Q: A country has a nominal GDP of $500 billion in 2022 and $550 billion in 2023. The GDP deflator (price index) was 100 in 2022 and 110 in 2023. What is the real GDP in 2023, using 2022 as the base year?

$\frac{\$550\text{ billion}}{1.10} = \$500\text{ billion}$

Q: If the Consumer Price Index (CPI) was 120 last year and 126 this year, what is the annual inflation rate?

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

Question 1

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

Accepted Answer

If all households try to save more at the same time, total savings may actually decrease due to falling incomes and employment.

Question 2

Suppose the Canadian government increases its purchases of goods and services by $10 billion, while all other components of GDP remain unchanged. According to the expenditure approach, what is the immediate effect on GDP?

Accepted Answer

GDP increases by $10 billion because government spending is an injection into the circular flow.

Question 3

Which of the following equations correctly represents the relationship between aggregate spending and aggregate income in the Canadian economy?

Accepted Answer

$C + I + G + X - IM = Y$

Question 4

A country has a nominal GDP of $500 billion in 2022 and $550 billion in 2023. The GDP deflator (price index) was 100 in 2022 and 110 in 2023. What is the real GDP in 2023, using 2022 as the base year?

Accepted Answer

$\frac{\$550	ext{ billion}}{1.10} = \$500	ext{ billion}$

Question 5

Which of the following is NOT included in the calculation of Canada's GDP?

Accepted Answer

The value of a used car sold between two Canadian households.

Question 6

If the annual growth rate of real GDP per person in a country is 2%, approximately how many years will it take for living standards to double, according to the Rule of 70?

Accepted Answer

$70 \div 2 = 35$ years

Question 7

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 8

Suppose the unemployment rate in Canada is 7%, but the natural rate of unemployment is estimated at 5%. Which of the following statements is true?

Accepted Answer

There is a recessionary output gap and cyclical unemployment is present.

Question 9

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker loses their job because their skills are no longer needed due to automation.

Question 10

If the Consumer Price Index (CPI) was 120 last year and 126 this year, what is the annual inflation rate?

Accepted Answer

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

Question 11

According to the quantity theory of money, if the money supply ($M$) increases by 10%, velocity ($V$) and real output ($Q$) remain constant, what happens to the price level ($P$)?

Accepted Answer

The price level increases by 10%.

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, such as household work.

Question 13

During a period of cost-push inflation, which of the following is most likely to occur?

Accepted Answer

Both inflation and unemployment increase (stagflation).

Question 14

If the Bank of Canada raises interest rates, which of the following is the most likely immediate effect on the Canadian economy?

Accepted Answer

Business investment spending decreases, potentially slowing economic growth.

Question 15

A country experiences a positive external shock, such as the discovery of a new natural resource. Which of the following is the most likely short-run effect on the macroeconomy?

Accepted Answer

Real GDP increases and the economy may experience an expansion.

Question 16

Which of the following best describes the relationship shown by the Phillips Curve in the short run?

Accepted Answer

There is an inverse relationship between the unemployment rate and the inflation rate.

Question 17

Suppose the Canadian economy is operating above potential GDP. Which of the following is most likely to be true?

Accepted Answer

There is an inflationary output gap and the unemployment rate is below the natural rate.

Question 18

If the nominal interest rate is 6% and the inflation rate is 4%, what is the realized real interest rate?

Accepted Answer

$6\% - 4\% = 2\%$

Question 19

Which of the following is an example of a leakage in the circular flow model?

Accepted Answer

Savings by households in a bank account.

Question 20

A country has a working-age population of 40 million, a labour force of 28 million, and 2 million unemployed people. What is the labour force participation rate?

Accepted Answer

$\frac{28	ext{ million}}{40	ext{ million}} 	imes 100 = 70\%$

Macroeconomics Review: Chapters 5–8 Study Notes

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