Q: If the Consumer Price Index (CPI) was $$120 in 2020 $$and $$126 in 2021$$, what was the rate of inflation between these years?

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

Q: If the number of people unemployed is $$150,000$$ and the number of people in the labour force is $$2,000,000$$, what is the unemployment rate?

$$\frac{150,000}{2,000,000} \times 100 = 7.5\%$$

Question 1

Which of the following best describes the difference between nominal national income 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 of the following is NOT a phase of the business cycle?

Accepted Answer

Expansion

Question 4

If the Consumer Price Index (CPI) was $$120 in 2020 $$and $$126 in 2021$$, what was the rate of inflation between these years?

Accepted Answer

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

Question 5

Which of the following best explains why inflation matters to households and firms?

Accepted Answer

Inflation reduces the real value of any sum fixed in nominal (dollar) terms.

Question 6

Labour productivity is best defined as:

Accepted Answer

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

Question 7

If the number of people unemployed is $$150,000$$ and the number of people in the labour force is $$2,000,000$$, what is the unemployment rate?

Accepted Answer

$$\frac{150,000}{2,000,000} 	imes 100 = 7.5\%$$

Question 8

Which of the following is an example of structural unemployment?

Accepted Answer

A worker who loses their job because their skills are no longer in demand due to technological change.

Question 9

Which of the following statements about the trade balance is correct?

Accepted Answer

The trade balance is the difference between exports and imports, also called net exports.

Question 10

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

Accepted Answer

$$5\% - 2\% = 3\%$$

Question 11

During which phase of the business cycle is cyclical unemployment most likely to increase?

Accepted Answer

Recession

Question 12

Which of the following best describes the effect of unanticipated inflation?

Accepted Answer

It generally leads to more changes in the real value of prices and wages.

Question 13

Suppose Canada’s exports are $$600$$ billion and imports are $$650$$ billion. What are net exports, and what does this indicate about the trade balance?

Accepted Answer

$$Net\ Exports = 600 - 650 = -50$$ billion; this is a trade deficit.

Question 14

Which of the following is most likely to increase material living standards over the long term?

Accepted Answer

A sustained increase in labour productivity.

Question 15

If the Canadian dollar appreciates relative to the US dollar, what is the most likely effect on Canadian exports to the US?

Accepted Answer

Canadian exports to the US will likely decrease because Canadian goods become more expensive for Americans.

Question 16

Which of the following is a correct formula for calculating the unemployment rate?

Accepted Answer

$$Unemployment\ Rate = \frac{Number\ of\ people\ unemployed}{Number\ of\ people\ in\ the\ labour\ force} 	imes 100$$

Question 17

Which of the following statements about long-term economic growth is correct?

Accepted Answer

Long-term economic growth receives less media attention but is more important for living standards from generation to generation.

Question 18

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

Accepted Answer

Stock market index

Question 19

During a period of recession, which of the following is most likely to occur?

Accepted Answer

The output gap is negative and recessionary.

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

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