under exam conditions - carleton.ca · closed economy? a. (t – y – c); (g-t) ... if gdp is 24...

Sheldon Birkett ECON 1000 C

It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS.

This means:

• Complete the midterm in 2 hour(s). • Work on your own. • Keep your notes and textbook closed. • Attempt every question.

After the time limit, go back over your work with a different colour or on a separate piece

of paper and try to do the questions you are unsure of. Record your ideas in the

margins to remind yourself of what you were thinking when you take it up at PASS.

The purpose of this mock exam is to give you practice answering questions in a timed

setting and to help you to gauge which aspects of the course content you know well and

which are in need of further development and review. Use this mock exam as a

learning tool in preparing for the actual exam.

Please note:

Come to the PASS workshop with your mock exam complete. During the

workshop you can work with other students to review your work.

Often, there is not enough time to review the entire exam in the PASS workshop.

Decide which questions you most want to review – the Facilitator may ask

students to vote on which questions they want to discuss in detail.

Facilitators do not bring copies of the mock exam to the session. Please print out

and complete the exam before you attend.

Facilitators do not produce or distribute an answer key for mock exams.

Facilitators help students to work together to compare and assess the answers

they have. If you are not able to attend the PASS workshop, you can work alone

or with others in the class.

Good Luck writing the Mock Exam!!

Dates and locations of mock exam take-up:

Wednesday, February 14th 5:30pm to 7:30pm (ME 3275)

Thursday, February 15th 6:00pm to 8:00pm (AP 132)


Multiple Choice – 60 Questions:

1. According to the structure of the macro-economy circular-flow diagram?

a. Households provide firms GDP revenue

b. Households provide firms GDP income

c. For an economy as a whole, income must equal expenditure

d. For an economy as a whole, income is greater than expenditure

2. What is the price of 1981 tuition in 2018 dollars if the price of tuition in 1981 was $800

per semester, the cost of an average basket of goods (same basket quantity) cost $25 in

1980, and $30 in 1981, now costs $80 dollars in 2018? Using the average basket given

calculate the price of 1981 tuition in 2018 per semester. *Base Year of 1980*

a. $320

b. $2 133.33

c. $2 233.33

d. $120

3. If a basket of goods consists of 2 cars and 1 house and the car costs $4000 in 2015, $6000

in 2016, and $8000 in 2017; and the house costs $12 000 in 2015, $14 000 in 2016, and

$16, 000 in 2017. What is the CPI in 2016 using the base year 2015?

a. 100

b. 130

c. 160

d. 132

4. If a basket of goods consists of 2 cars and 1 house and the car costs $4000 in 2015, $6000

in 2016, and $8000 in 2017; and the house costs $12 000 in 2015, $14 000 in 2016, and

$16, 000 in 2017. What is the CPI in 2017 using the base year 2015?

a. 100

b. 130

c. 160

d. 132


5. Suppose you had deposited $2000 in your bank account and with the $2000 in your bank

account, you can buy sixty textbooks for $33.33 each. If there is a 30% deflation in the

price of textbooks, did your purchasing power rise or fall? How many textbook can you

now buy? (estimate)

a. Fall; 86

b. Rise; 86

c. Fall; 80

d. Rise; 80

6. Suppose a savings account will pay you 20 percent nominal interest rate, however at the

start of the year you put $4000 into the savings account, but by the end of the year the

real value increase of the original $4000 only went up by $80 (to $4080). What is the real

interest rate on the account and inflation rate over the year?

a. Real Interest Rate 2%; Inflation 18%

b. Real Interest Rate 18%; Inflation 2%

c. Real Interest Rate 2%; Inflation 10%

d. Real Interest Rate 10%; Inflation 2%

7. If Bill owns a snowplowing business and he plows Jane’s driveway Bill receives income.

Suppose Bill and Jane get married and Bill plows Jane’s (and now his driveway as they

live together) driveway what happens to GDP?

a. Rise

b. Fall

c. Constant

d. Increases Exponentially

8. According to Y = C + I + G + NX what is private savings and public savings equal in a

closed economy?

a. (T – Y – C); (G-T)

b. (S – Y – T) ; (T-G)

c. (Y – C – G)

d. (Y – T – C); (T – G)

