Download March 10, 2003

ECONOMICS A02Y – INTRODUCTORY ECONOMICS (A Mathematical Approach)
Fourth In-Class Test: March 10, 2003
MULTIPLE CHOICE
1.
Two main factors can cause a shift in the Short Run Aggregate Supply curve. They are:
(A) a change in the price level and a change in National Income (real GDP);
(B) a change in imports and a change in exports;
(C) a change in the interest rate and a change in fiscal policy;
(D) a change in planned spending and a change in planned saving;
(E) a change in input prices and a change in productivity.
(F) none of the above
2.
The money supply in Canada (M1) includes the following items:
(A) Government Bonds and Coins and Bills in public hands.
(B) All coins minted and Bills printed by the Bank of Canada, and chequing accounts in
Chartered Banks and Credit Unions.
(C) All coins and Bills in circulation in the public's hands, cash reserves in Banks and the
Bank of Canada, and Chequing Accounts in the banks.
(D) All coins and Bills in public hands, and Chequing accounts in Chartered Banks.
(E) All coins and Bills in public hands, and Chequing accounts in Chartered Banks and
other financial institutions.
(F) All coins and bills in public hands, Chartered Bank deposits at the Bank of Canada, and
Chequing accounts in Chartered Banks.
(G) Coins and Bills in circulation, other I.O U's in circulation such as Canadian Tire money,
and Chequing and Savings Deposits in the Chartered Banks.
(H) None of the above.
3.
The Gross Domestic Product deflator measures:
(A) the nominal value of final goods produced in the economy over the course of a year.
(B) the real (inflation-adjusted) value of goods and services produced in the economy over a
period of time.
(C) the real value-added at each and every stage of production within a particular geographic
territory.
(D) the real value of Consumer, Business, Government and Net Export spending in a period
of time, usually a year.
(E) the change in consumer prices over time.
(F) the change in the overall price level over time.
(G) the real value of production over time.
(H) the Aggregate Demand for goods and services in a year.
(I) none of the above.
4.
5-7.
When the Aggregate Demand curve is negatively sloped, and the Aggregate Supply curve
is positively sloped, the effect of a change in autonomous expenditures on equilbrium GDP
is:
(A) less than the multiplier times the change in autonomous expenditures.
(B) more than the multiplier times the change in autonomous expenditures.
(C) the same as the multiplier times the change in autonomous expenditures.
(D) more than the multiplier times the change in autonomous expenditures when Aggregate
Demand shifts up, and less than the multiplier times the change in autonomous expenditures
when Aggregate Demand shifts down.
(E) less than the multiplier times the change in autonomous expenditures when Aggregate
Demand shifts up, and more than the multiplier times the change in autonomous
expenditures when Aggregate Demand shifts down.
(F) none of the above.
The economy of Golgatha, has only two consumption goods (Food and Clothing), and
one capital good (Sewing Machines), with no inventory and no imports and exports. It
has the following prices and quantities consumed (and produced) in 1990 and in 2000:
1990
Price
Quantity
Food
$10.00
1200
Clothing
$40.00
200
Sewing Machines
$300.00
20
Questions 5 through 7 concern this economy.
2000
Price
$15.00
$30.00
$500.00
Quantity
1000
300
10
5.
If you were to calculate a price index, like the Consumer Price Index, using 1990 as the
base year, then the value of your price index in 2000, rounded up or down to the nearest
integer, would be:
(A) 80
(B) 90
(C) 100
(D) 105
(E) 106
(F) 107
(G) 108
(H) 109
(I) 110
(J) 111
(K) 112
(L) 113
(M) 114
(N) 115
(O) 116
(P) 117
(Q) 118
(R) 119
(S) 120
(T) 121
(U) 122
(V) 123
(W) 124
(X) 125
(Y) 126
(Z) none of the above
6.
