Chapter 19 - Questions/Answers PDF

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[Economics - Canadian Edition, 14e (Ragan) Chapter 19 What Macroeconomics Is All About 1) Macroeconomics is mainly concerned with the study of A) individual households and how they deal with problems like inflation and unemployment. B) large economic units such as General Motors or Molson Breweries. C) fluctuations and trends in disaggregated data. D) fluctuations and trends in aggregated data. E) governments and their intervention in individual markets. Answer: D Diff: 1 Topic: 19.1a. the study of macroeconomics Skill: Recall User2: Qualitative 2) The economic problems studied in macroeconomics include: 1) the level of economic activity; 2) competition policy; 3) the rate of unemployment. A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 1 and 3 Answer: E Diff: 1 Topic: 19.1a. the study of macroeconomics Skill: Recall User2: Qualitative 3) An example of a topic outside the scope of macroeconomics is A) changes in the price of a particular good in a specific market. B) changes in the unemployment rate. C) the aggregate growth rate of the economy. D) the overall level of unemployment. E) the level of productivity, as compared with that in the United States. Answer: A Diff: 1 Topic: 19.1a. the study of macroeconomics Skill: Applied User2: Qualitative

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4) An equivalent term for "real national income" is A) nominal national income. B) current-dollar national income. C) constant-dollar national income. D) actual national income. E) potential national income. Answer: C Diff: 1 Topic: 19.1b. national output/national income Skill: Recall User2: Qualitative 5) A nation's real national income in a given year measures the A) dollar income earned by the nation's producing sector. B) value of output produced by the economy, measured in constant dollars. C) level of national income that is subject to taxation by the federal government. D) market value of national output produced by the economy. E) opportunity cost of the economy's national output. Answer: B Diff: 2 Topic: 19.1b. national output/national income Skill: Recall User2: Qualitative 6) Real national income A) always equals nominal national income. B) changes by the same amount and in the same direction as does nominal national income. C) changes only when the underlying quantities change. D) refers to national income with no adjustment for changes in prices. E) refers to national wealth but is not an indicator of current production. Answer: C Diff: 2 Topic: 19.1b. national output/national income Skill: Applied User2: Qualitative 7) In macroeconomics, the term "national income" refers to A) all sales of both current production and used goods. B) only those sales of currently produced goods sold to other nations. C) the value of a nation's total wealth. D) the value of the income generated by the production of total output. E) total current spending by all households. Answer: D Diff: 1 Topic: 19.1b. national output/national income Skill: Recall User2: Qualitative 2 Copyr i ght©20 14Pe a r s onCa na da , I nc .

8) An upward trend in real national income over an extended period of time is called A) an inflationary boom. B) aggregate output. C) constant-dollar national income. D) potential national income. E) economic growth. Answer: E Diff: 1 Topic: 19.1b. national output/national income Skill: Recall User2: Qualitative 9) Suppose that in 2013 Canada's automobile manufacturers produced 2 million cars priced at $20 000 each. And in 2014 they produced 1 million cars priced at $40 000 each. Ceteris paribus, the change in nominal national income is A) a decrease because fewer cars were produced. B) an increase because the price of each car increased. C) insufficient information to know. D) no change in nominal national income. E) an increase because of inflation. Answer: D Diff: 2 Topic: 19.1b. national output/national income Skill: Applied Objective: REVISED User2: Qualitative 10) Suppose Honest Rob's Used Cars buys a used car for $2000 and resells it for $3000. The result of Honest Rob's transactions is to A) decrease the value of national income by $3000. B) decrease the value of national income by $1000. C) leave the value of national income unchanged. D) increase the value of national income by $1000. E) increase the value of national income by $3000. Answer: D Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 19.1b. national output/national income Skill: Applied User2: Quantitative

