ECN204 W2013 MTPractice

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Which of the following is characteristic of the relationship between unemployment insurance and job-search
effort?
a. A typical unemployed worker near the end of the time in which he or she can receive
benefits increases job-search efforts.
b. Unemployed people need to put less job-search effort now than they did in 1971 because
in 1971 the conditions to receive unemployment benefits were stricter than today.
c. Unemployment insurance raises structural unemployment because it reduces the job
search of the unemployed.
d. Most economists are skeptical of the value of unemployment insurance because they
believe that it results in a poorer match between workers and jobs.

____ 2. For what reason are production possibilities frontiers usually bowed outward?
a. It is because of the effects of technological change.
b. The more resources a society uses to produce one good, the fewer resources it has
available to produce another good.
c. It reflects the fact that the opportunity cost of producing a good falls as one produces more
and more of it.
d. Resources are specialized, that is, some are better at producing particular goods rather than
other goods.

____ 3. Consider two people who are currently out of work. Deb is not currently looking for work but would like a
job. Although she is not currently searching for work, she has done so at some time in the recent past. Ted is
not looking for work, because he doesn't think there are jobs available for which he would qualify. Who does
Statistics Canada consider to be a discouraged worker?
a. both Deb and Ted
b. only Ted
c. only Deb
d. Neither Deb nor Ted

____ 4. Suppose you bake cookies. One day, you double the time you spend; double the number of chocolate chips,
flour, eggs, and all your other inputs; and bake twice as many cookies. What kind of production function is
this?
a. decreasing returns to scale
b. constant returns to scale
c. increasing returns to scale
d. zero returns to scale

____ 5. Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of
government expenditures would make national saving equal 1000?
a. 7500
b. 3500
c. 9000
d. 2500



____ 6. World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.
Which of the following would we expect?
a. This would decrease the demand for existing shares of the stock, causing its price to fall.
b. This would raise the demand for existing shares of the stock, causing its price to rise.
c. This would raise the supply of the existing shares of stock, causing its price to fall.
d. This would raise the supply of the existing shares of stock, causing its price to rise.

____ 7. The price index in the first year is 100, in the second year is 90, and in the third year is 80. What is the
deflation rate between the first and second year, and between the second and third year?
a. 10 percent between the first and second year, 11 percent between the second and third year
b. 11 percent between the first and second year, 11 percent between the second and third year
c. 10 percent between the first and second year, 12 percent between the second and third year
d. 11 percent between the first and second year, 12 percent between the second and third year

____ 8. Which of the following laws is most likely to reduce the natural rate of unemployment?
a. a law that increases the minimum wage
b. a law that makes it harder to find out about job candidates past job history
c. a law that abolishes the minimum wage
d. a law that makes all provinces repeal right-to-work laws

____ 9. Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 2500, consumption equals 7500,
and government expenditures equal 3000. What is public saving?
a. 500
b. 600
c. 600
d. 500

____ 10. Between 2006 and 2007, the country of Aquilonia reported an increase in the number of people who were
employed. It also reported an increase in the unemployment rate. Which of the following would best explain
the two reports?
a. The two reports are contradictory and cannot be reconciled.
b. There was an increase in the size of the labour force between 2006 and 2007.
c. There was an increase in the size of the adult population between 2006 and 2007.
d. There was a decrease in the size of the labour force between 2006 and 2007.

____ 11. How do economists consider normative statements?
a. statements that establish production goals for the economy
b. statements about the normal condition of the world
c. descriptive, making a claim about how the world is
d. prescriptive, making a claim about how the world ought to be

____ 12. Tom is looking for work after school, but everywhere he fills out an application he is told that so have lots of
others. Simon has a law degree. Several firms have made him offers, but he thinks he might be able to find a
firm where his talents could be put to better use. To which categories of unemployment the two persons
belong?
a. Tom is structurally unemployed, and Simon is frictionally unemployed.
b. Tom and Simon are both structurally unemployed.
c. Tom is frictionally unemployed, and Simon is structurally unemployed.
d. Tom and Simon are both frictionally unemployed.



____ 13. In 2000 in the United Kingdom, the adult population was about 46.5 million, the labour force participation
rate was 63.5 percent, and the unemployment rate was 5.8 percent. What was the number of people
unemployed?
a. 1.7 million
b. 2.7 million
c. 3.7 million
d. 0.7 million

Figure 2-3


____ 14. Refer to Figure 2-3. At which point or points can the economy NOT produce?
a. point C
b. point A, C
c. point A, C, D
d. point A

____ 15. When the quality of a good deteriorates, what happens to the purchasing power of the dollar?
a. It increases, so the CPI overstates the change in the cost of living if the quality change is
not accounted for.
b. It increases, so the CPI understates the change in the cost of living if the quality change is
not accounted for.
c. It decreases, so the CPI understates the change in the cost of living if the quality change is
not accounted for.
d. It decreases, so the CPI overstates the change in the cost of living if the quality change is
not accounted for.

