University of Alberta Version 11 Department of Economics

ECON 102 A1 Fall 2016

Instructor: Mesbah Sharaf

Please copy your Name, Id, Version, and answer in the multiple choice scantron sheet provided

Allowed time: 120 minutes

The exam is 13 pages

The exam is 71 multiple choice

You are allowed to use a nonprogrammable calculator

Some useful Formulas

𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛
• 𝑀𝑃𝐶 = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑣𝑖𝑛𝑔
• 𝑀𝑃𝑆 = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
• 𝑀𝑃𝐶 + 𝑀𝑃𝑆 = 1
𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛
• 𝐴𝑃𝐶 = 𝐷𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
𝑆𝑎𝑣𝑖𝑛𝑔
• 𝐴𝑃𝑆 = 𝐷𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
• 𝐴𝑃𝐶 + 𝐴𝑃𝑆 = 1
• 𝐴𝐸 = 𝐶 + 𝐼 + 𝐺 + 𝑋 − 𝑀
• 𝐸𝑞𝑢𝑖𝑙𝑖𝑏𝑟𝑖𝑢𝑚 𝑐𝑜𝑛𝑑𝑖𝑡𝑖𝑜𝑛 𝑌 = 𝐴𝐸
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐺𝐷𝑃 1
• 𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑚𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔 = 1−𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑜𝑝𝑒𝑛𝑠𝑖𝑡𝑦 𝑡𝑜 𝑠𝑝𝑒𝑛𝑑
• 𝑇𝑎𝑥 𝑚𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐺𝐷𝑃
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑎𝑥𝑒𝑠
= 𝑙𝑒𝑠𝑠 𝑡ℎ𝑎𝑛 𝑡ℎ𝑒 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑚𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 𝑏𝑦 𝑜𝑛𝑒 𝑤𝑖𝑡ℎ 𝑎 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑠𝑖𝑔𝑛
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐺𝐷𝑃
• 𝐵𝑎𝑙𝑎𝑛𝑐𝑒𝑑 𝑏𝑢𝑑𝑔𝑒𝑡 𝑚𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 == 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐺&𝑇 𝑏𝑦 𝑠𝑎𝑚𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 = 1
1
• 𝑀𝑜𝑛𝑒𝑦 𝑚𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑅𝑒𝑠𝑒𝑟𝑣𝑒 𝑅𝑎𝑡𝑖𝑜
• 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑀𝑜𝑛𝑒𝑦 𝐶𝑟𝑒𝑎𝑡𝑖𝑜𝑛 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡 × 𝑀𝑜𝑛𝑒𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟
• 𝑀×𝑉 =𝑃×𝑄
𝑊𝑎𝑔𝑒
• 𝑈𝑛𝑖𝑡 𝐿𝑎𝑏𝑜𝑟 𝐶𝑜𝑠𝑡 =
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦
• 𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 = 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 + 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
𝑃2 −𝑃1
• 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 = ( ) 𝑋100
𝑃1
• 𝑅𝑒𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 − 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒
𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
• 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑟𝑎𝑡𝑒 = 𝑋100
𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑚𝑎𝑟𝑘𝑒𝑡 𝑏𝑎𝑠𝑘𝑒𝑡 𝑖𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟
• 𝐶𝑃𝐼 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑚𝑎𝑟𝑘𝑒𝑡 𝑏𝑎𝑠𝑘𝑒𝑡 𝑖𝑛 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
• 𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 = X100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃

1
1. Which of the following is not money?
a. Paper notes in circulation
b. Savings deposits
c. Coins
d. Demand deposits
e. Credit cards

2. Under a dirty float system, if the central bank believes that its currency is overvalued or rising too fast, which
action might it take?
a. Sell foreign currency in the exchange market
b. Reduce short-term interest rates
c. Buy foreign currency in the exchange markets
d. Raise short-term interest rates
e. Both b & c are correct
3. Under a flexible exchange rate system, what will an expansionary fiscal policy lead to?
a. An increase in foreign reserves
b. A decrease in foreign reserves
c. A depreciation of the domestic currency
d. An appreciation of the domestic currency
e. None of the above
4. Which of the following saving equations would give the largest value of the tax multiplier in absolute value?
a. S = -140 + 0.8(Y-T).
b. S= -90 + 0.7(Y-T).
c. S= -80 + 0.6(Y-T).
d. S= -60 + 0.2(Y-T).
e. S= -30 + 0.9(Y-T).
5. Which of the following would be a credit in the Canadian capital account?
a. 1000 Canadian dollar spent by an American tourist in Edmonton
b. The purchase of a German car by a Canadian
c. A trip to Japan by a Canadian student
d. The purchase of Canadian stocks and bonds by a Chinese investor
e. None of the above