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11) To compare the economy's aggregate output in two different time periods, economists compare the A) nominal national income for the two periods. B) potential national incomes for the two periods. C) real national income for the two periods. D) unemployment rates for the two periods. E) inflation rates for the two periods. Answer: C Diff: 1 Topic: 19.1b. national output/national income Skill: Applied User2: Qualitative 12) In determining the economy's real GDP growth rate between two time periods, A) nominal national income should be used because it compares actual output in each time period. B) real national income, which is equal to nominal national income corrected for price-level changes, should be used. C) potential national income should be used. D) we should ignore prices completely, in order to examine output alone. E) only the real national product from the latest time period is relevant. Answer: B Diff: 2 Topic: 19.1b. national output/national income Skill: Applied Objective: REVISED User2: Qualitative 13) In macroeconomics, if the value of the national product increases, there is A) an even larger increase in the value of income claims on that output, due to value added. B) a decrease in value of income claims on that output, due to taxation. C) a decrease in the value of income claims on that output, due to importing. D) a decrease in the value of income claims on that output, due to household saving. E) an equal increase in the value of income claims on that output. Answer: E Diff: 2 Topic: 19.1b. national output/national income Skill: Applied User2: Qualitative

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14) Suppose Appliance Mart buys a used refrigerator for $100, repairs it, and resells it for $250. The result of this transaction is to A) increase the value of national product by $250. B) leave the value of national product unchanged. C) increase the value of national product by $150. D) decrease the value of national product by $100. E) There is insufficient information to know. Answer: C Diff: 1 Topic: 19.1b. national output/national income Skill: Applied User2: Quantitative 15) Real GDP measures A) the constant-dollar value of the potential output of the nation's economy over the period of one year. B) the quantity of total output produced by the nation's economy over the period of one year. C) the fluctuations of national income around its long-term trend. D) the annual growth rate of real national income. E) the long-term trend in total output produced by the nation's economy. Answer: B Diff: 1 Topic: 19.1b. national output/national income Skill: Recall User2: Qualitative 16) Consider a small economy with 3 individuals where each individual produces and sells $1000 worth of final goods and services. The national income for this economy is A) $3000. B) less than $3000 if some of the income is saved. C) more than $3000 if some of the income is invested. D) less than $3000 if there are taxes in this economy. E) more than $3000 if the individuals are earning profits. Answer: A Diff: 2 Topic: 19.1b. national output/national income Skill: Applied Objective: REVISED User2: Quantitative

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17) Consider a small economy with 3 individuals. Individual A produces 100 chickens that sell for $8 each. Individual B produces 50 bags of corn that sell for $10 each. Individual C produces 40 bushels of apples that sell for $20 each. National product in this economy is A) 100 chickens plus 50 bags of corn plus 40 bushels of apples. B) 190 units of goods produced. C) $2100. D) $2470 E) Not determinable from the information provided. Answer: C Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 19.1b. national output/national income Skill: Applied User2: Quantitative 18) Which of the following is the best description of the business cycle? A) the normal cycle of profits and losses by producers in the economy B) the short-run fluctuations of national income around its trend value C) a five-year period designed for national accounting purposes to capture the normal cycle of recession periods and boom periods D) a ten-year period designed for national accounting purposes to capture the normal cycle of recession periods and boom periods E) the fluctuations of one country's national income in comparison to another country's national income Answer: B Diff: 2 Topic: 19.1b. national output/national income Skill: Recall Objective: NEW User2: Qualitative 19) Potential or full-employment output is A) the maximum GDP that an economy actually achieves throughout its entire history. B) achieved during periods when all of the labour force is employed. C) a goal that can never be achieved by the economy. D) the GDP that would be produced if the economy's resources were fully employed at a normal intensity of use. E) the GDP that could be produced if the economy's resources were fully employed at their maximum intensity of use. Answer: D Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Recall User2: Qualitative

