarygap;risesabove;recessionarygap
C.risesabove;expansionarygap;fallsbelow;recessionarygap
D.risesabove;recessionarygap;fallsbelow;expansionarygap
E.fallsbelow;expansionarygap;fallsbelow;recessionarygap

51.TheeconomyofAlphaoperatesaccordingtoOkun'slaw.InAlpha,potentialGDPequals$500billion,the
naturalrateofunemploymentis5%,andtheactualrateofunemploymentis3%.WhatisactualGDPinAlpha?
A.$480billion.
B.$490billion.
C.$500billion.
D.$510billion.
E.$520billion.

52.Iftheactualrateofunemploymentis7%,whatisthenaturalrateofunemploymentifoutputis2%below
potential?
A.4%.
B.5%.
C.6%.
D.7%.
E.8%.

53.Thenaturalrateofunemploymentincludes
A.onlyfrictionalunemployment.
B.frictionalandstructuralunemployment.
C.frictional,structural,andcyclicalunemployment.
D.frictional,structural,andseasonalunemployment.
E.frictionalandseasonalunemployment.

54.InMacroland,potentialGDPequals$500billionandactualGDPequals$450billion.Macrolandhasa(n)
_________gapequalto__________%ofpotentialGDP.
A.expansionary;10
B.expansionary;11
C.recessionary;11
D.recessionary;10
E.recessionary;50

55.Potentialoutputisthe
A.sameasactualoutput.
B.sameastheoutputgap.
C.sameasthenaturalrateofunemployment.
D.amountofoutputproducedwhenresourcesareusedatnormalrates.
E.amountofoutputproducedwhenthereisanexpansionarygap.

56.WhichofthefollowingstatementsisNOTtrueaboutthelabourmarketduringeconomicfluctuations?
A.Theunemploymentraterisesduringrecessions.
B.Theunemploymentraterisesduringexpansions.
C.Thepartofunemploymentthatisassociatedwithrecessionsiscalledcyclicalunemployment.
D.Realwagesgrowslowlyordeclineduringrecessions.
E.Workersarelesslikelytoreceivepromotionsduringrecessions.

57.Therecurrentupsanddownsinthelevelofeconomicactivityextendingoverseveralyearsareadescription
of
A.arecession.
B.abusinesstrough.
C.abusinesscycle.
D.anoncyclicalfluctuation.
E.anexpansionaryphase.

58.Economicactivitymovesthroughaperiodofexpansiontoa_______andthenmovesintoaperiodof
_______untilitreachesa_______.
A.peak;expansion;trough
B.peak;recession;trough
C.trough;expansion;peak
D.trough;recession;peak
E.peak;recession;peak

59.Ifthemarginalpropensitytoimport(m)isgreaterthanzero,theincomeexpendituremultiplierwillbe
___________thevaluewhenmisequaltozero.Also,thelargerthevalueofm,the_________valueofthe
incomeexpendituremultiplier.
A.smallerthan;smaller
B.smallerthan;larger
C.largerthan;smaller
D.largerthan;larger
E.equalto;smaller

60.Onedrawbackinusingfiscalpolicyasastabilizationtoolisthat
A.itdoesnotaffectpotentialoutputinadditiontoplannedaggregateexpenditure.
B.itseffectsarefrequentlyoffsetbyautomaticstabilizers.
C.itisnotalwaysflexibleenoughtousetocloseoutputgaps.
D.itisnotusefulfordealingwithprolongedepisodesofrecession.
E.itdoesnotaffectplannedaggregateexpenditure.

61.Theexperienceoftheperiod19391942convincedmanyCanadianeconomistsoftherealworldrelevance
ofKeynes'explanationofhow__________couldeliminatea(n)________andsharplyreducethe_________.
A.monetarypolicy;inflationarygap;unemploymentrate
B.fiscalpolicy;inflationarygap;unemploymentrate
C.governmentpurchases;recessionarygap;unemploymentrate
D.governmentpurchases;inflationarygap;employmentrate
E.taxationpolicy;recessionarygap;unemploymentrate

62.TheshiftinthePAElineshownintheKeynesiancrossdiagrammaybecausedbywhichofthefollowing?

A.Anincreaseingovernmentpurchases.
B.Anincreaseinthemarginalpropensitytoconsume.
C.Adecreaseingovernmenttransfers.
D.Adecreaseinprivatesectorinvestment.
E.Adecreaseinthemarginalpropensitytoconsume.

63.InMacroland,plannedaggregateexpenditureequals100,000+0.5Y.Ifautonomousgovernmentpurchases
increaseby5000,shortrunequilibriumoutputwillchangefrom
A.100,000to100,200
B.200,000to205,000
C.205,000to210,000
D.200,000to210,000
E.800,000to800,100

64.InthebasicKeynesianmodel,ataxincrease
A.reducesshortrunequilibriumoutput.
B.increasesshortrunequilibriumoutput.
C.reducespotentialoutput.
D.increasespotentialoutput.
E.movesshortrunequilibriumoutputtopotentialoutput.