9. Suppose you had deposited $2000 in your bank account and with the $2000 in your bank

account you can buy sixty textbooks for $33.33 each. Calculate the rise or decline in your

purchasing power in a year, given that there is 10 percent inflation over the year and the

price of each textbook rises from $33.33 to $39.96? How many textbooks can you now

buy?

a. Rise; 86

b. Fall; 86

c. Fall; 55

d. Rise; 60


10. An example of a demand side incentive for increasing the amount of loanable funds

would be?

a. Tax Free Savings Account (TFSA)

b. Goods and Services Tax (GST)

c. Registered Retirement Savings Plan (RRSP’s)

d. Investment Tax Credit

11. Calculate the CPI Inflation Rate in 2017 using the base year of 2015 if a basket of goods

and services consists of 2 cars and 1 house and the cost of the house in 2015 is $4000, is

$6000 in 2016, and is $8000 in 2017. As well, if the cost of the house is $12, 000 in

2015, $14, 000 in 2016, and is $16, 000 in 2017. What is the CPI Inflation Rate in 2017

using the base year of 2015 for the given basket of goods and services?

a. 30 percent

b. 23 percent

c. 60 percent

d. 20 percent

12. Calculate the GDP Deflator for 2016 using the base year of 2014:

Year Price (Good

A)

Quantity

(Good A)

Price (Good

B)

Quantity

(Good B)

Nominal

GDP

2014 1.25 1.00 50 175

2015 200 1.50 100 450

2016 1.75 300 2.00 200 925

a. 100

b. 160.87

c. 150

d. 128.57

13. Using the above question. What is the GDP deflator for 2015 using the base year of

2014?

a. 100

b. 128.57

c. 160.87

d. 150


14. If the total population is 20 million and 11 million are employed and 6 million not in the

labour force. How many unemployed people are there? As well, what is the

unemployment rate?

a. 4 Million Unemployed; 21.42 percent

b. 14 Million Unemployed; 20 percent

c. 3 Million Unemployed; 21.42 percent

d. 11 Million Unemployed; 20 percent

15. If the labour force is 18 million and there are 4 million not in the labour force what is the labour

force participation rate?

a. 70.81 percent

b. 81.81 percent

c. 85.81 percent

d. 86.81 percent

16. The economy of Elmendyn contains 4000 $1 bills. If people hold equal amounts of currency and

demand deposits and the bank maintains a 10 percent reserve ratio, what is the quantity of

money?

a. $20, 000

b. $2, 000

c. $22, 000

d. $24, 000

17. Consider the Minimum Wage in the diagram below. What is the size of non-voluntary

unemployment?

a. Qe – Qs

b. Pe – P min

c. Qd – Qs

d. Qs – Q


18. Which of the following is not an argument for efficiency wages?

a. Increase Worker Health

b. Increased Worker Effort

c. Increased Worker Quality

d. Increased Worker Turnover

19. Calculate the size of Canada’s GDP in 30 years from now using the equation below. Assuming

GDP 2018 equals $2000 Million and g is 3.5 percent?

𝐺𝐷𝑃2048 = 𝐺𝐷𝑃2018 (1 + 𝑔)30

a. 2.8068 Million

b. 6613.58 Million

c. 5613.58 Million

d. 2806.8 Million

20. Economic growth in the long run is subject to Y/L = AF (1, K/L, H/L, N/L). However this

production function is subject to diminishing returns in the long-run. Which function below

illustrates diminishing returns?

A. D.

C.

B.

a. Graph B.

b. Graph C.

c. Graph A.

d. Graph D.


21. Who argued that the power of the population is infinitely greater than the power of the power in

the earth to produce subsistence for man?

a. Adam Smith

b. David Ricardo

c. John Galbraith

d. Thomas Malthus

22. If GDP is 24 billion, taxation is 6 billion, private savings is 10 billion, and public saving

is 12 billion. What is consumption, government expenditure, and national

savings/investment?

a. Consumption 9 billion, Government expenditure 6 billion, national

savings/investment 22 billion

b. Consumption 8 billion, Government expenditure -6 billion, national

savings/investment 22 billion

c. Consumption 8 billion, Government expenditure -7 billion, national

savings/investment 22 billion.

d. Consumption 8 billion, Government expenditure -7 billion, national

savings/investment 20 billion.