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20) In macroeconomics, the "output gap" is the difference between A) output in the current year and output in the base year. B) output and employment. C) potential real national income and actual real national income. D) real GNP and real GDP. E) real and nominal national income. Answer: C Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Recall User2: Qualitative 21) The output gap is the A) measure of output that could have been produced if the economy were fully employed. B) dead-weight loss of inflation. C) difference between nominal and real output. D) percentage change in real GDP. E) difference between Y and Y*. Answer: E Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Recall User2: Qualitative 22) An output gap with Y < Y* A) is desirable because it keeps wage costs low. B) represents a loss of output due to unemployed resources. C) tends to force prices up. D) occurs when there is excess demand. E) is known as an inflationary boom. Answer: B Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative

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23) Suppose actual output is less than potential output. If the output gap measures the output loss due to the failure to achieve full employment, it can generally be concluded that the larger this output gap, the A) greater is the employment rate. B) greater is the unemployment rate. C) lower is frictional unemployment. D) lower the deadweight loss of unemployment. E) more upward pressure there is on prices. Answer: B Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative 24) Economic booms can cause problems as well as create benefits because they are often accompanied by A) deflationary pressures. B) excessive labour-force participation. C) inflationary pressures. D) pressure on the government budget deficit to rise. E) rising real interest rates. Answer: C Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative 25) In the study of short-run fluctuations in national income, potential income (output) is usually assumed to be A) falling at its average growth rate. B) moving together with potential output in neighbouring countries. C) constant. D) equal to actual income. E) irrelevant, as the economy is rarely there. Answer: C Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative

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26) Short-run fluctuations in real GDP around its trend value are A) generally ignored by economists, because these fluctuations do not affect behaviour of other variables such as the unemployment rate. B) generally ignored by economists, because these fluctuations are constant and predictable. C) referred to in economics as "background noise." D) referred to in economics as "the business cycle." E) unimportant to the study of macroeconomics. Answer: D Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative 27) Consider an economy in which existing capital is being used at a high degree, shortages in labour and goods markets are developing, and costs are rising. Which of the following terms best describes this stage of the business cycle? A) trough B) recovery C) peak D) recession E) slump Answer: C Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative 28) On a graph showing real national income on the vertical axis and time on the horizontal axis, the trend-line would probably be a good approximation of the A) business cycle. B) distribution of income. C) inflation rate. D) path of potential output. E) unemployment rate. Answer: D Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied User2: Qualitative

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29) On a graph showing real national income on the vertical axis and time on the horizontal axis, the fluctuations of real national income around the trend-line would indicate the A) business cycle. B) distribution of income. C) inflation rate. D) path of potential output. E) unemployment rate. Answer: A Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Applied User1: Graph User2: Qualitative 30) When macroeconomists use the term "recession" they usually define it as a fall in real GDP that lasts for at least A) one quarter. B) two quarters. C) three quarters. D) one year. E) two years. Answer: B Diff: 1 Topic: 19.1c. potential output and output gaps Skill: Recall User2: Qualitative

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The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.

Year 2006 2007 2008 2009 2010 2011 2012

Actual Output (billions of $) 402 408 415 420 422 420 425

Potential Output Unemployment Rate (billions of $) (% of labour force) 404 7.1 411 7.2 415 6.3 418 5.9 420 6.0 423 7.0 425 6.3

TABLE 19-1 31) Refer to Table 19-1. In which years was this economy experiencing a recessionary gap? A) 2009, 2010 B) 2006, 2007, 2011 C) 2008, 2012 D) 2006, 2007, 2008 E) 2010, 2011, 2012 Answer: B Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied Objective: REVISED User1: Table User2: Quantitative 32) Refer to Table 19-1. In which years was this economy experiencing an inflationary gap? A) 2009, 2010 B) 2006, 2007 C) 2010, 2011 D) 2008, 2012 E) 2006, 2007, 2011 Answer: A Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied Objective: REVISED User1: Table User2: Quantitative

