chap 4

• Understanding business cycles requires an understanding of monetary policy.
• Which of the following events is associated with​ long-term growth rather than​ short-term fluctuations?

  A. Decreasing interest rates during recessions.

  B. A decrease in the full dash employment level of unemployment due to a reduction in structural unemployment.

  C. An increase in the price of oil due to uncertainty of election results in a major oil dash producing country.

  D. A reduction in stock prices during the election period.

  
  

  Correct answer is B
• Which of the following events is associated with short term fluctuations rather than long term​ growth?A.Increases in the exchange rate due to the political uncertainty caused by the elections.

  B. Upper A higher stock of physical capital.

  C. Government budget surpluses that drive down interest rates and stimulate investment.

  D. Upper A policy designed to control inflation.

  Correct is A
• Which of the following is the main result of​ long-term economic​ growth?

  A.decreasing interest rates

  B.rising average living standards

  C.increasing inflation rate

  D.appreciation of the domestic currency

  E.decreasing unemployment rate

  Correct is B
• Consider the situations of a lender of money and a borrower of money. Which of the following situations is least burdensome for the​ borrower?

  A.nominal interest rate of 6​% and an inflation rate of 2​%

  B.nominal interest rate of 19​% and an inflation rate of 12​%

  C.nominal interest rate of 11​% and an inflation rate of 9​%

  D.nominal interest rate of 10​% and an inflation rate of 1​%

  E.nominal interest rate of 27​% and an inflation rate of 20​%

  Correct is C
• Assume that Sarah agrees to lend​ $100 to Sam for one year. Sam agrees to pay Sarah ​$114 at the end of the year. If inflation over that one year is 4​%, what real rate of interest does Sarah earn on her​ $100?

  ((114-100)/100)=14->14%-4%=10%
• Consider a small economy with real GDP of ​$1.75 billion and the number of workers employed equal to 1,000. Which of the following is a measure of labour productivity in this​ economy?

  A.real GDP per employed worker=​$1 750 000

  B.employed worker per dollar of real GDP=571

  C.employed worker per dollar of real GDP=1 750 000

  D.employed worker per dollar of real GDP=1750

  E.real GDP per employed worker=​$571

  F.real GDP per employed worker=$1750

  G.indeterminable from the information provided

  Correct is A
• If a​ country's labour force is 16 million​ people, and 2.50 million of those are​ unemployed, the​ country's unemployment rate is 15.6%
• Consider a small economy with 3 individuals. Individual A produces 120 chickens that sell for ​$9 each. Individual B produces 60 bags of corn that sell for ​$13 each. Individual C produces 50 bushels of apples that sell for ​$19 each. What is the national product in this​ economy?

  A.The national product is 230 units of goods produced.

  B.The national product is 120 chickens plus 60 bags of corn plus 50 bushels of apples.

  C.The national product is ​$4 370.

  D.The national product is ​$2 810.

  E.The national product cannot be determined from the information provided.

  Correct is D
• Suppose Honest​ Rob's Used Cars buys a used car for ​$3,000 and resells it for ​$4 500. The result of Honest​ Rob's transactions is to

  A.decrease the value of national income by ​$4,500.B.increase the value of national income by ​$4,500.

  C.leave the value of national income unchanged.

  D.increase the value of national income by ​$1,500.

  E.decrease the value of national income by ​$1,500.

  Correct is D
• Henry lends LoisLois ​$130 for tuition expenses at the beginning of the fall semester. If the inflation rate is expected to be 7​% and Henry asks LoisLois to pay ​$143 at the end of the​ semester, then the real rate of interest earned by Henry is 3​%.
• If the unemployment rate in Forrestville is 14​% and there are 69,000 people in the labour​ force, then there are 59340 people employed in Forrestville.
• If you were a​ lender, in which country would you have wanted to lend.

  You would have wanted to lend to a country that has the highest real interest rate.
• Inflation rates


  Measure of the rate at which the general price level of goods and services in an economy increases over time
• Inflation rate


  The rate at which the general price level of goods and services in an economy increases over time
• If you were a​ borrower, in which country would you have wanted to borrow?

  You would have wanted to borrow from a country that has the lowest real interest rate.
• Explain which measure is likely to be a more accurate indication of​ productivity, and why.

