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

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

Question 1

Which of the following best describes the fallacy of composition in macroeconomics?

Accepted Answer

What is true for one individual or part is not necessarily true for the whole economy.

Question 2

According to the circular flow model, which of the following is true about the relationship between households and businesses?

Accepted Answer

Households provide inputs to input markets and receive income, while businesses buy these inputs and sell products/services in output markets.

Question 3

Which of the following equations represents the Quantity Theory of Money?

Accepted Answer

$$M 	imes V = P 	imes Q$$

Question 4

If the annual growth rate of real GDP per person is 5%, approximately how many years will it take for the standard of living to double, according to the Rule of 70?

Accepted Answer

$$70 \div 5 = 14$$ years

Question 5

Which of the following is NOT included in the calculation of real GDP per person?

Accepted Answer

The value of household production

Question 6

A negative demand shock in the AS/AD model will most likely result in which of the following outcomes?

Accepted Answer

A recessionary gap, falling average prices, and increased unemployment

Question 7

Which type of unemployment is considered unhealthy and requires policy intervention?

Accepted Answer

Cyclical unemployment

Question 8

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 9

Which of the following best explains the paradox of thrift?

Accepted Answer

When everyone tries to save more, total savings in the economy may actually decrease due to falling incomes and employment.

Question 10

Which of the following would cause a rightward shift in both the long-run and short-run aggregate supply curves?

Accepted Answer

An increase in the quantity or quality of inputs, such as technological innovation

Question 11

Suppose the Bank of Canada increases the money supply while the economy is already at potential GDP. According to the Quantity Theory of Money, what is the likely result?

Accepted Answer

An increase in the inflation rate

Question 12

Which of the following is a limitation of using real GDP per person as a measure of well-being?

Accepted Answer

It does not account for non-market production, environmental sustainability, or income distribution.

Question 13

If the unemployment rate is above the natural rate, which type of output gap exists and what type of unemployment is present?

Accepted Answer

Recessionary gap; cyclical unemployment

Question 14

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured at current prices, while real GDP is measured at constant prices.

Question 15

Which of the following scenarios would most likely lead to stagflation?

Accepted Answer

A negative supply shock, such as a sudden increase in oil prices

Question 16

If the government increases taxes and reduces its spending, what is the likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease and shift leftward.

Question 17

Which of the following is the best example of value added in the production process?

Accepted Answer

The difference between the value of bread sold by a baker and the cost of flour purchased from a miller.

Question 18

Which of the following statements about the Phillips Curve is correct?

Accepted Answer

It shows an inverse relationship between unemployment and inflation in the short run.

Question 19

If Canada experiences an increase in exports due to higher demand from the rest of the world, what is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will increase and shift rightward.

Question 20

Which of the following best describes the long-run aggregate supply curve (LAS)?

Accepted Answer

It is a vertical line at potential GDP, indicating that the quantity of potential GDP does not change when the price level changes.

Chapters 5-9 for final exam studying

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