Q: A country has a nominal GDP of $1,000$ billion and a GDP deflator of $125$. What is its real GDP?

$\text{Real GDP} = \frac{\$1,000 \text{ billion}}{1.25} = \$800 \text{ billion}$

Question 1

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

The total value of all final goods and services produced within a country's borders in a given period.

Question 2

Suppose the Canadian government increases its spending by $10 billion. If the marginal propensity to consume (MPC) is 0.8, what is the total change in GDP according to the simple spending multiplier?

Accepted Answer

The spending multiplier is $\frac{1}{1-0.8} = 5$, so the total change in GDP is $10 	ext{ billion} 	imes 5 = 50 	ext{ billion}$.

Question 3

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

Accepted Answer

Increase the policy interest rate to reduce aggregate demand.

Question 4

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

Accepted Answer

Purchases of used cars by consumers.

Question 5

A country has a nominal GDP of $1,000$ billion and a GDP deflator of $125$. What is its real GDP?

Accepted Answer

$	ext{Real GDP} = \frac{\$1,000 	ext{ billion}}{1.25} = \$800 	ext{ billion}$

Question 6

Which of the following best explains the difference between fiscal policy and monetary policy?

Accepted Answer

Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.

Question 7

If the unemployment rate is 7% and the natural rate of unemployment is 5%, what type of unemployment is most likely present in the economy?

Accepted Answer

Cyclical unemployment

Question 8

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

Accepted Answer

Exports decrease and imports increase.

Question 9

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

Accepted Answer

Unemployment insurance benefits that increase during a recession.

Question 10

If the money supply increases by 10% and the velocity of money and real output remain constant, what happens to the price level according to the quantity theory of money?

Accepted Answer

The price level increases by 10%. ($MV = PY$)

Question 11

Which of the following would cause a rightward shift in the aggregate demand curve?

Accepted Answer

An increase in consumer confidence leading to higher consumption.

Question 12

Suppose the government runs a budget deficit. Which of the following is a possible consequence in the loanable funds market?

Accepted Answer

An increase in the real interest rate due to higher demand for loanable funds.

Question 13

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment resulting from a mismatch between workers' skills and the skills demanded by employers.

Question 14

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

Accepted Answer

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

Question 15

Which of the following is most likely to increase long-run economic growth?

Accepted Answer

An increase in investment in physical capital and technology.

Question 16

If the Bank of Canada sells government bonds in the open market, what is the likely effect on the money supply and interest rates?

Accepted Answer

The money supply decreases and interest rates increase.

Question 17

Suppose the Consumer Price Index (CPI) was 120 last year and is 126 this year. What is the annual inflation rate?

Accepted Answer

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

Question 18

Which of the following would be considered a leakage from the circular flow of income?

Accepted Answer

Household savings deposited in banks.

Question 19

If Canada experiences an increase in productivity, what is the most likely long-term effect on its aggregate supply curve?

Accepted Answer

The long-run aggregate supply curve shifts to the right.

Question 20

Which of the following best describes the concept of the 'natural rate of unemployment'?

Accepted Answer

The unemployment rate when the economy is producing at its potential output, including only frictional and structural unemployment.

ECON*1100 Introductory Macroeconomics – Course Structure and Key Concepts

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