1BB3 Practice Test #2 Fall 2016

1. The Lee family won a $50 million jackpot and made several major purchases. Which of their purchases would be
counted as investment when calculating Canadian GDP by the expenditure approach?
a. the villa they just built in the Swiss Alps for $2 million
b. the second-hand yacht they purchased for $1 million and expect to sell for a profit before year’s end
c. the vintage Rolls Royce car they purchased in London for $500,000
d. the new house they built in Calgary for $200,000 to serve as living quarters for their ten new servants

Consumption $2,000
Gross investment $600
Government purchases $500
Net exports - $40
Transfer payments $340

2. Refer to the data in the exhibit. What is GDP?

a. $2,720
b. $3,060
c. $3,140
d. $3,400

3. Which of the following would NOT be included in an economist’s definition of investment spending?
a. the purchase of robots by Motor Magic Manufacturing
b. the construction of a new office building by the Mountain City Real Estate Company
c. the purchase of Bombardier stock by a pension fund
d. the purchase of a new pizza oven by H and R Pizza

4. Suppose real GDP equals $200 billion this year and nominal GDP equals $300 billion. How much has the price level
increased since the base year?
a. 33 percent
b. 50 percent
c. 100 percent
d. 150 percent

5. Most, but not all, athletic apparel sold in Canada is imported from other nations. If the price of athletic apparel increases,
what will happen to the GDP deflator?
a. It will increase less than the consumer price index will.
b. It will increase more than the consumer price index will.
c. It will not increase, but the consumer price index will increase.
d. It will increase, but the consumer price index will not increase.
1BB3 Practice Test #2 Fall 2016

6. Refer to the graph in the exhibit. Which of the following best describes the situation at point C?
a. Consumption expenditures exceed disposable income.
b. Producers are experiencing an unexpected loss in inventory.
c. Aggregate expenditure is exactly equal to real GDP.
d. Real GDP exceeds aggregate expenditure.

7. On the aggregate expenditure graph, if autonomous saving decreases by $15 billion. What will be the effect on the
aggregate expenditure line?
a. The aggregate expenditure line will shift upward by $15 billion
b. The aggregate expenditure line will stay in the same position.
c. The aggregate expenditure line will shift downward by $15 billion.
d. The aggregate expenditure line will first shift downward, and then it will shift upward by $15 billion.

8. Suppose the marginal propensity to consume equals 0.9. What is the multiplier?
a. 1
b. 2
c. 5
d. 10

9. Which of the following would NOT occur if the price level changes?
a. a shift in the aggregate demand curve
b. a shift in the aggregate expenditure curve
c. a new value for equilibrium real GDP demanded
d. a change in the real value of dollar-denominated assets
1BB3 Practice Test #2 Fall 2016
10. Why is the expected price level significant?
a. because it is the equilibrium price level in the short run
b. because it determines the actual price level in the short run
c. because it determines the actual price level in the long run
d. because firms and resource owners make long-term agreements based on the expected price level

11. Suppose the price level rises by 4 percent and the nominal wage rises 6 percent. How is the real wage affected?
a. It falls by 2 percent.
b. It falls by 10 percent.
c. It rises by 2 percent.
d. It rises by 10 percent.

12. Suppose the economy is producing beyond its potential output level. Which of the following best describes the state of
the economy?
a. The economy is producing beyond the natural rate of unemployment.
b. The economy is producing at its maximum capacity.
c. The economy is producing less than its productive capacity.
d. The economy is producing at less than its natural rate of unemployment.

13. Which of the following is NOT a factor in determining potential output?

a. the supply of labour
b. labour productivity
c. the technology in current use
d. the number of consumers in the market

14. In constructing the short-run aggregate supply curve, how would an economist define the short run?
a. a period during which the price level is constant
b. a period during which output is fixed
c. a period during which profit is constant
d. a period during which the costs of some resources are fixed

15. Which of the following people would be counted in the labour force?
a. Chou, who lost his job and last looked for work five months ago
b. Stephanie, who holds a Ph.D. in history, but can find only part-time employment at a fast-food restaurant
c. Jordan, who would like to work as a stockbroker but is now a househusband
d. Steffan, who thinks he could easily earn $100,000 per year, despite the opinion of the psychiatrist at the
hospital where he is a resident patient

16. Which of the following describes the labour force participation rates in Canada since the 1950s?
a. The rate for men has risen and the rate for women has risen.
b. The rate for women has fallen and the rate for men has risen.
c. The rate for men has fallen and the rate for women has increased.
d. The rate for men has fallen and the rate for women has fallen.
1BB3 Practice Test #2 Fall 2016

17. What type of unemployment is most likely to help the economy become more efficient?
a. cyclical
b. structural
c. seasonal
d. frictional

18. Suppose the expected inflation rate is 4 percent and the nominal interest rate is 9 percent. What is the expected real
interest rate?
a. 13 percent
b. 9 percent
c. 5 percent
d. –5 percent

19. 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

20. What does human capital represent?

a. the equipment that labour uses on the job to improve labour productivity
b. a direct method of measuring output per worker
c. the education, skills, and training embodied in workers
d. the technology, developed by humans, that is embodied in equipment

21. Suppose a nation moves upward along its per-worker production function. In terms of relating output per worker to
capital per worker, how will labour productivity be affected?
a. Labour productivity will rise.
b. Labour productivity will fall.
c. Labour productivity will remain the same.
d. Labour productivity will first rise and then fall.

22. Which government policy uses taxes, subsidies, and regulation for the purpose of giving domestic industry an
advantage?
a. research and development policy
b. economic development policy
c. industrial policy
d. trade policy
1BB3 Practice Test #2 Fall 2016

23. Suppose the interest rate increases. Other things constant, how will the loanable funds market be affected?
a. The demand for loanable funds curve will shift to the right.
b. The demand for loanable funds curve will shift to the left.
c. The quantity of loanable funds supplied will decrease.
d. The quantity of loanable funds demanded will decrease.

24. What causes demand-pull inflation?

a. an inward shift of the aggregate demand curve
b. an inward shift of the aggregate supply curve
c. an outward shift of the aggregate demand curve
d. an outward shift of the aggregate supply curve