Q: Given $$z = 0.4$$, what is the value of the simple multiplier?

$$\text{Multiplier} = \frac{1}{1 - 0.4} = 1.67$$

Q: If the government wants to close a recessionary output gap of $$\Delta Y = 100$$ and $$z = 0.5$$, how much should government spending ($$\Delta G) $$increase?

$$\Delta G = 100 \times (1 - 0.5) = 50$$

Question 1

Suppose nominal GDP in 2022 is $1,200 billion and the GDP deflator (price index) is 120 (base year = 100). What is real GDP for 2022?

Accepted Answer

$$\1$$,000$ billion

Question 2

Which of the following is considered an injection in the circular flow model?

Accepted Answer

Investment in new machinery by firms

Question 3

A country has the following data: $$Y = 2,000$$, $$C = 1,200$$, $$G = 400. $$What is national saving ($$NS$$)?

Accepted Answer

$$\400$

Question 4

If the marginal propensity to consume (MPC) is 0.6, the tax rate ($$t) is 0.2$$, and the marginal propensity to import ($$m) is 0.1$$, what is the value of $$z in $$the multiplier formula?

Accepted Answer

$$z = 0.38$$

Question 5

Given $$z = 0.4$$, what is the value of the simple multiplier?

Accepted Answer

$$	ext{Multiplier} = \frac{1}{1 - 0.4} = 1.67$$

Question 6

If the government wants to close a recessionary output gap of $$\Delta Y = 100$$ and $$z = 0.5$$, how much should government spending ($$\Delta G) $$increase?

Accepted Answer

$$\Delta G = 100 	imes (1 - 0.5) = 50$$

Question 7

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

Accepted Answer

An increase in government spending

Question 8

During an inflationary gap, which of the following is most likely to occur in the adjustment process?

Accepted Answer

Wages rise, shifting aggregate supply (AS) left

Question 9

Which type of unemployment is most directly associated with a recession?

Accepted Answer

Cyclical unemployment

Question 10

If the government runs a budget deficit, which of the following is a likely long-run effect?

Accepted Answer

Higher interest rates and lower investment

Question 11

In the loanable funds market, what would likely happen if the government introduces a tax incentive for households to save more?

Accepted Answer

The supply of loanable funds increases, lowering the equilibrium interest rate

Question 12

Which of the following is NOT included in the money supply?

Accepted Answer

Credit card balances

Question 13

How do banks create money in the economy?

Accepted Answer

By making loans through the fractional reserve system

Question 14

Which of the following is the primary policy tool used by the Bank of Canada to influence the economy?

Accepted Answer

The overnight interest rate

Question 15

If the Bank of Canada pursues an expansionary monetary policy, what is the expected sequence of events according to the monetary transmission mechanism?

Accepted Answer

Money supply increases → interest rates fall → investment and consumption rise → AD shifts right → GDP increases

Question 16

Which of the following best describes the Bank of Canada’s inflation target?

Accepted Answer

Approximately 2% annual inflation

Question 17

A country experiences both high inflation and high unemployment. This situation is best described as:

Accepted Answer

Stagflation

Question 18

Which of the following would shift the aggregate supply (AS) curve to the right?

Accepted Answer

A technological improvement

Question 19

Which of the following is the best measure of a country’s standard of living over time?

Accepted Answer

Real GDP per capita

Question 20

Suppose the government increases spending by $$\20$ million. If the multiplier is 2.5$, what is the total change in equilibrium income ($$\Delta Y$)?

Accepted Answer

$$\Delta Y = 2.5 	imes 20 = 50$$ million

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