Q: If the Consumer Price Index (CPI) increases from 120 to 126 over one year, what is the annual inflation rate?

$$\frac{126 - 120}{120} \times 100\% = 5\%$$

Question 1

Which of the following best describes the difference between nominal and real national income?

Accepted Answer

Nominal national income is measured in current dollars, while real national income is measured in constant (base-period) dollars.

Question 2

Suppose the actual output ($$Y) in an $$economy is $$1,800$$ billion and the potential output ($$Y^*) is$$ $$2,000$$ billion. What is the output gap, and what type of gap does this represent?

Accepted Answer

Output gap = $$Y - Y^* = 1,800 - 2,000 = -200$$ billion; this is a recessionary gap.

Question 3

Which phase of the business cycle is characterized by increasing real GDP following a period of decline?

Accepted Answer

Recovery

Question 4

If the unemployment rate rises sharply during a recession, which of the following is most likely to occur?

Accepted Answer

An increase in social unrest and potential mental health issues

Question 5

Labour productivity is best defined as:

Accepted Answer

The level of real GDP divided by the level of employment or total hours worked.

Question 6

Which of the following statements about inflation is correct?

Accepted Answer

Inflation is the percentage change in the price level from one period to the next.

Question 7

If the nominal interest rate is $$5\%$$ and the inflation rate is $$2\%$$, what is the real interest rate?

Accepted Answer

$$3\%$$

Question 8

Suppose the Canadian dollar appreciates against the US dollar. Which of the following is a likely consequence for Canadian exporters?

Accepted Answer

Canadian exports become more expensive for US buyers, potentially reducing export volumes.

Question 9

Net exports are defined as:

Accepted Answer

The difference between exports and imports.

Question 10

Which of the following best explains why long-term economic growth is important?

Accepted Answer

It is the main determinant of a society's generation-to-generation living standards.

Question 11

If the Consumer Price Index (CPI) increases from 120 to 126 over one year, what is the annual inflation rate?

Accepted Answer

$$\frac{126 - 120}{120} 	imes 100\% = 5\%$$

Question 12

Which of the following is NOT a key macroeconomic variable discussed in Chapter 4?

Accepted Answer

Stock market index

Question 13

During which phase of the business cycle is the economy most likely to experience high unemployment and low output?

Accepted Answer

Trough

Question 14

If the output gap is positive, which of the following is true?

Accepted Answer

Actual output exceeds potential output, indicating an inflationary gap.

Question 15

Which of the following is a likely effect of unanticipated inflation?

Accepted Answer

There are changes in the real value of prices and wages, leading to potential distortions in resource allocation.

Question 16

Suppose the Bank of Canada raises the bank rate. What is the most likely immediate effect on the prime rate and borrowing costs for businesses?

Accepted Answer

The prime rate will rise, increasing borrowing costs.

Question 17

Which of the following best describes the relationship between employment (E), unemployment (U), and the labour force (LF)?

Accepted Answer

$$LF = E + U$$

Question 18

If Canada experiences a depreciation of its currency, what is the most likely effect on its net exports, all else equal?

Accepted Answer

Net exports will increase because Canadian goods become cheaper for foreigners.

Question 19

Which of the following is a correct statement about the business cycle?

Accepted Answer

A trough is followed by a recovery phase.

Question 20

Which of the following is a reason why government policy is relevant for both long-run growth and short-run fluctuations?

Accepted Answer

Government policy can influence both the economy's growth rate over time and its response to business cycle fluctuations.

Chapter 4: What Macroeconomics Is All About – Key Macroeconomic Variables and Growth Versus Fluctuations

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