6. Under a floating exchange rate system, if there is a deficit in the current account, what will the balance of
payment eventually be?
a. It will be the same amount as the deficit.
b. It will be positive.
c. It will be negative.
d. It will be zero.
e. None of the above.
7. If the velocity of money increases from 5 to 10, and real GDP increases from $1 billion to $2 billion, what will
the Bank of Canada need to do keep prices the same?
a. It would have to increase the money supply by 50 percent.
b. It would have to decrease the money supply by 100 percent.
c. It would have to increase the money supply by 75 percent.
d. It would have to decrease the money supply by 25 percent.
e. None of the above

2
 Use the following Figure to answer questions 8 to 12
AE 450 line

AE
2040

1200

2100 GDP

8. What is the equilibrium output (GDP)?

a. 1200
b. 1800
c. 2000
d. 2100
e. 2500
9. What is the value of the spending multiplier?
a. 5
b. 4
c. 2
d. 3
e. 1.66
10. Suppose potential GDP= 1800, to close the output gap, by how much the government should change its taxes?
a. Increase T by 303
b. Decrease T by 303
c. Increase T by 500
d. Decrease T by 100
e. Decrease T by 150
11. Suppose potential GDP=1800, to close the output gap, by how much the government should change its spending?
a. Increase G by 100
b. Decrease G by 120.48
c. Increase G by 200
d. Decrease G by 200
e. Decrease G by 150
12. Suppose potential GDP= 1800, to close the output gap, Bank of Canada should
a. Buy government bonds
b. Sell government bonds
c. decrease reserve requirement ratio
d. decrease target overnight rate
e. Do nothing
13. What do economists use the term “crowding in” to describe?
a. The decrease in per capita real GDP from a growing population
b. The law of diminishing returns
c. The effect of a government budget deficit on investment spending
d. The effect of an expansionary monetary policy on investment
e. The effect of a government budget surplus on investment spending

3
14. Which of the following changes in disposable income would lead to the smallest increase in consumption?
a. A $30 000 increase in disposable income, if MPC equals 0.25
b. A $15 000 increase in disposable income, if MPC equals 0.6
c. A $20 000 increase in disposable income, if MPC equals 0.5
d. A $12 000 increase in disposable income, if MPC equals 0.75
15. When does stagflation occur?
a. When unemployment rises and the price level rises
b. When real output falls and the price level falls
c. When real output rises and the price level falls
d. When unemployment falls and the price level rises
e. When unemployment rise and the price level falls
16. In the short run, given a negatively sloped AD, what is the impact of cost-push inflation on unemployment and
the price level?
a. It decreases unemployment and increases the price level.
b. It increases unemployment but not the price level.
c. It increases the price level but not unemployment.
d. It increases both unemployment and the price level.
e. It decreases both unemployment and the price level.
17. What impact would a combination of higher business taxes, reduced expected future profitability of businesses,
and a reduction in the level of new profitable technological investment opportunities have?
a. It would increase the investment demand curve.
b. It would leave the investment demand curve unchanged.
c. It could either increase or decrease the investment demand curve.
d. It would decrease the investment demand curve.
e. It causes a downward movement along the investment demand curve.
18. In the Keynesian AE model, if the autonomous components of consumption, investment, government spending,
and net export spending total $200 billion, and the MPC is 0.8, what will unplanned changes in inventory be
when output is $1000 billion?
a. $10 billion
b. -$8 billion
c. $8 billion
d. -$10 billion
e. None of the above
19. If policymakers wanted to use both monetary and fiscal policy to help reduce the rate of inflation, which of the
following would be most appropriate?
a. A larger budget deficit, the purchase of securities in the open market by the Bank of Canada, and a
higher bank rate
b. A government budget surplus, the purchase of securities in the open market by the Bank of Canada, and
a lower bank rate
c. A larger government budget deficit, the sale of securities in the open market by the Bank of Canada, and
a lower bank rate
d. A government budget surplus, the sale of securities in the open market by the Bank of Canada, and a
lower target overnight rate
e. A government budget surplus, the sale of securities in the open market by the Bank of Canada, and a
higher bank rate