65.Ifplannedaggregateexpenditure(PAE)inaneconomyequals2,000+0.5Yandpotentialoutput(Y*)
equals4,400,governmentpurchasesmust________toeliminateanyoutputgap.
A.increaseby20
B.increaseby200
C.increaseby250
D.decreaseby200
E.decreaseby250

66.InthebasicKeynesianmodel,toclosearecessionarygapof$5billion,taxesmustbe
A.increasedby$5billion.
B.decreasedby$5billion.
C.increasedbymorethan$5billion.
D.increasedbylessthan$5billion.
E.decreasedbylessthan$5billion.

67.SupposeC=100+0.5(YT)andT=200,I=150,G=250andNX=50.Ifgovernmentpurchasesare
reducedfromG=250toG=210,andatthesametimenetexportsincreasefromNX=50toNX=60,thenet
resultisadecreaseinY(GDP)of
A.20.
B.30.
C.40.
D.50.
E.60.

68.SupposeC=100+0.75(YT)andT=200,I=150,G=250andNX=50.Then,anincreaseinnetexports
fromNX=50toNX=65willresultinanincreaseinY(GDP)of
A.25.
B.35.
C.50.
D.60.
E.75.

69.DataonoutputandplannedaggregateexpenditureinMacrolandaregivenbelow:

Basedonthesedata,theshortrunequilibriumlevelofoutputis_________andtheincomeexpenditure
multiplierequals________.
A.3,000;1.0
B.5,000;1.2
C.5,000;1.5
D.5,000;2.0
E.6,000;5.0

70.ConsidertheCanadianeconomyinitiallyatpotentialoutput.AneconomicexpansionintheU.S._________
thedemandforexportsfromCanada,resultinginanincreaseinCanada'splannedaggregateexpenditureand
a(n)__________outputgapinCanada.
A.reduces;expansionary
B.increases;expansionary
C.reduces;recessionary
D.increases;recessionary
E.reduces;autonomous

71.IntheKeynesiancrossdiagram,the45linerepresentstheshortrunequilibriumconditionthat
____________.
A.Y=PAE
B.I>IP
C.I<IP
D.PAE=C+IP+G+NX
E.Y=Y*

72.Intheshortrun,whenoutputequalsplannedaggregateexpenditure,
A.potentialoutputequalsGDP.
B.plannedprivatesectorinvestmentequalsactualprivatesectorinvestment.
C.autonomousplannedaggregateexpenditureequalsinducedplannedaggregateexpenditure.
D.plannedprivatesectorinvestmentisgreaterthanactualprivatesectorinvestment.
E.plannedprivatesectorinvestmentislessthanactualprivatesectorinvestment.

73.Ron'sDeskCompanyexpectstosell$10,000,000worthofdesksandtoproduce$10,500,000worthof
desksinthecomingyear.Thecompanypurchases$100,000ofnewequipmentduringtheyear.Salesforthe
yearturnouttobe$10,500,000.ActualinvestmentbyRon'sDeskCompanyequals_______andplanned
investmentequals_______.
A.$100,000;$100,000
B.$100,000;$600,000
C.$500,000;$600,000
D.$600,000;$100,000
E.$600,000;$600,000

74.Thefourcomponentsofplannedaggregateexpenditureare
A.spendingondomesticgoods,domesticservices,foreigngoods,andforeignservices.
B.spendingondurablegoods,inventoryinvestment,governmentdebt,andnetexports.
C.consumption,plannedprivatesectorinvestment,governmenttransfers,andnetinterest.
D.consumption,interestpayments,transferpayments,andnetexports.
E.consumption,plannedprivatesectorinvestment,governmentpurchases,andnetexports.

75.ThebasicKeynesianmodelassumesthat,inthe_______,producerssellwhateverisdemandedat_______
prices.It,therefore,assumesthatthepricelevelisconstantandtheinflationrateis_______.
A.shortrun;preset;zero
B.shortrun;preset;low
C.longrun;preset;zero
D.mediumrun;preset;zero
E.shortrun;variable;zero

76.Hyperinflationiscausedbyratesof________ofseveralhundredpercentormoreperyear,whichisusually
theresultofgovernmentsaccumulatinglarge________.
A.GDPgrowth;tradedeficits
B.GDPgrowth;budgetdeficits
C.moneygrowth;tradedeficits
D.moneygrowth;budgetdeficits
E.consumptiongrowth;tradedeficits

77.Themeasureofthespeedatwhichmoneychangeshandsintransactionsinvolvingfinalgoodsandservices
iscalled
A.thespeedofmoney.
B.theaccelerationofmoney.
C.thevelocityofmoney.
D.theforceofmoney.
E.theturnoverofmoney.

