$$\text{Unemployment Rate} = \frac{\text{Number of Unemployed}}{\text{Labour Force}} \times 100$$

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

Question 1

Which of the following best describes the difference between nominal GDP and real GDP as shown in the table for the years 2000–2002?

Accepted Answer

Nominal GDP uses current year prices and quantities, while real GDP uses base year prices and current year quantities.

Question 2

Suppose the price level doubles while the quantity of output remains constant. What happens to nominal GDP and real GDP?

Accepted Answer

Nominal GDP doubles, but real GDP remains unchanged.

Question 3

Refer to the business cycle diagram. What phase is the economy in when actual GDP is below potential GDP?

Accepted Answer

Recession

Question 4

If the output gap is negative, as shown in the output gap graph, what does this indicate about the economy?

Accepted Answer

The economy is experiencing a recessionary gap with actual output below potential output.

Question 5

Given the unemployment rate graph during the COVID-19 pandemic, what type of unemployment increased most sharply?

Accepted Answer

Cyclical unemployment

Question 6

Which formula correctly calculates the unemployment rate?

Accepted Answer

$$	ext{Unemployment Rate} = \frac{	ext{Number of Unemployed}}{	ext{Labour Force}} 	imes 100$$

Question 7

Why is productivity, as measured by real GDP per worker, important for long-term living standards?

Accepted Answer

Higher productivity leads to higher average material living standards over time.

Question 8

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

Accepted Answer

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

Question 9

Which of the following best explains why unanticipated inflation can be problematic for an economy?

Accepted Answer

It causes unexpected changes in the real value of wages and prices, leading to resource misallocation.

Question 10

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 11

Which of the following would most likely cause the Canadian dollar to depreciate relative to the U.S. dollar?

Accepted Answer

A rise in Canadian inflation relative to U.S. inflation.

Question 12

If Canada’s exports increase while imports remain constant, what happens to net exports and aggregate demand?

Accepted Answer

Net exports increase, leading to higher aggregate demand.

Question 13

Which of the following is an example of structural unemployment?

Accepted Answer

A worker loses their job because their skills are no longer needed in the economy.

Question 14

Which policy tool is most directly used by the Bank of Canada to influence short-term interest rates?

Accepted Answer

The policy (target) interest rate.

Question 15

If actual GDP is above potential GDP, what is the likely consequence for inflation?

Accepted Answer

Inflation is likely to rise due to an inflationary gap.

Question 16

Which of the following best describes the long-term trend in real GDP per worker in Canada since 1976, as shown in the productivity graph?

Accepted Answer

It has increased steadily, indicating rising productivity.

Question 17

Which of the following statements about government policy and economic growth is most accurate?

Accepted Answer

There is debate about how much government policy can influence long-run economic growth.

Question 18

If the Bank of Canada lowers its policy rate, what is the most likely short-term effect on the Canadian dollar?

Accepted Answer

The Canadian dollar is likely to depreciate.

Question 19

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

Accepted Answer

Stock market index

Chapter 4: What Macroeconomics Is All About – Key Variables, Trends, and Policy

Study Guide - Practice Questions