4
20. Which of the following is included in our current GDP?
a. A 5 billion loan from the world bank
b. The revenue from the sale of a two-year-old car
c. The revenues from a sale of land
d. The value of selling a $100 stock in the stock market
e. The fees charged for a stock broker's services
21. How is the Canadian nominal Gross National Product (GNP) is defined?
a. The current-year market value of all final goods and services produced in Canada during a given period
b. The current-year market value of Canadian production of intermediate goods
c. The base-year market value of Canadian production of intermediate goods
d. The base-year market value of all final goods and services produced in Canada during a given period
e. The current-year market value of all final goods and services produced by Canadians during a given
period
22. What likely occurred during 2012 if nominal GDP did not change and real GDP decreased, relative to the
year 2011?
a. Total production of goods and services in the economy did not change in 2012.
b. The economy experienced deflation during 2012.
c. The price level did not change during 2012.
d. Total production of goods and services in the economy declined during 2012.
e. None of the above
23. What will cause the standard of living to increase?
a. If the nominal GDP grows at a slower rate than real GDP
b. If the rate of population growth is less than the rate of growth of real GDP
c. If the rate of population growth exceeds the rate of growth of real GDP
d. If the nominal GDP grows at a faster rate than real GDP
e. None of the above
24. If real GDP per capita is increasing, what can we conclude about real output?
a. It is growing more rapidly than prices.
b. It is growing more rapidly than the population.
c. It is growing less rapidly than the population.
d. It is growing at the same rate as the population.
e. It is growing less rapidly than prices.
25. What annual growth rate will result in a country roughly doubling its GDP in 20 years?
a. 2.5 percent
b. 5 percent
c. 7.5 percent
d. 12 percent
e. 3.5 percent
26. Country A and Country B initially have the same real GDP per capita. Country A experiences no economic
growth, while Country B grows at a sustained rate of 7 percent. In 12 years, how will Country B's GDP
compare to that of Country A’s?
a. It will be approximately one-fourth of Country A’s.
b. It will be approximately one-half of Country A’s.
c. It will be approximately double of Country A’s.
d. It will be approximately triple of Country A’s.
e. None of the above
5
27. Which of the following factors will NOT contribute to economic growth?
a. Technological advances
b. An increase in the minimum wage
c. Growth in physical capital
d. An increase in the productivity of labour
e. An increase in immigration inflows
28. Why does agricultural output tend to increase along with population, in contrast to Malthus’s predictions?
a. Specialization and division of labour tend to increase agricultural output enough.
b. Irrigation, fertilizers, and conservation techniques increase the amount of arable land.
c. In the long run, the land is not a fixed resource.
d. The law of diminishing returns only applies in theory, not in practice.
e. None of the above
29. If Alice's taxes fell by $10 000, other things being equal, which of the following statements about her
consumption is accurate?
a. It would rise by $6000 if her APC was equal to 0.6
b. It would fall by $6000 if her APC was equal to 0.6
c. It would rise by $6000 if her MPC was equal to 0.6
d. It would fall by $6000 if her MPC was equal to 0.6
e. It would rise by $6000 if her MPC was equal to 0.8
30. Which of the following changes in tax income would lead to the smallest increase in consumption?
a. A $20 000 decrease in taxes, if MPC equals 0.5
b. A $12 000 decrease in taxes, if MPC equals 0.75
c. A $30 000 decrease in taxes, if MPC equals 0.25
d. A $15 000 decrease in taxes, if MPC equals 0.6
e. None of the above
31. Which of the following will NOT increase the investment demand curve?
a. The introduction of a new technology offering profitable investment opportunities
b. Business expectations of higher future sales and profits
c. A decrease in the real interest rate
d. Business inventories that have fallen far below desired levels
e. None of the above
32. What impact would a combination of higher business taxes, reduced expected future profitability of
businesses, and a reduction in the level of new profitable technological investment opportunities have?
a. It would increase the investment demand curve.
b. It would leave the investment demand curve unchanged.
c. It could either increase or decrease the investment demand curve.
d. It would decrease the investment demand curve.
e. None of the above.
33. During a recession, governments tend to run budget deficits. What is the result of this on the real interest rate
and investment spending?
a. The real interest rate decreases and investment spending increases.
b. The real interest rate increases and investment spending decreases.
c. Both the real interest rate and investment spending decrease.
d. Both the real interest rate and investment spending increase.
e. Both the real interest rate and investment spending are not affected.
6
34. As the price level decreases, what is the impact on money demand (money supply is unchanged) and the
quantity of real GDP demanded?
a. Money demanded, and the quantity of real GDP demanded both decreases.
b. Money demanded increases and the quantity of real GDP demanded decreases.
c. Money demanded decreases and the quantity of real GDP demanded increases.
d. Money demanded, and the quantity of real GDP demanded both increases.
e. Both the money demanded, and the quantity of real GDP demanded will not be affected.

