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ECONOMICS 101
COLUMBIA COLLEGE
PRACTICE FINAL EXAM
A. Multiple choice
1) Which of the following best fits the definition of money?
A) gold
B) any commodity or token that is generally acceptable as a means of payment
C) an obligation between the parties to a transaction
D) any unit of account
E) any medium of exchange
2) Which one of the following is not a function of money?
A) medium of exchange
B) means of payment
C) store of value
D) measure of liquidity
E) unit of account
3) Which one of the following items is not included in the M1 definition of money?
A) currency outside banks.
B) personal chequable deposits
C) non-personal chequable deposits
D) fixed term deposits
E) Neither B nor D are part of M1.
4) Complete the following sentence. Net exports equals
A) exports divided by imports.
B) exports plus imports.
C) exports minus imports.
D) imports minus exports.
E) foreign borrowing by residents of Canada minus domestic borrowing by nonresidents of Canada.
5) Which one of the following is false?
A) Y = C + I + G + M - X
B) Y - C - I - G - X + M = 0
C) X - M = Y - C - I - G
D) Y + M = C + I + G + X
E) Y = C + I + G + X - M
6) Stock and bond sales are not included in GDP because they
A) do not occur in the year in which the production represented by them takes place.
B) represent corporate production.
C) represent indebtedness.
D) are not goods and services.
E) are not sold in the country in which they are produced.
7) Which one of the following would not be counted as part of this year's GDP?
A) The lumber you purchase when building bookshelves for your room.
B) The government bond you buy for your newborn niece.
C) The purchase of a new personal computer that was produced in the current year.
D) The purchase of wheat that was produced in the current year by a Saskatchewan farmer.
E) The purchase of a house that was produced in the current year.
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8) Anything can be money as long as it
A) has low transactions costs.
B) is not too bulky.
C) has intrinsic worth.
D) meets the double coincidence of wants.
E) is acceptable as a medium of exchange.
9) How much would the production of a kayak add to GDP if the shell costs $250, the paint costs $20, the
finisher costs $35, the manufacturer sold it to the dealer for $500, and the dealer sold it to his customer for
$800?
A) $1,605
B) $1,300
C) $500
D) $305
E) $800
10) A bakery uses flour to produce bread.
When calculating GDP, we include ________, because when we add the value of the flour to the value of the
loaf of bread to calculate GDP, the result is ________.
A) only the value of the bread sold in a store; double counting
B) only the value of the flour used to produce the bread; double counting
C) both the value of the bread sold in a store and the value of the flour used to produce the bread; double
counting
D) both the value of the bread sold in a store and the value of the flour used to produce the bread; the true value
of the economy's output
E) none of the above
11) If nominal GDP increased by 11 percent during a year while real GDP increased by only 5 percent, then the
A) price level decreased by 6 percent.
B) price level increased by 16 percent.
C) price level remained steady but real output fell by 6 percent.
D) unemployment rate fell during the year.
E) price level increased by 6 percent.
12) Which one of the following people would be counted as unemployed in Canada?
A) Doris works only 5 hours a week but is looking for a full-time job.
B) Kanhaya has stopped looking for work since he was unable to find a suitable job during a two-month search.
C) Sharon recently began looking for work after staying at home for 10 years to look after her children.
D) Maurice is on a 2 month vacation out of the country but is still looking for a job using the internet.
E) Taylor is a homemaker.
13) The unemployment rate is defined as the number of
A) unemployed people divided by the number of employed people.
B) employed people divided by the number of people in the country.
C) unemployed people divided by the number of people in the country.
D) unemployed people divided by the sum of the people employed and the people unemployed.
E) unemployed people divided by the number of people in the country who are employed.
14) If the economy is operating at full employment, then
A) everyone who wants a job has one.
B) the entire labour force is employed.
C) the unemployment rate is approximately 3 percent.
D) the unemployment rate is zero.
E) none of the above.
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Use the table below to answer the following questions.
Table 20.2.6
There are only two goods in this economy.
15) Refer to Table 20.2.6. Consider the data in this table. What is current nominal GDP?
A) $189,900
B) $192,000
C) $95,000
D) $93,000
E) None of the above
16) Refer to Table 20.2.6. Consider the data in this table. What is current real GDP in terms of base-year prices?