If you were to calculate a Gross Domestic Product price deflator for Golgatha using the
same base year, then the value of this price index in 2000 (rounded up or down to the
nearest integer) would be:
(A) 80
(B) 90
(C) 100
(D) 105
(E) 106
(F) 107
(G) 108
(H) 109
(I) 110
(J) 111
(K) 112
(L) 113
(M) 114
(N) 115
(O) 116
(P) 117
(Q) 118
(R) 119
(S) 120
(T) 121
(U) 122
(V) 123
(W) 124
(X) 125
(Y) 126
(Z) none of the above
7.
If we correct for price increases using the appropriate price index, we can state that the
real value of Gross Domestic Product in Golgatha (in 1990 dollars) rose (+) or fell (-)
between 1990 and 2000 (rounded up or down to the nearest integer) by:
(A) 0%
(B) +2%
(C) +4%
(D) +6%
(E) +8%
(F) +10%
(G) +12%
(H) +14%
(I) +16%
(J) +18%
(K) -2%
(L) -4%
(M) -6%
(N) -8%
(O) -10%
(P) -12%
(Q) none of the above
8-10. Assume there is only one private sector chartered bank in Canada. Every time a loan is
taken out of the bank and the money spent, it winds up as a new deposit by the recipient of
the funds. It has been decided that the desired reserve ratio on all bank accounts is .05
(1/20). Initially, the balance sheet of the Bank appears as below:
BANK BALANCE SHEET
ASSETS
LIABILITIES AND NET WORTH
Reserves held in Cash
$20,000 Chequing Deposits
Reserves held in the Central Bank
$40,000
Loans
$1,140,000
$1,200,000
8
The Central Bank (Bank of Canada) engages in open market operations on the foreign
exchange market, buying $1,000 worth of U.S. dollars (with Canadian dollars). What will
be the change in the amount of chequing deposits as a result?
(A) zero
(B) +$950
(C) +$1,000
(D) +$2,000
(E) +$5,000
(F) +$7,500
(G) +$10,000
(H) +$15,000
(I) +$16,000
(J) +$17,000
(K) +$18,000
(L) +$19,000
(M) +$20,000
(N) +$21,000
(O) -$950
(P) -$1,000
(Q) -$2,000
(R) -$5,000
(S) -$10,000
(T) -$15,000
(U) -$16,000
(V) -$17,000
(W) -$18,000
(X) -$19,000
(Y) -$20,000
(Z) none of the above
9.
As a result of the open market operations in Question 8, what will be the change in the
amount of loans?
(A) zero
(B) +$950
(C) +$1,000
(D) +$2,000
(E) +$5,000
(F) +$7,500
(G) +$10,000
(H) +$15,000
(I) +$16,000
(J) +$17,000
(K) +$18,000
(L) +$19,000
(M) +$20,000
(N) +$21,000
(O) -$950
(P) -$1,000
(Q) -$2,000
(R) -$5,000
(S) -$10,000
(T) -$15,000
(U) -$16,000
(V) -$17,000
(W) -$18,000
(X) -$19,000
(Y) -$20,000
(Z) none of the above
10.
Go back to the balance sheet above and assume that the transactions listed in questions 8 and
9 did not occur. Now, the owners of the chartered bank have a discussion and they decide to
change the desired reserve ratio to 0.04 from 0.05. What is the change in the money supply
after all adjustments have taken place?
(A) zero
(B) +12,000
(C) +$24,000
(D) +$36,000
(E) +$48,000
(F) +$60,000
(G) +$100,000
(H) +$120,000
(I) +$160,000
(J) +$180,000
(K) +$200,000
(L) +$240,000
(M) +$280,000
(N) +$300,000
(O) -$12,000
(P) -$24,000
(Q) -$36,000
(R) -$48,000
(S) -$60,000
(T) -$100,000
(U) -$160,000
(V) -$180,000
(W) -$200,000
(X) -$220,000
(Y) -$240,000
(Z) none of the above
11-14. Spending in the European country, Edelweiss, can be represented by the following functions:
C = 100 + 0.8 Yd
I = 100
G = G0
(X - IM) = 200 - 0.12Y
TA - TR = 0.1Y
Prices are fixed in Edelweiss. Potential GDP is 1,200.