35. What would happen to aggregate demand (AD) if the federal government increased military purchases and
provincial and local governments decreased their road building budgets at the same time?
a. AD would increase if the change in federal purchases were greater than the change in provincial
and local purchases.
b. AD would increase because only federal government purchases affect AD.
c. AD would decrease if the change in federal purchases were greater than the change in provincial
and local purchases.
d. AD would decrease, because only provincial and local government purchases affect AD.
e. AD would not change.
36. What effect would a reduction in business confidence level, combined with the imposition of new tariffs by
major trading partners, have on aggregate demand (AD)?
a. AD would decrease.
b. AD would stay the same.
c. AD would increase.
d. AD could either increase or decrease, depending on which change was of a greater magnitude.
37. How would an economist describe the supply of money with respect to interest rates?
a. It is perfectly inelastic.
b. It is inelastic.
c. It is elastic.
d. It is perfectly elastic.
e. It is unit elastic.
38. Assume a starting position of macroeconomic equilibrium at the full-employment level of real GDP. In the
short run, what effect will a decrease in the money supply have?
a. It will lower real interest rates, raise the price level, and increase real GDP.
b. It will raise real interest rates, lower the price level, and leave real GDP unchanged.
c. It will raise nominal interest rates, lower the price level, and leave real GDP unchanged.
d. It will raise real interest rates, lower the price level, and reduce real GDP.
e. None of the above
39. The steeper the SRAS curve, what can we conclude?
a. The more unemployment will change in the short run for a given change in AD.
b. The more real output will change in the short run for a given change in AD.
c. The more real output, unemployment, and the price level will change in the short
run for a given change in AD.
d. The less the price level will change in the short run for a given change in AD.
e. The more the price level will change in the short run for a given change in AD.

7
40. What will a decrease in the bank rate when the SRAS is relatively flat likely lead to?
a. A large increase in the price level and an increase in unemployment
b. A large increase in the price level and an increase in real GDP
c. A small increase in the price level and a decrease in real GDP
d. A small increase in the price level and a decrease in unemployment
e. A large increase in the price level and a decrease in unemployment

41. On March 16th, 2012, the Canadian dollar was worth 0.7698 euros. Roughly how many Canadian dollars did
it take to buy one euro?
a. 0.23
b. 0.76
c. 1.299
d. 1.423
e. 1.50
42. If real incomes in foreign nations are growing less rapidly than Canadian real incomes, what would this
result in?
a. There would likely be no effect on the exchange rate of the Canadian dollar relative to other
currencies.
b. The exchange rate of the Canadian dollar would increase relative to other currencies.
c. There would be an indeterminate effect on the exchange rate of the Canadian dollar relative to other
currencies.
d. The exchange rate of the Canadian dollar would decline relative to other currencies.
e. None of the above
43. Other things being constant, which of the following will most likely cause the Canadian dollar to appreciate
on the exchange rate market?
a. Expansionary domestic monetary policy
b. Reduced inflation abroad
c. Higher interest rates abroad
d. Lower domestic interest rates
e. Higher domestic interest rates
44. If the rate of inflation in Canada falls relative to the rate of inflation in foreign nations, what will happen to
the amount of Canadian net exports and subsequently the exchange rate for the Canadian dollar?
a. It will increase net exports, which in turn will increase the value of the Canadian dollar.
b. It will decrease net exports, which in turn will increase the value of the Canadian dollar.
c. It will decrease net exports, which in turn will decrease the value of the Canadian dollar.
d. It will increase net exports, which in turn will decrease the value of the Canadian dollar.
e. It will increase net exports and would have no effect on the value of the Canadian dollar.
45. Under a flexible exchange rate system, what will an expansionary monetary policy lead to?
a. A depreciation of the domestic currency
b. An appreciation of the domestic currency
c. A decrease in foreign reserves
d. An increase in foreign reserves
e. None of the above