____ 16. PacknCamp Corporation has a price of $50, has issued 2 000 000 shares, has increased its cumulated retained
earnings by $2 million, and has a dividend yield of 2 percent. What is the price-earnings ratio of PacknCamp?
a. 50, which is low compared to historical standards of the market
b. 25, which is high compared to historical standards of the market
c. 25, which is low compared to historical standards of the market
d. 50, which is high compared to historical standards of the market






Use the following information to answer the following questions.

In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread,
3 robes, and 2 litres of gasoline. The per-unit prices of these goods have been as follows:

Table 6-3
Year Apples Bread Robes Gasoline
2007 $1.00 $2.00 $10.00 $1.00
2008 $1.00 $1.50 $9.00 $1.50
2009 $2.00 $2.00 $11.00 $2.00
2010 $3.00 $3.00 $15.00 $2.50

____ 17. Refer to Table 6-3. What was the inflation rate, as measured by the CPI, between 2008 and 2009?
a. It is impossible to determine without knowing the base year.
b. 34.2 percent
c. 28.5 percent
d. 47 percent

Use the following table to answer the following questions.

Table 8-1
Stock Sym Yld % PE Vol 100s Hi Lo Close Net Chg
GenMills GIS
2.5 35 13758 44.3 43.5 43.97 0.63
Gillette G
2.2 31 30428 31.1 29.7 30 0.17
Graco GGG
1.2 16 705 24.2 23.1 23.95 0.53
Hershey HSY
2.1 38 5418 63.4 61.7 62.45 0.72

____ 18. Refer to Table 8-1. In dollar terms, which company paid the highest dividend per share?
a. GenMills
b. Gillette
c. Hershey
d. Graco

____ 19. The country of Aquilonia does not trade with any other country. Its GDP is $30 billion. Its government
purchases $5 billion worth of goods and services each year, collects $7 billion in taxes, and provides $3
billion in transfer payments to households. Private saving in Aquilonia is $5 billion. What is consumption?
a. $13 billion
b. $18 billion
c. $21 billion
d. There is not enough information to answer the question.

____ 20. Why is the use of theory and observation more difficult in economics than in sciences such as physics?
a. due to the difficulty in evaluating an economic experiment
b. due to the difficulty in actually performing an experiment in an economic system
c. due to the difficulty in devising an economic experiment
d. due to the difficulty in collecting sufficient data





____ 21. When unions raise wages in some sectors of the economy, which of the following happens to the supply of
labour in other sectors of the economy?
a. It increases, reducing wages in industries that are not unionized.
b. It decreases, raising wages in industries that are not unionized.
c. It decreases, reducing wages in industries that are not unionized.
d. It increases, raising wages in industries that are not unionized.

Use the table below to answer the following questions.

Table 6-1
year peaches pecans
2010 $14 per bushel $9 per bushel
2011 $12 per bushel $14 per bushel

____ 22. Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels
of pecans and that the base year is 2010. What is the consumer price index for 2011?
a. 80
b. 100
c. 200
d. 125

____ 23. The country of Nemedia does not trade with any other country. Its GDP is $20 billion. Its government collects
$4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption
equals $15 billion, and investment equals $2 billion. What is the value of the goods and services purchased by
the government of Nemedia?
a. $3 billion
b. There is not enough information to answer the question.
c. $17billion
d. $5 billion

____ 24. Consider three different closed economies with the following national income statistics. Country A has taxes
of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion.
Country B has private savings of $60 billion, and investment expenditures of $50 billion. Country C has GDP
of $300 billion, investment of $70 billion, consumption of $180 billion, taxes of $60 billion, and transfers of
$20 billion. Based on this information, which country has a $10 billion deficit?
a. Country A
b. all three countries
c. Country C
d. Country B

















____ 25. Suppose that the nominal interest rate is 5 percent and the expected inflation rate is 3 percent. What happens
with the value of savings?
a. The dollar value of savings increases by 8 percent and the value of savings measured in
goods is expected to increase by 3 percent.
b. The dollar value of savings increases by 2 percent and the value of savings measured in
goods is expected to increase by 5 percent.
c. The dollar value of savings increases by 5 percent and the value of savings in goods is
expected to increase by 3 percent.
d. The dollar value of savings increases by 8 percent and the value of savings measured in
goods is expected to increase by 5 percent.
e. The dollar value of savings increases by 5 percent and the value of savings in goods is
expected to increase by 2 percent.