  Real GDP per hour worked is likely to be a more accurate indication of productivity because it uses a more accurate measure of total labour input.
• What kind of unemployment exists during​ "full employment"?

  Structural and Frictional but NOT Cyclical
• GDP can exceed potential GDP :

  when labour works overtime labour works overtime.
• What do economists call a​ period where real GDP falls?

  Economists call the periods a recession
• When the Canadian dollar depreciates in​ foreign-exchange markets, many people view this as​ "good" for the Canadian economy.

  Who is likely to be harmed by and who is likely to benefit from a depreciation of the Canadian​ dollar?

  A depreciation of the Canadian dollar is beneficial for

  A.Canadian government and harmful for the Canadians.

  B.all participants of Canada international trade process

  C.Canada's exports and harmful for Canada's imports.

  D.Canada's imports and harmful for Canada's exports.

  Correct is C
• Do you think this is likely to be good for the​ economy?

  Such a​ long-term decline in output per person is probably

  
  

  A.nonsignificant for the economy because it does not prevent a rise in GDP.

  B.desirable because on average​ people's welfare will increase due to increase in GDP.

  C.undesirable because average living standards will be declining.

  D.highly recommended because after some period of time it enables the economy to implement the latest technologies.

  
  

  Correct is C
• Consider an imaginary​ 10-year period over which output per personperson ​falls, but GDP increases. How can this​ happen?

  This is possible if

  A.the rate of technical progress is constant

  B.the rate of increase in the other factors of production is small

  C.the number of people in the corresponding population is stable.

  D.the rate of unemployment is constant.

  Correct is B
• The increase in employment reflects the new hiring by firms to produce more output.
• The increase in unemployment reflects an increase in the labour force.
• If the rise in the labour force exceeds ​(in absolute​ number) the rise in​ employment, then the number of unemployed workers will increase.
• During a​ recession, suppose unemployed workers leave the labour force because they are discouraged about their inability to find a job. What happens to the unemployment​ rate?

  
  

  The unemployment rate is likely to decrease because both number of people unemployed and number of people in the labour force decrease by the same absolute amount.
• "declining unemployment rate is a clear positive sign for the​ economy." Is this statement true or​ false?

  A.It is true because there is always a decline in unemployment rate during the periods of rapid economic growth.

  B.It is true because if there are less unemployed​ people, all the people are materially better off.

  C.It is false because there can be a decline in unemployment rate during recessions due to discouraged workers

  D.It is false because a rise in national income is associated with rise in​ productivity, not employment.

  Correct is C
• The labour force includes people who are unemployed and people who are employed. The unemployment rate is expressed as the number of people who are unemployed as a percentage of people in the labour force
• At any point in​ time, some people are unemployed because of the normal turnover of labour​ (new entrants to the labour​ force, job​ leavers, and job​ seekers).

  This unemployment is referred to as frictional.
• Some people are unemployed because their skills do not match the skills necessary for the available jobs. This employment is referred to as structural.
• The price that is paid to borrow money for a stated period of time is known as the interest rate
• The real interest rate is equal to the nominal interest rate minus the rate of inflation.
• The number of Canadian dollars required to purchase one unit of foreign currency is the exchange rate between the Canadian dollar and that foreign currency.
• An increase in the exchange rate reflects a depreciation of the Canadian​ dollar; a decrease in the exchange rate reflects an appreciation of the Canadian dollar.
• The value of total production of goods and services in Canada is called its national income. National income and national product are equal because all production generates a claim on its value in the form of income.
• In measuring​ Canada's total​ output, it would be meaningless to add together all goods and services produced during one year​ (i.e., 50,000 trucks plus 14 million dozen eggs plus 100 million​ haircuts, etc.).​ Instead, total output is measured in dollars
• The difference between nominal national income and real national income is that with the​ latter, prices are held constant to enable us to see changes in quantity.
• If all of​ Canada's resourceslong dash—its ​land, labour, and capitallong dash—are being employed at normal levels of​ utilization, then we say that Canada is producing its potential output.
• The output gap measures the difference between potential and actual GDP. During​ booms, Y>Y* and during recessions Y < Y*