8
46. When you write your rent cheque on your credit union account, and your landlord deposits it in his account
at the Bank of Montreal, what will be the impact in the banking system?
a. Chartered bank reserves will rise.
b. Deposits at the Bank of Canada will fall.
c. Deposits at the Bank of Canada will rise.
d. M2 will increase, and M2+ will fall.
e. Both M2 and M2+ will increase.
47. Other things being equal, if you took money out of your savings deposit account in a non-charted bank and
put it in a demand deposit account in a charted bank, what would be the effect on M2 and M2+?

a. Both M2 and M2+ would increase.

b. Both M2 and M2 would decrease
c. M2 will increase, and M2+ would decrease.
d. M2 will increase, and M2+ would not change.
e. M2 will not change, and M2+ would decrease.
48. Other things being constant, if the public decides to hold more money in the form of currency rather than
chequing deposits in charted banks, what will be the effect on bank reserves and M2? Hint: take the
deposit creation process into account.
a. Bank reserves will increase, and M2 will ultimately decline as well.
b. Bank reserves will decline, and M2 will ultimately increase as well.
c. Bank reserves will decline, and M2 will ultimately decline as well.
d. Bank reserves will increase, and M2 will ultimately increase as well.
e. Bank reserves will decline, and M2 will not change
49. If the desired reserve ratio is 15 percent and a customer makes a new cash deposit of $50 000, how much
new excess reserves are created?
a. $7500
b. Roughly $33 000
c. $67 500
d. $50 000
e. $42 500
50. What impact will a decrease in the excess reserves banks want to hold, together with people taking currency
out of their demand deposit accounts, have on the money supply?
a. It would leave the money supply unchanged.
b. It would decrease the money supply.
c. It would have an indeterminate effect on the money supply.
d. It would increase the money supply.
e. None of the above.
51. If banks desired a 100 percent reserve ratio, what would a $10 000 reduction in banking reserves decrease
the money supply by?
a. $1000
b. $10 000
c. $100 000
d. $1 000 000
e. None of the above

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 Use the following information to answer question 52 to 54

A bank's assets consist of $500 000 in total reserves, $1,600,000 in loans, and a building worth $1,200, 000.
Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.

52. Refer to the given information. If the desired reserve ratio is 10 percent, what is the level of the bank's excess
reserves and how much could it loan out as a result?
a. Excess reserves are $200,000 and it could loan out $200, 000.
b. Excess reserves are $200,000 and it could loan out $2,000,000.
c. Excess reserves are $300,000 and it could loan out $300, 000.
d. Excess reserves are $300,000 and it could loan out $3,000,000.
e. Excess reserves are $500,000 and it could loan out $3,000, 000.
53. Refer to the given information. If the desired reserve ratio is 25 percent, what is the level of the bank's excess
reserves and how much money could the excess reserves be used to create in the banking system as a
result?
a. Excess reserves are $250,000 and could be used to create $1,000,000 in the banking system.
b. Excess reserves are $500,000 and could be used to create $2,000,000 in the banking system.
c. Excess reserves are $500,000 and could be used to create $500,000 in the banking system.
d. Excess reserves are zero and could not be used to create any money in the banking system.
e. None of the above
54. Refer to the given information. If the desired reserve ratio is 40 percent, what is the level of the bank's excess
reserves?
a. Excess reserves are $500 000.
b. Excess reserves are zero.
c. The bank has insufficient reserves to meet its reserve requirements.
d. Excess reserves are $200 000.
e. None of the above
55. If the number of employed persons in a country equals 24 million, the number of unemployed persons equals
8 million, and the number of persons over age 16 in the population equals 40 million, what is the
unemployment rate?
a. 8 percent
b. 20 percent
c. 25 percent
d. 32 percent
e. 30 percent
56. Billy loses his job as a road construction worker and cannot find another position with equivalent pay and
benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a
weekly basis. According to economists, what is he considered to be?
a. A discouraged worker
b. Out of the labour force
c. Underemployed
d. Unemployed

