Q: Suppose real GDP in Canada was $$2,058$$ billion in 2023 and $$2,125$$ billion in 2024. What is the growth rate of real GDP from 2023 to 2024? Use the formula $$\frac{\text{Current} - \text{Previous}}{\text{Previous}} \times 100\%.$$

$$\frac{2,125 - 2,058}{2,058} \times 100\% = 3.3\%$$

Question 1

Which of the following best describes the difference between long-run economic growth and the business cycle?

Accepted Answer

Long-run economic growth is the process by which rising productivity increases the average standard of living, while the business cycle consists of short-run fluctuations between economic expansion and recession.

Question 2

Suppose real GDP in Canada was $$2,058$$ billion in 2023 and $$2,125$$ billion in 2024. What is the growth rate of real GDP from 2023 to 2024? Use the formula $$\frac{	ext{Current} - 	ext{Previous}}{	ext{Previous}} 	imes 100\%.$$

Accepted Answer

$$\frac{2,125 - 2,058}{2,058} 	imes 100\% = 3.3\%$$

Question 3

If the average annual growth rate of real GDP per capita is $$5\%$$, approximately how many years will it take for real GDP per capita to double? Use the Rule of 70.

Accepted Answer

$$70 \div 5 = 14$$ years

Question 4

Which of the following is NOT a key factor that determines long-run economic growth?

Accepted Answer

Short-term changes in government spending

Question 5

What is the most common measure of living standards used in macroeconomics?

Accepted Answer

Real GDP per capita

Question 6

Which of the following best describes the role of property rights in economic growth?

Accepted Answer

Secure property rights encourage investment, innovation, and long-term planning.

Question 7

Suppose the government runs a budget deficit. What is the likely effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, raising the real interest rate and reducing funds available to firms (crowding out).

Question 8

In a closed economy, which equation correctly expresses investment ($$I) in $$terms of GDP ($$Y$$), consumption ($$C$$), and government purchases ($$G$$)?

Accepted Answer

$$I = Y - C - G$$

Question 9

Which of the following is a service provided by the financial system?

Accepted Answer

All of the above

Question 10

If actual GDP is below potential GDP, what does this indicate about the economy?

Accepted Answer

Resources are underused and the economy is likely in a recession.

Question 11

Which of the following equations correctly expresses private saving ($$S_{Private}$$)?

Accepted Answer

$$S_{Private} = Y + TR - C - T$$

Question 12

During a recession, what typically happens to the unemployment rate and inflation rate?

Accepted Answer

Unemployment rises and inflation falls.

Question 13

Suppose technological change makes investments more profitable for firms. What is the likely effect on the market for loanable funds?

Accepted Answer

The demand for loanable funds increases, raising the real interest rate and the quantity of funds loaned.

Question 14

Which of the following best describes the concept of crowding out?

Accepted Answer

An increase in government purchases leads to a decline in private expenditures.

Question 15

Which of the following is true about the relationship between saving and investment in a closed economy?

Accepted Answer

Saving must equal investment.

Question 16

If the government collects $$T in $$taxes, spends $$G on $$purchases, and pays $$TR in $$transfers, what is the equation for public saving ($$S_{Public}$$)?

Accepted Answer

$$S_{Public} = T - G - TR$$

Question 17

Which of the following is a plausible reason why the effect of government budget deficits on the equilibrium interest rate is relatively small?

Accepted Answer

Global saving influences interest rates, so even large deficits are small relative to the global market.

Question 18

Which of the following best describes the business cycle?

Accepted Answer

The business cycle consists of short-run fluctuations in real GDP around its long-run trend.

Question 19

During an economic expansion, what typically happens to the inflation rate?

Accepted Answer

The inflation rate rises, especially toward the end of the expansion.

Question 20

Which of the following is NOT a function of financial intermediaries?

Accepted Answer

Directly producing goods and services

Economic Growth, the Financial System, and Business Cycles – Study Notes

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