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

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

Q: Suppose the government increases its spending by $100 million, and the marginal propensity to consume (MPC) is 0.8. What is the total change in GDP according to the simple spending multiplier?

$$\frac{1}{1 - 0.8} \times 100 = 500$$ million

Question 1

Which of the following best describes the primary focus of macroeconomics?

Accepted Answer

The study of the economy as a whole, including aggregate output, employment, and inflation.

Question 2

Suppose the Canadian unemployment rate falls from 6.9% to 6.4% over a year, while inflation rises from 1.9% to 2.7%. Which of the following best explains this scenario using the Phillips Curve concept?

Accepted Answer

A decrease in unemployment is typically associated with an increase in inflation.

Question 3

If the Bank of Canada raises its policy interest rate by 0.25 percentage points, what is the most likely immediate effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease as borrowing becomes more expensive.

Question 4

Which of the following equations correctly represents the calculation of Gross Domestic Product (GDP) using the expenditure approach?

Accepted Answer

$$GDP = C + I + G + (X - M)$$

Question 5

A country experiences a negative demand shock. Which of the following is the most likely short-run effect on output and unemployment?

Accepted Answer

Output decreases and unemployment increases.

Question 6

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 7

Which of the following best describes the role of fiscal policy in stabilizing the economy?

Accepted Answer

Fiscal policy uses government spending and taxation to influence aggregate demand.

Question 8

Suppose the government increases its spending by $100 million, and the marginal propensity to consume (MPC) is 0.8. What is the total change in GDP according to the simple spending multiplier?

Accepted Answer

$$\frac{1}{1 - 0.8} 	imes 100 = 500$$ million

Question 9

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Purchases of stocks and bonds

Question 10

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

Accepted Answer

Increase the policy interest rate

Question 11

Which of the following best explains why real GDP is a better measure of economic growth than nominal GDP?

Accepted Answer

Real GDP is not affected by changes in the price level.

Question 12

Suppose the Canadian dollar appreciates relative to the US dollar. What is the most likely effect on Canadian net exports?

Accepted Answer

Net exports will decrease because Canadian goods become more expensive for Americans.

Question 13

Which of the following is an example of an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance payments

Question 14

If the labor force is 20 million and 1.2 million people are unemployed, what is the unemployment rate?

Accepted Answer

$$\frac{1.2}{20} 	imes 100 = 6\%$$

Question 15

Which of the following would most likely cause a rightward shift in the aggregate supply curve?

Accepted Answer

A technological innovation that increases productivity

Question 16

If the government increases taxes and decreases spending at the same time, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease.

Question 17

Which of the following best describes the concept of 'crowding out' in macroeconomics?

Accepted Answer

Government borrowing raises interest rates, reducing private investment.

Question 18

Suppose the economy is operating below potential output. Which policy mix is most likely to return the economy to full employment?

Accepted Answer

Increase government spending and/or decrease taxes.

Question 19

Which of the following is a likely consequence of persistent inflation above the central bank's target?

Accepted Answer

The central bank may raise interest rates to reduce inflation.

Question 20

If the marginal propensity to consume (MPC) is 0.75, what is the value of the simple spending multiplier?

Accepted Answer

$$\frac{1}{1 - 0.75} = 4$$

Principles of Macroeconomics: Course Outline and Study Guide

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