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57. Under what circumstances might the unemployment rate overestimate the true extent of unemployment?
a. If many part-time employees would like to work full-time, but are unable to get the additional work
b. If people become discouraged and stop looking for work
c. If people falsely claim that they are actively seeking work to receive unemployment benefits
d. If employees increases the number of hours that they work overtime
e. None of the above
58. If Roger voluntarily leaves his job as a mechanic and spends a period of time seeking another, what kind of
unemployment is he facing?
a. Structural unemployment
b. Seasonal unemployment
c. Frictional unemployment
d. Cyclical unemployment
e. Natural unemployment
59. If the CPI was 100 in the base year and 96 in the following year, what was the inflation rate?
a. -4 percent
b. 4 percent
c. 96 percent
d. 100 percent
e. None of the above
60. What is the term for the type of unemployment that occurs because of a recession?
a. Frictional unemployment
b. Seasonal unemployment
c. The natural rate of unemployment
d. Cyclical unemployment
e. Structural unemployment
61. Given a fixed nominal interest rate on loan, what is the result of an unanticipated inflation?
a. It decreases the burden of paying off the loan
b. It benefits savers
c. It does not alter the burden of paying off the loan
d. It increases the burden of paying off the loan
e. None of the above
62. If the target for the overnight lending rate is 1 percent, what would be the respective deposit rate?
a. 0.5 percent
b. 1.25 percent
c. 0.25 percent
d. 1.5 percent
e. 0.75 percent

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63. GDP equals $2000 billion. If consumption equals $690 billion, investment equals $200 billion, and
government spending equals $260 billion, what can we conclude about the value of exports and imports
for the country?
a. Imports exceed exports by $50 billion.
b. Exports exceed imports by $50 billion.
c. Imports exceed exports by $150 billion.
d. Exports exceed imports by $150 billion.
e. None of the above

64. If wages increase 10 percent while worker productivity increases 20 percent, what would we expect the
short-run aggregate supply curve to do?
a. Shift left (an increase in aggregate supply)
b. Shift right (an increase in aggregate supply)
c. Shift right (a decrease in aggregate supply)
d. Shift left (a decrease in aggregate supply)
e. Aggregate supply would not shift

65. If a one-time natural disaster such as an earthquake struck, raising the cost of production, what would the
result on the short-run and long-run aggregate supply curves be?
a. It would shift LRAS left, but leave SRAS unchanged.
b. It would leave both the SRAS and LRAS unchanged.
c. It would shift SRAS left, but leave LRAS unchanged.
d. It would shift both the SRAS and the LRAS left.
e. None of the above

66. What happens to the price level and real output during the market adjustment from an inflationary gap?
a. The price level increases and real output decreases.
b. The price level decreases and real output increases.
c. The price level increases and real output increases.
d. The price level decreases and real output decreases.
e. None of the above.

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 For questions 67 to 71, refer to the following equations:

Consumption expenditure: C = 100 + 0.8 Yd Lump-sum constant taxes: T = 100

Investment expenditure: I = 1100 – 200i Exports: X= 50
Government expenditure: G = 100 Imports: M=20
Money demand MD=100- 1000i Money supply: MS= 50

Where i is the interest rate, Y is the real GDP; Yd is the disposable income

67. What is the equilibrium Y?

a. 5,850
b. 6,750
c. 7,000
d. 8,310
e. None of the above

68. What is the equilibrium saving?

a. 4,980
b. 5,774
c. 6,213
d. 6,450
e. 1,220

69. Suppose G rises by 100 $ because of increased expenditure on education. What is the new equilibrium Y?
a. 6,700
b. 7,700
c. 8,300
d. 4,400
e. 4,600

70. As Government spending on education increased by 100 $, suppose educational service workers spend their
new income on clothing, following the equations given above. This round 2 effect implies that ____ dollars
clothing will be produced.
a. 50
b. 60
c. 80.
d. 70
e. 100

71. Continue from question 69 & 70: If we continue with these rounds, we expect the total increase in Y to be
equal to ___
a. 100.
b. 500.
c. 420.
d. 450
e. None of the above.

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