78.ThemoneysupplyinMacrolandiscurrently3,000,bankreservesare500,currencyheldbythepublicis
500,andthebanks'desiredreservedepositratiois20%.Assumingthatthevaluesofthecurrencyheldbythe
publicandthedesiredreservedepositratiodonotchange,iftheCentralBankofMacrolandwishestodecrease
themoneysupplyto2,500,thenitshouldconductanopenmarket________governmentbondsto/fromthe
public.
A.purchaseof100
B.purchaseof250
C.purchaseof500
D.saleof100
E.saleof500

79.InMacroland,currencyheldbythepublicis2000econs,bankreservesare300econs,andthedesired
reservedepositratiois10%.Ifthecentralbankprintsanadditional200econsandusesthisnewcurrencyto
buygovernmentbondsfromthepublic,themoneysupplyinMacrolandwillincreasefrom________econsto
_________econs,assumingthatthepublicdoesnotwishtochangetheamountofcurrencyitholds.
A.2,000;2,200
B.2,300;2,500
C.3,000;5,000
D.5,000;7,000
E.5,300;7,500

80.MonetarypolicydecisionsbytheBankofCanadaareimplementedthroughchangesin
A.themoneysupply.
B.theprimerate.
C.thebankrate.
D.theovernightratetarget.
E.longtermrealinterestrates.

81.Anepisodewhendepositors,spurredbynewsorrumoursoftheimminentbankruptcyofaparticularbank,
rushtowithdrawtheirdepositsfromthatbankiscalleda(n)
A.openmarketwithdrawal.
B.openmarketsale.
C.bankingpanic.
D.bankrun.
E.reserverequirementcrisis.

82.Thetableaboverepresentsabank'sTaccount.Supposeitistheonlybankintownandindividualsintown
holdnocash.Assumingthereserveratiois10%,whatwillbethebank'sdepositsandreservesattheendofthe
moneycreationprocess?
A.Depositswillequal$200,000andreserveswillequal$20,000.
B.Bothdepositsandreserveswillequal$200,000.
C.Depositswillequal$2,000,000andreserveswillequal$200,000.
D.Bothdepositsandreserveswillequal$2,000,000.
E.Bothdepositsandreserveswillequal$2,200,000.

83.Bankscouldnotcreatemoneyif
A.therequiredreserveratiowaszero.
B.theBankofCanadastoppedsellingbonds.
C.peopleheldnomoneyascash.
D.peopleheldalltheirmoneyascash.
E.peoplestoppedusingbankmachines.

84.Commercialbankscreatenewmoney
A.byprintingcurrency.
B.byissuingcheques.
C.throughmultipleroundsoflendingandborrowing.
D.whentheybuygovernmentbondsfromtheBankofCanada.
E.whentheyincreasetheirdesiredreservedepositratio.

85.InMacroland,thereis$1,000,000incurrencythatcaneitherbeheldbythepublicorusedbybanksas
reserves.Thebanks'desiredreservedepositratiois10%.IfthepublicofMacrolanddecidestoholdless
currency,decreasingtheproportiontheyholdfrom50%to25%,themoneysupplyinMacrolandwill
A.increase.
B.decrease.
C.remainthesame.
D.mayeitherincreaseordecrease.
E.willincreaseinitially,butthenreturntotheoriginallevel.

86.Basedonthefollowinginformation,computethevalueoftheM2measureofthemoneysupply.

A.$20billion.
B.$50billion.
C.$130billion.
D.$550billion.
E.$630billion.

87.Moneyeliminatestheneedforadoublecoincidenceofwantsprimarilythroughitsuseasa
A.unitofaccount.
B.mediumofexchange.
C.storeofvalue.
D.standardofconfidence.
E.legaltender.

88.Whenmoneyisthebasicmeasureofeconomicvalue,itservesasa
A.financialintermediary.
B.doublecoincidenceofwants.
C.storeofvalue.
D.mediumofexchange.
E.unitofaccount.

89.Iftherewereaninflationarygap,thepropergovernmentpolicieswouldinvolve
A.highergovernmentpurchases,lowertaxes,andahigherkeypolicyrate.
B.highergovernmentpurchases,highertaxes,andahigherkeypolicyrate.
C.lowergovernmentpurchases,highertaxes,andahigherkeypolicyrate.
D.lowergovernmentpurchases,lowertaxes,andalowerkeypolicyrate.
E.highergovernmentpurchases,lowertaxes,andalowerkeypolicyrate.

