Q: Suppose the nominal GDP of Canada increased from $1.8$ trillion to $2.0$ trillion, while the GDP deflator increased from $110$ to $120$. What is the percentage change in real GDP?

$\text{Percentage change in real GDP} = \frac{\frac{2.0}{120} - \frac{1.8}{110}}{\frac{1.8}{110}} \times 100 \approx -7.6\%$

Question 1

Which of the following best describes Real GDP?

Accepted Answer

The total value of goods and services produced within a country, adjusted for inflation.

Question 2

Suppose the nominal GDP of Canada increased from $1.8$ trillion to $2.0$ trillion, while the GDP deflator increased from $110$ to $120$. What is the percentage change in real GDP?

Accepted Answer

$	ext{Percentage change in real GDP} = \frac{\frac{2.0}{120} - \frac{1.8}{110}}{\frac{1.8}{110}} 	imes 100 \approx -7.6\%$

Question 3

Which event is associated with a significant decrease in per capita real GDP in Canada, as shown in historical data?

Accepted Answer

The Great Depression

Question 4

What does the slope of the natural logarithm of per capita real GDP represent?

Accepted Answer

The growth rate of per capita GDP

Question 5

If the actual log of per capita GDP is above the trend line, what does this indicate about the business cycle?

Accepted Answer

The economy is experiencing an expansion above its long-run trend.

Question 6

Which of the following is NOT a typical topic studied in macroeconomics?

Accepted Answer

The pricing strategy of a single firm

Question 7

A macroeconomic model should be:

Accepted Answer

Simple, capturing only the essential features needed to analyze a problem.

Question 8

Which policy was introduced in Canada in 1991 to help reduce high inflation?

Accepted Answer

Inflation targeting by the Bank of Canada

Question 9

If the nominal interest rate is $5\%$ and the inflation rate is $2\%$, what is the real interest rate?

Accepted Answer

$3\%$

Question 10

During the 2008–2009 recession, what happened to the government surplus in Canada?

Accepted Answer

It turned into a deficit.

Question 11

Which of the following best describes average labour productivity?

Accepted Answer

Aggregate output produced per worker

Question 12

If Canada’s exports as a percentage of GDP increase while imports remain constant, what happens to the current account surplus?

Accepted Answer

It increases.

Question 13

Which of the following statements about the relationship between the nominal interest rate and the inflation rate is supported by macroeconomic theory?

Accepted Answer

They are positively related.

Question 14

Suppose the unemployment rate in the United States rises more sharply than in Canada during a recession, but falls more quickly after the recession. What does this suggest about the labour market in the two countries?

Accepted Answer

The U.S. labour market is more flexible than Canada’s.

Question 15

Which of the following is a plausible explanation for the high real interest rates in Canada during the 1980s?

Accepted Answer

Tight monetary policy

Question 16

If real GDP per capita is used as a measure of living standards, which of the following events would most likely cause a sharp decline in living standards?

Accepted Answer

A severe recession

Question 17

Which of the following best describes a business cycle?

Accepted Answer

Short-run fluctuations in real GDP around its long-run trend

Question 18

If the government surplus as a percentage of GDP is negative, what does this indicate?

Accepted Answer

The government is running a deficit.

Question 19

Which of the following is the correct formula for calculating real GDP from nominal GDP and the GDP deflator?

Accepted Answer

$	ext{Real GDP} = \frac{	ext{Nominal GDP}}{	ext{GDP Deflator}} 	imes 100$

Question 20

Which of the following is a likely effect of a general increase in world trade on Canada’s economy, as seen in the data?

Accepted Answer

Both exports and imports as a percentage of GDP increase.

Macroeconomics Chapter 1: Introduction – Key Concepts and Canadian Data

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