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33) Refer to Table 19-1. What is the unemployment rate when this economy is at "full employment"? A) 5.9% B) 6.0% C) 6.3% D) 7.0% E) 7.1% Answer: C Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied Objective: REVISED User1: Table User2: Qualitative 34) Refer to Table 19-1. In which years are the factors of production in this economy said to be "fully employed"? A) 2006, 2007, 2011 B) 2008, 2012 C) 2009, 2010 D) all years E) none of the years Answer: B Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied Objective: REVISED User1: Table User2: Quantitative 35) Refer to Table 19-1. What is the output gap in 2007? A) $408 billion B) $411 billion C) $7.1 billion D) $3 billion E) -$3 billion Answer: E Comment: An algorithmic version of this question appears in MyEconLab Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied Objective: REVISED User1: Table User2: Quantitative

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36) Refer to Table 19-1. In the year 2009, it is probably the case that workers are ________ and factories are ________. A) facing cyclical unemployment; facing temporary shut downs B) working longer than normal hours; facing temporary shutdowns C) experiencing zero unemployment; operating extra shifts D) experiencing zero unemployment; operating beyond their normal capacity E) working longer than normal hours; operating beyond their normal capacity Answer: E Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Applied Objective: REVISED User1: Table User2: Qualitative 37) Women entered the labour force in large numbers in the 20th century and increased the economy's GDP. This change A) created inflationary gaps. B) created recessionary gaps. C) raised potential output. D) was only possible in an economy operating above normal rates of utilization. E) was only possible in an economy operating below normal rates of utilization. Answer: C Diff: 2 Topic: 19.1c. potential output and output gaps Skill: Recall User2: Qualitative 38) A worker is considered unemployed if that worker has no job, is legally eligible to work, A) and is actively searching for employment. B) and is not collecting unemployment insurance. C) whether the worker is looking for a job or is not looking for a job. D) but only if they previously held a job. E) but only if they were previously employed for at least three consecutive months. Answer: A Diff: 1 Topic: 19.1d. employment, unemployment and the labour force Skill: Applied User2: Qualitative

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39) Consider the growth in Canada's labour force and employment. Over the last 50 years, A) the labour force has grown much more rapidly than employment. B) both the labour force and employment have remained roughly constant. C) the number of unemployed persons has been a much larger fraction of the labour force than it was during the first half of the 20th century. D) the main trend of the economy has been one of growth in employment that roughly matches the growth in the labour force. E) the main trend of the economy has been to have employment grow more rapidly than the growth in output. Answer: D Diff: 2 Topic: 19.1d. employment, unemployment and the labour force Skill: Recall Objective: REVISED User2: Qualitative 40) How is Canada's unemployment rate determined? A) The rate is determined by Canada Census data. B) The rate is determined by a survey of Canadian employers. C) The federal government department HRSDC (Human Resources and Skills Development Canada) conducts a monthly survey of the labour force. D) Statistics Canada conducts a Labour Force Survey each month. E) An estimate is produced by HRSDC based on the previous month's unemployment rate adjusted by the current month's job losses and job gains. Answer: D Diff: 2 Topic: 19.1d. employment, unemployment and the labour force Skill: Recall Objective: NEW User2: Qualitative 41) Canada's unemployment rate has been as low as ________ in the 1960s and as high as ________ during the recession in the early 1980s. A) 4.6; 14 B) 2.0; 15 C) 5.5; 17 D) 2.4; 10 E) 3.4; 12 Answer: E Diff: 1 Topic: 19.1d. employment, unemployment and the labour force Skill: Recall Objective: NEW User2: Qualitative

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42) If a country's labour force is 15 million people, and 1 million of those are unemployed, the country's unemployment rate is A) 2.5%. B) 3.3%. C) 4.5%. D) 6.7%. E) 7.1%. Answer: D Diff: 2 Topic: 19.1d. employment, unemployment and the labour force Skill: Applied Objective: REVISED User2: Quantitative 43) If a country's population is 15 million people, and 1 million of those are unemployed, the country's unemployment rate is A) 2.5%. B)...