____ 26. Which of these would be included in Canadian consumption?
a. Beverly buys a newly issued stock in a Canadian corporation
b. A French resident buys a new house in Canada
c. A Canadian resident buys a car manufactured in Brazil.
d. Samantha produces some art work to decorate her house.

____ 27. What is the goal of the consumer price index?
a. to measure changes in the cost of living
b. to measure changes in the production of consumer goods
c. to measure changes in the costs of production
d. to measure changes in the relative prices of consumer goods

____ 28. Leslie is offered a job in Vancouver that pays $50 000. She is also offered a job in Halifax that pays $60 000.
Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?
a. 89.3 in Vancouver and 100 in Halifax
b. 100 in Vancouver and 124.5 in Halifax
c. 100 in Vancouver and 140 in Halifax
d. 83.3 in Vancouver and 100 in Halifax

____ 29. Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent. What happened with the
value of savings?
a. The dollar value of savings increased at 4 percent, and the value of savings measured in
goods increased at 3 percent.
b. The dollar value of savings increased at 1 percent, and the value of savings measured in
goods increased at 2 percent.
c. The dollar value of savings increased at 2 percent, and the value of savings measured in
goods increased at 3 percent.
d. The dollar value of savings increased at 3 percent, and the value of savings measured in
goods increased at 1 percent.

____ 30. A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls
increases, what happens to the GDP deflator and the CPI?
a. The GDP deflator increases, and the CPI is unchanged.
b. The GDP deflator and the CPI are both unchanged.
c. The GDP deflator and the CPI both increase.
d. The GDP deflator is unchanged, and the CPI increases.




____ 31. What does a general, persistent decline in stock prices signal about an economy?
a. nothing about the business cycle because stock prices can fall for many reasons
b. that the economy is about to enter a recession because low stock prices mean that
corporations have had low profits in the past
c. that the economy is about to enter a boom period because people will be able to buy stock
for less money
d. that the economy is about to enter a recession because low stock prices may mean that
people are expecting low corporate profits

Table 8-2.
Stock Sym Yld% PE Vol 100s Hi Lo Close Net Chg
Boeing
and Co.
BA 1.55 30.48 4 531 600 64.78 63.70 64.62 +.93
Eli Lily
and Co.
LLY 2.60 29.71 3 765 700 58.98 58.21 58.52 +.16
H.J. Heinz
and Co.
HNZ 3.30 15.33 1 350 200 36.55 36.26 36.33 +.21
Kellogg
Co.
K 2.22 20.50 1 990 600 45.72 45.20 45.50 +.24


____ 32. Refer to Table 8-2. Which company had the highest earnings per share?
a. Boeing Co.
b. H.J. Heinz and Co.
c. Kellogg Co.
d. Eli Lily and Co.

____ 33. If there is shortage of loanable funds, which of the following is most likely to happen?
a. Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity
demanded increases as the interest rate falls to equilibrium.
b. The supply for loanable funds shifts left and the demand shifts right.
c. Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity
demanded decreases as the interest rate rises to equilibrium.
d. The supply for loanable funds shifts right and the demand shifts left.

____ 34. What would be the best statement about a theory based on assumptions that are NOT true?
a. The theory is a good one if it helps us to understand how the world works.
b. If the assumptions underlying the theory are not true, the theory must be false.
c. The theory is a good one if no logical mistakes were made in developing it.
d. The ideas may be good in theory, but not in practice.

____ 35. Which of the following statements best describes the relationship between the initial wealth and the growth
rate of a country?
a. Countries with the highest growth rates over the last 100 years are the ones that had the
highest level of real GDP 100 years ago.
b. Over the last 100 years, Japan had the highest real GDP growth rate, and now it has the
highest real GDP per person.
c. Though the catch-up effect may suggest otherwise, the data show no strong relationship
between initial conditions and growth rates.
d. Countries that were rich a century ago had little fluctuation around their average growth
rates during the past 100 years.