A) $189,900
B) $192,000
C) $95,000
D) $93,000
E) None of the above
17) If the working-age population increases, then
A) the size of the labour force will increase.
B) the number of people employed will increase.
C) the unemployment rate will increase.
D) the labour force participation rate will increase.
E) the total number of people aged 15 years and above will increase.
18) Which of the following reflects an increase in unemployment?
A) an increase in the employment-to-population ratio
B) a decrease in the unemployment rate
C) an increase in the labour force participation rate
D) an increase in the involuntary part-time rate
E) none of the above
19) If the number of discouraged workers decreases because many of them start to look for work, everything
else remaining the same, then the
A) unemployment rate will increase.
B) employment-to-population ratio will decrease.
C) labour force participation rate will increase.
D) labour force participation rate will decrease.
E) both A and C.
20) The reference base period is 2002. A consumer price index of 122 in 2012 means that
A) prices of consumer goods have gone up by a factor of 12.2.
B) if the price of a good was $100 in 2002, its price in 2012 is $122.
C) prices of consumer goods have more than doubled.
D) the market basket of consumer goods that cost $122 in 2002 can be purchased for $100 in 2012.
E) the average of the prices paid by urban consumers for a fixed market basket of consumer goods and services
was 22 percent higher in 2012 than it was on average during 2002.
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21) The technique used to calculate the CPI implicitly assumes that consumers buy
A) relatively more of goods with relative prices that are increasing.
B) relatively less of goods with relative prices that are decreasing.
C) the same relative quantities of goods as in a base year.
D) goods and services whose quality improves at the rate of growth of real GDP.
E) more computers and CD players and fewer black-and-white TVs.
22) All of the following are possible sources of bias in using the Consumer Price Index to measure inflation
except
A) the introduction of new goods.
B) an improvement in the quality of goods.
C) commodity substitution.
D) an increase in the cost of living
E) Both C and D are exceptions.
23) Suppose that in the year 2000 nominal GDP is 972 and real GDP is 900, and the consumer price index is
110, then the GDP deflator for the year 2000 is
A) 72.
B) 92.6.
C) 110.
D) 108.
E) Impossible to calculate without additional information.
24) If the country’s population over the age of 15 is 30 million, the number of discouraged workers is 1
million, the labour force is 16 million, the total employment is 15 million, then the measured unemployment
rate is
A) Below 4%.
B) between 5% and 7%.
C) between 8% and 12% .
D) above 12%.
E) Impossible to calculate without additional information.
26) Which of the following will definitely cause an increase in the equilibrium price?
A) An increase in both demand and supply.
B) An decrease in both demand and supply.
C) An increase in demand combined with a decrease in supply.
D) A decrease in demand combined with an increase in supply.
E) None of the above.
27) If the income elasticity of demand is -2, then a 1 percent decrease in income will
A) Double the quantity demanded.
B) Reduce the quantity demanded by half.
C) Increase the quantity demanded by 2 percent.
D) Reduce the quantity demanded by 2 percent.
E) Increase the quantity demanded by 0.5 percent.
28) which of the following will shift the supply curve for good X leftward?
a.
A decrease in the wages of workers employed to produce X.
b.
An increase in the cost of machinery used to produce X.
c.
A technological improvement in the production of X.
d.
A situation where quantity demanded exceeds quantity supplied.
e.
All of the above.
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29) A point lying inside the production possibility boundary is one at which
a.
there is no scarcity.
b.
the opportunity cost of producing more output is negative.
c.
it is not possible to produce more output with existing resources.
d.
the economy has run out of resources.
e.
more output could be produced with existing resources.
30) Which of the following would cause a movement along the demand curve, ceteris paribus (holding
everything else constant)?
a.
A change in tastes.
b.
A shift of the supply curve.
c.
A rise in the price of a substitute good.
d.
A rise in average household income.
e.
A increase in population.
31) The cost to a maple syrup seller of taking a vacation increases:
a.
When the cost to the seller of buying maple syrup rises.
b.
When other maple syrup sellers reduce the price of their merchandise.
c.
During the summer when most tourists come to town.
d.
When it rains and tourists stay away.
e.
When taxes increase.
32) If the price of fur coats increase by 10 percent and household expenditures on fur coats increase by 10
percent, one can conclude that the price elasticity of demand for fur coats is
a.
elastic.
b.
inelastic.
c.