23. If GDP is 500 billion, consumption is 113 billion, private savings is 300 billion, and

government expenditure is 300 billion. What is taxation, public saving, and national

investment/saving?

a. Taxation 87 Billion, Public Savings – 213 billion, National 87 Billion

b. Taxation 87 Billion, Public Savings 213 billion, National 87 Billion

c. Taxation 84 Billion, Public Savings – 213 billion, National 87 Billion

d. Taxation 87 Billion, Public Savings – 213 billion, National 84 Billion

24. If GDP is 12 billion, government spending is 4 billion, public saving is -5 and private

saving is 3 billion, what is taxation, consumption, and national investment and saving?

a. Taxation -1, Consumption 10, National Savings 2

b. Taxation 1, Consumption 10, National Savings 2

c. Taxation -1, Consumption 12, National Savings -2

d. Taxation -1, Consumption 10, National Savings -2

25. What is the effect of a Government Deficit on the Market for Loanable Funds?

a. Increases Supply, Raises Interest Rate, Reduce Quantity of Funds

b. Increases Supply, Reduce Interest Rate, Reduce Quantity of Funds

c. Decreases Supply, Increase Interest Rate, Reduce Quantity of Funds

d. Decreases Supply, Increase Interest Rate, Increase Quantity of Funds


26. A decrease in the banks’ reserve requirement would?

a. Increase Reserve Ratio, Raise the Money Multiplier, and Increase the Money

Supply

b. Decrease the Reserve Ratio, Raise the Money Multiplier, and Increase the Money

Supply

c. Decrease the Reserve Ratio, Raise the Money Multiplier, and Decrease the

Money Supply

d. Decrease the Reserve Ratio, Decrease the Money Multiplier, and Increase the

Money Supply.

27. If Nominal GDP is $1000 Million, Real GDP is $500 Million, Money Supply is $100

Million. What is the price level and Velocity of Money?

a. 2 and 20

b. 1 and 20

c. 2 and 10

d. 2 and 5

28. The Fisher Effect assumes that when the Bank of Canada…?

a. Increases the rate of money growth there is a lower inflation rate and lower

nominal interest rate

b. Increases the rate of money growth there is a higher inflation rate and lower


c. Increases the rate of money growth there is a higher inflation rate and higher


d. Increases the rate of money growth there is a lower inflation rate and no change in

the nominal interest rate

29. The Friedman Rule is…?

a. Shoe leather cost of holding money would not be minimized by having a nominal

interest rate close to zero.

b. Shoe leather cost of holding money would increase by having a nominal interest

rate close to zero.

c. Shoe leather cost of holding money would be minimized by reducing the real

interest rate.

d. Shoe leather cost of holding money would be minimized by having a nominal

interest rate close to zero.


30. Calculate the real exchange rate of wine if the nominal exchange rate is 1/60 dollar per

yen (60 yen per dollar), and the cost of wine in Canada (per bottle) is $60 dollars and the

cost of wine in Japan (per bottle) is 80 yen.

a. 45 bottles of Japanese Wine per Bottle of Canadian Wine

b. 0.025 bottles of Japanese Winer per Bottle of Canadian Wine

c. 1.5 bottles of Japanese Winer per Bottle of Canadian Wine

d. 0.66 bottles of Japanese Winer per Bottle of Canadian Wine

31. What is an implication of the purchasing power parity theory

a. If the Purchasing power of the dollar is always the same at home and abroad, then

the real exchange rate – the relative price of domestic and foreign goods – can

change.

b. If the Purchasing power of the dollar is always the same at home and abroad,

then the real exchange rate – the relative price of domestic and foreign goods –

cannot change.

c. If the Purchasing power of the dollar is not always the same at home and abroad,

then the real exchange rate – the relative price of domestic and foreign goods –

cannot change.

d. If the Purchasing power of the dollar is always the same at home and abroad, then

the nominal exchange rate – the relative price of domestic and foreign goods –

can change.