____ 36. When is an economic outcome said to be efficient?
a. if the economy is getting all it can from the scarce resources it has available
b. if the economy is able to produce more than its current production without additional
resources
c. if the economy is using all of the resources it has available
d. if the economy is conserving on resources and not using all it has

____ 37. In the country of Mainia, GDP consists of cranberries and maple syrup. In 2010, 50 units of cranberries are
sold at $20 per unit, and 100 units of maple syrup are sold at $10 per unit. If the price of cranberries was $10
per unit and the price of maple syrup was $15.00 per unit in the base year, what can we conclude?
a. Nominal GDP is 2500, real GDP is 2500, and the GDP deflator is 100.
b. Nominal GDP is $2500, real GDP is $2000, and the GDP deflator is 83.3.
c. Nominal GDP is $2000, real GDP is $2500, and the GDP deflator is 125.
d. Nominal GDP is $2000, real GDP is $2000, and the GDP deflator is 100.

____ 38. Suppose that real GDP grew more in Country A than in Country B last year. Which of the following does this
imply concerning productivity or standard of living?
a. Country A must have a higher real GDP than Country B.
b. Country A must have a higher standard of living than country B.
c. Country A's productivity must have grown faster than country B's.
d. Country As productivity must have been higher only if the population in the two
countries grew at the same rate.

____ 39. If a Canadian citizen buys a television made in Korea made by a Korean firm, what is the impact on net
exports and GDP?
a. Canadian net exports are unaffected, and Canadian GDP is unaffected.
b. Canadian net exports decrease, and Canadian GDP decreases.
c. Canadian net exports are unaffected, and Canadian GDP decreases.
d. Canadian net exports decrease but Canadian GDP is unaffected.

____ 40. You know that a chocolate bar costs 60 cents today. You also know the CPI for 1962 and the CPI for today.
Which of the following would you use to compute the price of the candy bar in 1962 prices?
a. 60 cents ! (1962 CPI today's CPI)
b. 60 cents ! (today's CPI 1962 CPI)
c. 60 cents ! (1962 CPI/today's CPI)
d. 60 cents ! (today's CPI/1962 CPI)

____ 41. Which of the following best defines disposable personal income?
a. the income that households have left after paying taxes and nontax payments to the
government
b. the income that households and noncorporate businesses have left after paying taxes and
nontax payments to the government
c. the income that businesses have left after paying taxes and nontax payments to the
government
d. the income that households and businesses have left after paying taxes and nontax
payments to the government

____ 42. Where do the most common data for testing economic theories come from?
a. historical episodes of economic change
b. carefully controlled and conducted laboratory experiments
c. centrally planned economies
d. traditional economies

____ 43. Which of the following would most likely happen in the market for loanable funds if the government were to
decrease the tax rate on interest income?
a. The supply of and demand for loanable funds would shift to the left.
b. The supply of loanable funds would shift to the right and the demand for loanable funds
will remain unchanged.
c. The supply of and demand for loanable funds would shift to the right.
d. The supply of loanable funds would shift to the right and the demand for loanable funds
would shift to the left.

Use the following table to answer the following questions.

Table 5-3.
Prices and Quantities
Year Price of
Burgers
Quantity of
Burgers
Price of
Magazines
Quantity of
Magazines
2008 $4.00 100 $2.00 180
2009 $5.00 120 $2.50 200
2010 $6.00 150 $3.50 200

____ 44. Refer to Table 5-3. Using 2008 as the base year, what can we conclude for 2009?
a. Real GDP is $880 and the GDP deflator is 80.
b. Real GDP is $950 and the GDP deflator is 95.
c. Real GDP is $880 and the GDP deflator is 95
d. Real GDP is $880 and the GDP deflator is 125

Table 28-1. This table shows the 2007 data for males and females aged 15 and over in the country of Dan.

Not in the Labour Force Unemployed Employed
Male Female Male Female Male Female
45 million 35 million 5 million 5 million 85 million 65 million

____ 45. Refer to Table 28-1. What is the adult female labour-force participation rate in Dan?
a. 4.76 percent
b. 37.03 percent
c. 38.10 percent
d. 66.67 percent

____ 46. A country reported a nominal GDP of $115 billion in 2007 and $125 billion in 2006, and reported a GDP
deflator of 85 in 2007 and 100 in 2006. What happened to real output and prices from 2006 to 2007?
a. Real output and prices both rose.
b. Real output rose and prices fell.
c. Real output and prices both fell.
d. Real output fell and prices rose.






____ 47. The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he
has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled
that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, what would we expect
to happen to the growth rate in Turan?
a. It will fall and remain lower for a long time.
b. It will increase because the total amount of human capital in the country will increase as
the new owners learn how to farm.
c. It will fall temporarily, but will return to where it was when the new owners learn how to
farm.
d. It will not be affected unless widespread civil disorder or civil war results.

The following questions are based on the figure below, which shows the effect of a minimum-wage law.