Unit elastic.
d.
positive.
e.
Not determinable from the information given.
33) Scarcity can be eliminated by
a.
abolishing competition.
b.
abolishing capitalism.
c.
abolishing money.
d.
all of the above.
e.
none of the above.
34) The "law of demand" in economic theory asserts that
a.
demand generates a supply sufficient to satisfy the demand.
b.
nothing will be produced unless there is a demand for it.
c.
people will purchase less of a good when its price rises.
d.
wants are indefinitely expansible and can never be fully satisfied.
e.
whatever people want will eventually be supplied.
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35) Which of the following will not change the demand for movie tickets?
a.
A change in the cost of babysitting services.
b.
A change in the incomes of moviegoers.
c.
A change in the price of movie tickets.
d.
A change in the quality of television programs.
e.
A change in the quality of movies.
36) A change in demand could be caused by all but which one of the following?
a.
A decrease in average income.
b.
An increase in the price of a substitute good.
c.
A decrease in the cost of producing the good.
d.
An increase in population.
e.
A government program that redistributes income.
B. True/False/Uncertain
(a) GDP includes the transfers of existing commodities, like old houses.
Answer: False. GDP only count the newly produced goods and services. Buying and selling of used goods
doesn’t count, because the value of it was included in GDP when it was produced.
(b) When more jobs are created, unemployment rate will decrease.
Answer: False. It also depends on how many people are in the labor force. If a lot more people joined the
labour force we could have an increase in unemployment rate accompanied by more employment.
(c) Because of the bias in CPI, GDP deflator is a better measurement of the cost of living for Canadians.
Answer: False. CPI is still the best measure of the cost of living for Canadians, since it constructs a basket of
goods and services that match the purchase pattern of a typical urban household. GDP deflator is too broad, and
it also excludes imported goods which lots of households consume.
(d) The opportunity cost of going to university for four years is the cost of tuition, residence fees, and books.
Answer: False. It also includes the best valued alternatives forgone. For example, if this person does not go to
university, his best alternative is to work at Starbucks, then the forgone wage at Starbucks is also part of the
opportunity cost.
C. Fill in the blank
(a) The three types of unemployment are _________, ________, ________.
Answer: Frictional, Structural and Cyclical.
(b) Consider the following data from the economy of Adanac:
∙
∙
∙
∙
Currency outside banks: $15 billion
Personal and non-personal chequable deposits: $40 billion
Personal non-chequable deposits: $50 billion
Non-personal non-chequable deposits: $125 billion
The value of MI is $________ billion and the value of M2 is $________ billion.
Answer: 55; 230
(c) A private firm that takes deposits from households and firms and makes loans to other households and firms
is ____________.
Answer: a depository institution.
(d) If the price of wheat falls 10 percent and farmers produce 15 percent less, the elasticity of supply for wheat
is __________.
Answer: 1.5
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D. You are given the following information about the economy of Nocoin:
The banks have deposits of $300 billion. Their reserves are $15 billion, two thirds of which is in deposits with
the central bank. The banks have no excess reserves.
The Bank of Nocoin, the central bank, increases bank reserves by $0.5 billion.
What happen to the quantity of money? Is the change in the quantity of money equal to the change in the
monetary base? Why? What is the money multiplier in this case?
Answer: The quantity of money increases;
The change in the quantity of money is larger than the change in the monetary base because when bank reserves
increase, banks loan out their excess reserves and a multiplier process ensues;
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E. The following table provides data on the productivity of a single unit of resource in producing wheat and
microchips in both Canada and Japan.
Wheat (tons)
Microchips
Canada
50
20
Japan
40
120
(a)
(b)
(c)
(d)
What is the opportunity cost of producing a ton of wheat in Canada? In Japan?
Which country has a comparative advantage in the production of wheat?
Draw each country’s production possibility curve (frontier).
Suppose that without trade, each country allocate half of its resource to production of each
good. Indicate the production and consumption points of each country in the graphs.
(e) Indicate the production points of each country after trade, and determine world production
levels.
(f) Suppose that the terms of trade are one microchip for one ton of wheat and that Canada
consumes as much wheat after trade as it did before trade. Indicate the post-trade consumption
points of each country and each country’s imports and exports.
Answer: See class notes.
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