32. What are the limitations to interest rate parity theory?

a. Financial assets carry with them the possibility of default (default risk)

b. Financial assets offered for sale in different countries are not perfect substitutes.

c. Financial assets offered for sale in different countries are perfect substitutes.

d. a & b

e. a & c

33. Suppose the U.S. exchange rate is $1.35 CND per U.S. dollar. The next day the U.S.

exchange rate is $1.20 CND per U.S. dollar.

a. The Canadian dollar depreciated relative to the U.S.

b. The Canadian dollar appreciated relative to the U.S.

c. The U.S. dollar appreciated relative to the U.S.

d. The Canadian dollar nominal exchange rate appreciated relative to the Euro.


34. Purchasing power parity states that the exchange rate should be able to buy the same

quantity of goods with a unit of any given currency. Two goods that are typically

exceptions to PPP theory are (think of trade and substitutes):

a. Big Mac’s and Computer Parts

b. Cars and Gas (Petrol)

c. Haircuts and Craft Beer

d. Books and USB’s

35. Suppose the Canadian National Bank sells its shares in Honda to a German Investor.

How will this affect Net Capital Outflow (NCO) and Net Exports (NX)?

a. NCO > 0; NX > 0

b. NCO < 0; NX > 0

c. NCO > 0; NX < 0

d. NCO < 0; NX < 0

36. If the price level for a Canadian basket of goods is $10.00 and the price level of the same

basket of goods in France is 15 euro what is the nominal exchange rate?

a. 1.5 euro per dollar

b. 0.66 euro per dollar

c. 2 euro per dollar

d. 0.5 euro per dollar

37. If the nominal exchange rate between Canada and the U.S. is $1.60 (US/CDN) and the

price of the shoes are $20 in the U.S. what is the price of those same shoes in Canada

(using Canadian Dollars)?

a. $20 CDN

b. $20 US

c. $12.5 CDN

d. $12.5 US

38. Suppose a bank currently holds $25, 000 in demand deposits with a reserve ratio of 1/5.

What is the amount the bank can loan out?

a. $5000

b. $25000

c. $10000

d. $20000


39. The Government of Canada allows people to open Tax Free Saving Accounts (TFSA’s).

What is the effect of this on the market for loanable funds?

a. Decrease Savings, Reduce Interest Rate, Increase Quantity of Loanable Funds

b. Increase Savings, Raise Interest Rate, Increase Quantity of Loanable Funds

c. Increase Savings, Reduce Interest Rate, Increase Quantity of Loanable Funds

d. Increase Investment, Reduce Interest Rate, Decrease Quantity of Loanable Funds

40. The Stock Market in the Financial System is considered [a]….?

a. Debt Finance

b. Equity Finance

c. Perpetuity

d. Mutual Fund

41. Other than matching savings with borrowing Financial Intermediaries also…?

a. Provide a date of maturity for when a loan is to be repaid

b. Facilitate equity finance between financial institutions

c. Pay out dividends to shareholders and keep a portion called retained earnings,

which can also be reported as a dividend yield (expressed as % of stock price).

d. Facilitate the purchase of goods and services by allowing people to write cheques

against their deposits.

42. In calculating CPI inflation what is the first step?

a. Find the Prices

b. Compute Basket Costs

c. Choose a base year and compute the index

d. Determine the basket

43. Statistics Canada announced that for all Canadian 15 years and older, 17 494 700 were employed,

1 370 600 were unemployed, and 9 376 700 were not in the labour force. What is the Labour

Force Participation Rate?

a. 7.26 percent

b. 66.80 percent

c. 77.80 percent

d. 8.26 percent


44. Statistics Canada announced that for all Canadian 15 years and older, 17 494 700 were employed,

1 370 600 were unemployed, and 9 376 700 were not in the labour force. What is the

Unemployment Rate?

a. 7.26 percent

b. 66.80 percent

c. 77.80 percent

d. 8.26 percent

45. Human Capital is an important factor in determining the long run growth of an economy. What is

human capital?

a. Society’s understanding of the best way to produce goods and services

b. Knowledge and skill that workers acquire through education, training, and experience.

c. Inputs in the production function that are provided by nature

d. The stock of equipment and structures that are used to produce goods and services.