Figure 28-1


____ 48. Refer to Figure 28-1. If there was a minimum wage of $4 and then the government instituted a minimum
wage of $5, what would happen to employment in this market?
a. Unemployment would drop by 10.
b. Unemployment would rise by 10.
c. Unemployment would rise by 20.
d. Unemployment would be unchanged.

____ 49. Stock in Synergistic Corporation is selling at $25 per share. It had earnings of $5 a share and a dividend yield
of 5 percent. What is the dividend?
a. $125
b. $0.25
c. $1.25
d. $0.05

____ 50. What is a valid policy to use for increasing the rate of economic growth?
a. reduce reliance on market forces because they allocate goods and services in an unfair
manner
b. increase the fraction of GDP devoted to consumption
c. restrict investment in domestic industries by foreigners because they take some of the
profits out of the country
d. encourage trade with neighbouring countries


Figure 2-4


____ 51. Refer to Figure 2-4. What is the opportunity cost of getting 15 additional toasters by moving from point D to
point C?
a. 10 toothbrushes
b. 20 toothbrushes
c. It is impossible for the economy to move from point D to point C.
d. 30 toothbrushes

____ 52. If the Canadian government pays an economist at the federal Ministry of Finance $50 000 in salary in 2010
and $30 000 in retirement benefits in 2011, how are the payments treated?
a. The 2010 payment is included in 2010 GDP as government purchases, and the 2011
payment is allocated to previous years' GDP according to the amount of work performed
each year.
b. Each payment will be included in GDP as government purchases for the respective years.
c. The 2010 payment is included in 2010 GDP as government purchases, and the 2011
payment is included in 2011 GDP as government transfer payments.
d. The 2010 payment is included in 2010 GDP as government purchases, but the 2011
payment is not included in 2011 GDP.



















Figure 2-6


____ 53. Refer to Figure 2-6. What is the opportunity cost to society of moving from point B to point D?
a. both 100 bananas and 50 baseballs
b. 50 baseballs
c. 100 bananas
d. nothing, since this economy would have unused resources

The information below was reported by the World Bank. On the basis of this information, which
list below contains the correct ordering of GDP per person from highest to lowest?

Country Nominal GDP, 2000 Population, 2000
Japan $4 800 000 million 127 million
Switzerland $240 000 million 7.2 million
United States $9 800 000 million 280 million

____ 54. The information below was reported by the World Bank. On the basis of this information, which list below
contains the correct ordering of GDP per person from highest to lowest?

Country Nominal GDP, 2000 Population, 2000
Japan $4 800 000 million 127 million
Switzerland $240 000 million 7.2 million
United States $9 800 000 million 280 million

a. United States, Japan, Switzerland
b. United States, Switzerland, Japan
c. Japan, Switzerland, United States
d. Japan, United States, Switzerland












____ 55. Samantha deposits $2000 into a saving account that pays an annual interest rate of 5 percent. Over the course
of a year, the inflation rate is 2 percent. What happens at the end of the year?
a. Samantha has $140 more in her account, and her purchasing power has increased about
$100.
b. Samantha has $140 more in her account, and her purchasing power has increased about
$40.
c. Samantha has $100 more in her account, and her purchasing power has increased by about
$40.
d. Samantha has $100 more in her account, and her purchasing power has increased by about
$60.

____ 56. Last year, real GDP in Oceania was $620 billion and the population was 2.3 million. The year before, real
GDP was $502.0 billion and the population was 2.0 million. What was the approximate growth rate of real
GDP per person?
a. 10 percent
b. 16 percent
c. 7 percent
d. 13 percent

____ 57. Mount Adams Jazz Corporation has a price of $50, a dividend of $0.60, and retained earnings of $1.00 per
share. What is the dividend yield on this stock?
a. 0.8 percent
b. 1.2 percent
c. 3.2 percent
d. 2 percent

____ 58. In the circular-flow diagram, which flows are involved?
a. Goods and services flow from households to firms.
b. Spending on goods and services flow from firms to households.
c. Factors of production flow from firms to households.
d. Income from factors of production flows from firms to households.

____ 59. If the production function for an economy had constant returns to scale, the labour force doubled, and all
other inputs stayed the same, what would happen to real GDP?
a. It would stay the same.
b. It would double.
c. It would increase by 50 percent.
d. It would increase, but by something less than double.

____ 60. According to the traditional view of the production process, how does output per worker change when capital
per worker increases?
a. It decreases. This decrease is larger at larger values of capital per worker.
b. It increases. This increase is smaller at larger values of capital per worker.
c. It increases. This increase is the same at all values of capital per worker.
d. It increases. This increase is larger at larger values of capital per worker.