Download Econ 114 Mock Midterm 3

Econ 114 Mock Midterm 3
True and False
1. The theory of efficiency wages is that firms voluntarily pay above-equilibrium wages
to boost worker productivity.
2. When you do the unemployment rate calculation, you need to consider the adult population.
3. The natural rate of unemployment is the rate of unemployment that is natural to any
economy and can never change.
4. Liquidity refers to the ease with which an asset flows through the bank.
5. The money multiplier is the amount of reserves that the banking system generates with
each dollar of money.
6. Demand deposits are balances in the bank that depositors can access on demand by writing
a cheque.
7. Nominal variables are variables measured in physical units, and real variables are variables
measured in monetary units.
8. When the government creates money to raise revenue, this is referred to as an inflation tax.
9. The value of a nation's imports minus the value of its exports is called net exports.
10. The value of a nation's exports minus the value of its imports, also called net exports, is a
nation's trade balance
11. A recession is a period of two or more consecutive quarters of negative real gross domestic
product growth and rising unemployment.
Multiple Choice
1. Which of the following statements is true regarding the natural unemployment rate?
a. It is always at zero percent.
b. It is the amount of unemployment that the economy normally experiences.
c. It is decided upon by the federal government.
d. It is the amount of unemployment in the economy, adjusted for the effects of inflation.
2. Some frictional unemployment is inevitable for which of the following reasons?
a. Government labour market policies are inadequate.
b. The number of unemployed and the number of jobs available are equal.
c. In a functioning economy, there is always some expansion and contraction.
d. Unions push the wage above its equilibrium level.
3. According to the theory of efficiency wages:
a. The most profitable firms keep wages low.
b. Differences in human capital explain why firms pay high wages.
c. Some occupations are predominantly male and others are predominantly female.
d. Above-equilibrium wages are paid by the firm in order to increase worker productivity.
4. Some frictional unemployment is inevitable for which of the following reasons?
a. Government labour market policies are inadequate.
b. The number of unemployed and the number of jobs available are equal.
c. In a functioning economy, there is always some expansion and contraction.
d. Unions push the wage above its equilibrium level
5. Suppose the Bank of Canada increases the percentage reserve requirement from 10 percent
to 12 percent. Which of the following will occur?
a. Interest rates will decrease.
b. Bank reserves will decrease.
c. Bank reserves will increase.
d. Bank lending will increase.
6. Giving up a dollar bill to purchase an ice-cream cone illustrates money's function as what?
a. a standard of value
b. a medium of exchange
c. a store of wealth
d. a unit of account
7. Suppose the Bank of Canada increases the percentage reserve requirement from 10 percent
to 12 percent. Which of the following will occur?
a. Interest rates will decrease.
b. Bank reserves will decrease.
c. Bank reserves will increase.
d. Bank lending will increase.
8. Credit cards are used as which of the following?
a. a unit of account
b. a method of deferring payment
c. a method of payment
d. a part of the M2 money supply
9. Wealth is distributed from borrowers to lenders when inflation is which of the following?
a. unexpectedly low
b. low, but expected
c. unexpectedly high
d. high, but expected
10. If the nominal interest rate is 8 percent and the inflation rate is 3 percent, what is the real
interest rate?
a. -5 percent
b. 11 percent
c. 3 percent
d. 5 percent
11. What determines the quantity of money that individuals and businesses want to hold?
a. how much they rely on credit
b. an increase in real GDP.
c. the quantity theory of money
d. the resources available in the economy
12. Which of the following best describes the term trade deficit?
a. an excess of government spending over tax collections
b. an excess of exports over imports
c. an excess of supply over demand
d. an excess of imports over exports
13. Suppose we have a hypothetical two-country world, Canada and Japan. Also, suppose that
fish is the only product for export between the two countries, and that fish is homogeneous.
Assume the price for fish in Canada is $4.00 per pound and is 500 yen per pound in Japan.
What is the real exchange rate between Canada and Japan?
a. $1 = 500 yen
b. $1 = 125 yen
c. $1 = 50 yen
d. $1 = 100 yen
14. If a country has $50 million of net exports and $70 million of saving, net capital outflow and
domestic investment must be which of the following?
a. Net capital outflow is $50 million, and domestic investment is $70 million.
b. Net capital outflow is $120 million, and domestic investment is $70 million.
c. Net capital outflow is $120 million, and domestic investment is $50 million.
d. Net capital outflow is $50 million, and domestic investment is $20 million.
15. Suppose the U.S. placed higher tariffs on imports of steel. The tariffs will most likely have
what effect?
a. They will reduce imports into the U.S. but increase the amount of U.S. exports.
b. They will reduce imports of steel into the U.S. and also reduce U.S. exports of other goods
by an equal amount.
c. They will reduce imports into the U.S. but have no impact on the amount of U.S. exports.
d. They will reduce imports into the U.S. and decrease the amount of U.S. exports.
16. Which of the following is most likely to cause a rise in net foreign investment?
a. a reduction in the Canadian government deficit
b. rampant inflation in Japan, a major trading partner of Canada
c. a decrease in real interest rates among European nations
d. an increase in the Canadian government deficit
17. If real interest rates decline sharply in Canada, which of the following consequences will
ensue?
a. The exchange rate will increase.
b. The Canadian dollar will depreciate.
c. Canadian net foreign investment will decrease.
d. The supply of foreign exchange will decrease.
18. An improvement in technology shifts which of the following curves?
a. the short-run and long-run aggregate-supply curves
b. only the short-run aggregate-supply curve
c. the aggregate-demand curve and the short-run aggregate-supply curve
d. only the aggregate-demand curve