11.
If G0 = 40, then at the current equilibrium level of income/output, Edelweiss is faced with:
(A) a recessionary gap of 30.
(B) a recessionary gap of 100.
(C) a recessionary gap of 120.
(D) a recessionary gap of 160.
(E) a recessionary gap of 180.
(F) a recessionary gap of 200.
(G) a recessionary gap of 250.
(H) an inflationary gap of 30.
(I) an inflationary gap of 60.
(J) an inflationary gap of 100.
(K) an inflationary gap of 200.
(L) none of the above
12.
What value of G0 will lead to equilibrium
(Potential GDP)?
(A) 10
(B) 20
(C) 30
(G) 70
(H) 80
(I) 90
(M) 160
(N) 180
(O) 200
(S) 280
(T) 300
(U) 320
(Y) none of the above
GDP being equal to full employment GDP
(D) 40
(J) 100
(P) 220
(V) 340
(E) 50
(K) 120
(Q) 240
(W) 400
(F) 60
(L) 150
(R) 250
(X) 500
13.
14.
15.
What value of G0 will balance the government's budget?
(A) 50
(B) 66.6
(C) 75
(D) 100
(G) 133.3
(H) 140
(I) 150
(J) 157
(M) 183.3
(N) 190
(O) 200
(P) 213.3
(S) 240
(T) 250
(U) 257
(V) 266.7
(Y) none of the above
(E) 113.3
(K) 166.7
(Q) 225
(W) 277
(F) 125
(L) 177
(R) 233.3
(X) 283.3
What value of G0 will cause trade to be balanced (i.e., the trade balance to equal zero)?
(A) 50
(B) 66.6
(C) 75
(D) 100
(E) 113.3
(F) 125
(G) 133.3
(H) 140
(I) 150
(J) 157
(K) 166.7
(L) 177
(M) 183.3
(N) 190
(O) 200
(P) 213.3
(Q) 225
(R) 233.3
(S) 240
(T) 250
(U) 257
(V) 266.7
(W) 277
(X) 283.3
(Y) none of the above
If we have the total figure for Gross Domestic Product and we would like to calculate
the amount of Gross National Product, we should:
(A) subtract investment income paid to non-residents and add in the investment income
paid to Canadian residents from investments in other countries
(B) add-in investment income paid to non-residents and subtract the investment income
paid to Canadian residents from investments in other countries
(C) subtract both investment income paid to non-residents and the investment income
paid to Canadian residents from investments in other countries
(D) add-in both investment income paid to non-residents and the investment income
paid to Canadian residents from investments in other countries
(E) none of the above
16-17. An economy with no government and no foreign trade sector and with constant prices has
the following structure:
C = 250 + 0.75Y - (P - 100)
I = 100
These equations will be useful in Questions 16-17.
16
The Aggregate Demand function for this economy is given by:
(A) AE = 250 + .75Y - P
(B) AD = 250 + .75Y - P
(C) Y = 250 - P
(D) P = 250 - 0.25Y
(E) Y = 1800 - 4P
(F) Y = 600 - 4P
(G) P = 150 - 0.25Y
(H) P = 250 - Y
(I) none of the above
17.
If the amount of Planned Investment Spending in Question 16 were to rise to 200
(i.e., I = 200), by how much would Aggregate Demand for goods and services increase?
(A) 100
(B) 200
(C) 250
(D) 300
(E) 350
(F) 400
(G) 450
(H) 500
(I) 550
(J) 600
(K) 650
(L) 700
(M) 750
(N) 800
(O) 850
(P) 900
(Q) 950
(R) 1000
(S) 1050
(T) 1100
(U) 1150
(V) 1200
(W) 1250
(X) 1300
(Y) 1350
(Z) none of the above