46. Technological knowledge is an important factor in determining the long run growth of an

economy. What is technological knowledge?

a. Society’s understanding of the best way to produce goods and services

b. Knowledge and skill that workers acquire through education, training, and experience.

c. Inputs in the production function that are provided by nature

d. The stock of equipment and structures that are used to produce goods and services.

47. Suppose Tim Hortons opens up a store in Russia employing the local labour force this is an

example of?

a. Foreign Portfolio Investment

b. Net Capital Outflow

c. Foreign Direct Investment

d. Free Trade

48. In a small open economy savings is equal to?

a. S = (Y – T – C) + (T – G)

b. S = Y – C – G

c. S = I

d. S = I + NCO


49. Once of the main characteristics of a small open economy such as Canada is that?

a. Trade with Goods and Service has an impact on world price and interest rates

b. Trade with Goods and Service has a negligible impact on world price and interest

rates

c. Trade always establishes a negative Net Capital Outflow, which impact world

prices and interest rates.

d. Trade always establishes a negative Net Capital Outflow, which does not impact

world prices and interest rates.

50. Canada imports a lot of manufactured goods from China, after the Completion of the

Canada-China FTA there will be more imports from China. How can this be represented

in terms of NX and NCO?

a. NX < 0; NCO > 0

b. NX > 0; NCO > 0

c. NX < 0; NCO < 0

d. NX > 0; NCO = 0

51. Which of the following is not a cost of Inflation?

a. Shoe-leather Costs

b. Menu Costs

c. Tax Distortions

d. Distribute wealth towards creditors

e. Distribute wealth away from creditors

52. What is not a factor that influences exports and imports?

a. Tastes of Consumers

b. Prices of Goods

c. Number of Citizens Abroad

d. Government Policies

53. What is not a problem in measuring the cost of living using CPI?

a. Commodity Substitution Bias

b. Unmeasured Quantity Change

c. Unmeasured Quality Change

d. Introduction of New Goods


54. What does GDP Deflator not measure?

a. Prices of all Goods and Services produced domestically

b. Compare prices of currently produced goods and services to the base year

c. Prices of Goods and Serviced bought by consumers

d. Inflated measure of GDP indexed to a base year

55. What type of monetary control policy could the government use to mitigate the effect of the Bank

of Canada selling bonds to commercial banks?

a. Open Market Operations

b. Foreign Exchange Market

c. Financial Market

d. Sterilization

56. What are the three functions of money?

a. Medium of Exchange, Unit of Account, and Liquidity

b. Medium of Exchange, Unit of Account, and Store of Value

c. Medium of Cost, Unit of Account, and Store of Value

d. Commodity Money, Unit of Account, and Store of Value

57. In the supply and demand for money diagram the slope of MS and MD curve are?

a. Money Supply is Elastic; Money Demand is Negative

b. Money Supply is Positive; Money Demand is Negative

c. Money supply is Inelastic; Money demand is Negative

d. Money supply is Inelastic; Money demand is Positive

58. The price of a computer in India is 24, 000 rubies, the nominal exchange rate is 40 rubies

per Canadian dollar, how much is the computer in Canadian dollars?

a. 600 dollars

b. 0.025 dollars

c. 600 rubies

d. 0.025 dollars

59. Using V = (PY)/M holding V and real GDP constant what would the Bank of Change

have to change if P increase by 10 percent?

a. Increase MS by 10 %

b. Reduce MS by 10 %

c. Use Open Market Operation (buy bonds)

d. Use Foreign Exchange Operations (Sell Canadian Dollars)


60. Over the past ten years, new computer technology has enabled firms to reduce

substantially the amount of inventories they hold for each dollar of sales. What impact

does this have on the market for loanable funds?

a. Increase Investment, Reduce Interest Rates, Reduce Quantity of Loanable Funds

b. Increase Investment, Reduce Interest Rates, Increase Quantity of Loanable Funds

c. Increase Investment, Raise Interest Rates, Increase Quantity of Loanable Funds

d. Decrease Investment, Raise Interest Rates, Increase Quantity of Loanable Funds

!!!!!!!CONGRADULATIONS ON FINISHING THE MOCK!!!!!!!

under exam conditions - carleton.ca · closed economy? a. (t – y – c); (g-t) ... if gdp is 24...

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