90.Theepisodeofninesuccessivecutsintheofficialinterestratein2001illustratesthat,despiteitsstatedgoal
ofensuringlowandstableinflation,theBankofCanadaisalsopreparedtoactpreemptivelyto
A.avoidfuturerecessions.
B.avoidfutureinflation.
C.avoidfuturestructuralunemployment.
D.avoidfutureexpansionarygaps.
E.avoidfuturebudgetdeficits.

91.Toeliminatetheoutputgapshowninthefigurebelow,withaviewtopreventinflationfromemerging,the
centralbankshouldtakea(n)_______and_______theofficialinterestratebyasufficientamount.If
successful,suchapolicymaybeexpectedshifttheexpenditureline_______.

A.expansionarymonetarypolicyaction;raise;down
B.contractionarymonetarypolicyaction;raise;down
C.expansionarymonetarypolicyaction;lower;down
D.contractionarymonetarypolicyaction;raise;up
E.expansionarymonetarypolicyaction;raise;up

92.InaneconomyinwhichplannedaggregateexpenditureisgivenbyPAE=3,000+0.75Y10,000r,the
centralbankiscurrentlysettingtheinterestrateat0.06(6%).Ifpotentialoutputequals10,000,thecentralbank
must________theinterestrateto_______torestorefullemployment.
A.lower;3%
B.lower;4%
C.lower;5%
D.raise;7%
E.raise;8%

93.Contractionarymonetarypolicyisa(n)________ininterestrateswiththeintentionofreducinga(n)
________gap.
A.reduction;expansionary
B.reduction;recessionary
C.reduction;inflationary
D.increase;expansionary
E.increase;recessionary

94.Intheshortrun,iftheBankofCanadadecreasesinterestrates,thenconsumptionandinvestment______,
plannedaggregateexpenditure______,andshortrunequilibriumoutput_______.
A.increase;increases;increases
B.increase;increases;decreases
C.increase;decreases;decreases
D.decrease;decreases;increases
E.decrease;decreases;decreases

95.Macroeconomiststypicallyassumethatmostmarketinterestratesmoveintandemwiththecentralbank's
officialinterestrate.Whilethisassumptionallowsthemtospeakof"the"interestrate,itisasimplificationof
thefactthatcentralbanksgenerallyhavebettercontrolover_______thanover_______.
A.shorttermnominalinterestrates;longtermnominalinterestrates
B.shorttermrealinterestrates;shorttermnominalinterestrates
C.longtermnominalinterestrates;shorttermnominalinterestrates
D.longtermmortgagerates;shorttermmortgagerates
E.theprimebusinessrate;theovernightrate

96.TheBankofCanadakeepstheovernightratewithintheoperatingbandbystandingreadyto________
fundsatthelowerlimitofthebandandto________fundsattheupperlimit.
A.lend;borrow
B.lend;lend
C.borrow;lend
D.borrow;borrow
E.giveaway;take

97.Attheendofeachworkingday,anybankwithasurplusoffundswillusethe________tolendfundsto
anotherbankthatisshortoffunds,chargingthe________rate.
A.LargeValuePaymentSystem;overnight
B.LargeValueTransferSystem;overnight
C.LargeValueWireSystem;bank
D.FinancialWireSystem;bank
E.TransferPaymentSystem;primebusiness

98.Theovernightraterefersto
A.theinterestratethatcommercialbankschargetotheirleastriskybusinessborrowers.
B.themarketinterestratethatfinancialinstitutionschargeeachotherforovernightloans.
C.atermusedtodescribetherangeofpossibleovernightinterestrates.
D.theinterestratethattheBankofCanadachargescommercialbanksforovernightloans.
E.accountsheldattheBankofCanadabyfinancialinstitutionsforthepurposeofsettlingtheirnetpayment
obligationstooneanother.

99.Ifovernightfundsintheovernightloansmarketaretradingabovetheovernightratetarget,thentheBankof
Canadawill_______GovernmentofCanadabonds,drivingtheovernightmarketrate______;conversely,if
overnightfundsaretradingbelowtheovernighttargetrate,thentheBankwill_______GovernmentofCanada
bonds,drivingtheovernightinterestrate_______.
A.sell;up;buy;down
B.buy;down;sell;up
C.sell;down;buy;down
D.buy;up;buy;down
E.buy;up;sell;up

100.Underitscurrentoperatingprocedure,theBankofCanadaimplementsmonetarypolicybyannouncinga
targetforthe________,andthenintervenes(ifnecessary)inthe_______inordertomaintainthisratewithina
_______percentagepointoperatingbandaboveandbelowthistarget.
A.overnightrate;overnightloanmarket; 0.50
B.primebusinessrate;moneymarkets; 0.25
C.overnightrate;moneymarkets; 0.25
D.overnightrate;overnightloanmarket; 0.25
E.overnightrate;moneymarkets; 0.50