Question 1

According to the quantity theory of money, if the money supply increases by 10% and both velocity ($$V) $$and real output ($$Q) $$are constant, by what percentage will the average price level ($$P) $$change?

Accepted Answer

It will increase by 10%.

Question 2

Which of the following best describes the relationship shown by the Phillips Curve?

Accepted Answer

An inverse relationship between unemployment and inflation.

Question 3

Suppose the Bank of Canada lowers the overnight rate. What is the most likely immediate macroeconomic effect?

Accepted Answer

Aggregate demand will increase, creating a positive demand shock.

Question 4

If the nominal interest rate is 6% and the inflation rate is 4%, what is the real interest rate?

Accepted Answer

$$6\% - 4\% = 2\%$$

Question 5

Which of the following is NOT considered a leakage in the circular flow model?

Accepted Answer

Government spending

Question 6

A rightward shift of the Long-Run Aggregate Supply (LAS) curve is most likely caused by:

Accepted Answer

An increase in the labour force, such as more women entering the workforce.

Question 7

Which of the following equations correctly represents planned aggregate demand in an open economy?

Accepted Answer

$$C + I + G + X - IM$$

Question 8

If Canadian investment in the rest of the world (R.O.W.) is $$500 million and R.O.W. investment in Canada is 450 $$million, what is the balance on the financial account?

Accepted Answer

A deficit of $50 million.

Question 9

Which of the following is an example of autonomous spending in the aggregate expenditure model?

Accepted Answer

Exports

Question 10

During a balance sheet recession, why might monetary policy become ineffective?

Accepted Answer

Because money's function as a store of value blocks the transmission mechanism.

Question 11

Which of the following would NOT create a demand for Canadian dollars in the foreign exchange market?

Accepted Answer

A Canadian tourist shopping in New York.

Question 12

If the Bank of Canada wants to reduce inflationary pressures, which of the following actions is it most likely to take?

Accepted Answer

Increase the target for the overnight rate.

Question 13

Which of the following is a correct statement about the balance of payments accounts?

Accepted Answer

Flows of Canadian dollars out of Canada are negative numbers.

Question 14

Suppose the velocity of money ($$V) $$and real output ($$Q) $$are constant. If the money supply ($$M) $$increases by 5%, what happens to the price level ($$P) $$according to the quantity theory of money?

Accepted Answer

$$P$$ increases by 5\%.

Question 15

Which of the following is NOT a macroeconomic performance target represented by long-run aggregate supply (LAS)?

Accepted Answer

Stable prices and economic growth

Question 16

Which of the following best describes the effect of an appreciating Canadian dollar?

Accepted Answer

It creates a negative demand shock.

Question 17

If the marginal propensity to consume (MPC) is 0.8, what is the value of the multiplier in the Keynesian model?

Accepted Answer

$$\frac{1}{1 - 0.8} = 5$$

Question 18

Which of the following is an example of induced spending in the aggregate expenditure model?

Accepted Answer

Consumption and imports

Question 19

Which of the following is a positive entry on the Canadian financial account?

Accepted Answer

A French investor buys a winery in British Columbia.

Question 20

If most people expect inflation, what is the most likely outcome according to macroeconomic theory?

Accepted Answer

Their expectations come true.

8.5 - 12 Final Review Questions

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