TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

1) As services account for a larger proportion of GDP than products, GDP

becomes more accurate as a measure of output.

2) The Economist video about The Great Inflation Mystery tries to explain the
breakdown of the Phillips Curve.

3) The sum of all value added equals the value of all final products and services.

4) A macro production possibilities frontier shifts when there is a change in the

unemployment rate.

5) If Canada has an annual average growth rate of 2 percent, and China has an
annual growth rate of 5 percent, it will take Canada 21 more years than China
to double real GDP per person.

6) Structural unemployment comes from a mismatch between the skills workers

have the the skills new jobs require.

7) When the real interest rate is 2 percent and the inflation rate is 3 percent, the
nominal interest rate is 5 percent.

8) The interest rate is the price of loanable funds.

9) When the Canadian dollar falls in value, aggregate demand decreases.

10) Government transfer payments are part of government spending (G).

1
Answer Key
Testname: F20_105_MACRO_TERMTEST_TF

1) FALSE
2) TRUE
3) TRUE
4) FALSE
5) TRUE
6) TRUE
7) TRUE
8) TRUE
9) FALSE
10) FALSE

2
Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) An output gap is
A) positive if real GDP is above potential GDP.
B) negative during a recession.
C) negative if real GDP is above potential GDP.
D) positive during a recession.
E) positive during an expansion.

2) An economy has a recessionary gap when the unemployment rate is

A) less than the natural rate.
B) falling.
C) rising.
D) negative
E) greater than the natural rate.

3) "No - Markets Fail Often" economists believe that

A) Say's Law is sometimes true but usually not.
B) there are broken connections between input markets and output
markets.
C) a short run focus is more important than the long run.
D) macroeconomic outcomes differ from microeconomic outcomes.
E) all of the other answers are true.

4) The speculative bubbles that preceeded the Great Depression and the Global
Financial Crisis involved
A) banks.
B) expectations.
C) money.
D) all of the above.
E) none of the above.

1
5) Hands-off economists generally believe that
A) demand creates its own supply.
B) external events are a major cause of business cycles.
C) market failure is worse than government failure.
D) markets fail to quickly self-adjust.
E) macroeconomic and microeconomic outcomes are different.

6) Government failure happens when

A) policymakers are captured by special interest groups.
B) government policy serves the public interest.
C) politicians lie to economists.
D) a minority government is defeated in Parliament.
E) economists lie to politicians.

7) The normal measurement of GDP overestimates economic well-being because

it excludes
A) non-market production.
B) the effects of pollution.
C) leisure time.
D) unreported home renovations.
E) spending on health.

8) The government of Bulls spends $50 on domestic products and services. Tax
revenue is $75. Transfers payments are $30. Net taxes are
A) $80.
B) $45.
C) $105.
D) $25.
E) $20.

2
 9) Why is the long-run aggregate supply curve (LAS) vertical? Because
A) the quantity of potential real GDP does not change when the price
level changes.
B) real GDP can never be greater than potential GDP.
C) businesses don't have incentives to produce more than potential GDP.
D) the price level does not change when the quantity of potential real GDP
changes.
E) potential GDP never changes.

10) If the price level increases and the unemployment rate increases, the cause is
probably
A) rising input prices.
B) higher income taxes.
C) lower interest rates.
D) more pessimistic business expectations.
E) improvements in technology.

11) Which is not a source of economic growth?

A) higher labour force participation rates
B) technological change
C) improvements in human capital
D) improvements in entrepreneurship
E) higher interest rates

12) Real GDP rose continuously from $270 billion in 2020 to $310 billion in 2021.
Potential GDP was unchanged at $300 billion. The economy
A) went from a positive output gap to a negative output gap.
B) went from a recessionary gap to an inflationary gap.
C) went from expansion to contraction.
D) went from a peak to a trough.
E) had a growth rate of 10 percent.

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13) A country has a working-age population of 40 million, with 30 million
employed and 5 million unemployed. 2 million of the employed are working
part-time, and half of these persons wish to work full-time. The labour force
participation rate is
A) 75.0 percent.
B) 12.5 percent.
C) 87.5 percent.
D) 17.5 percent.
E) 82.5 percent.

14) Cyclical unemployment is probably ________ , when the economy has an

inflationary gap,
A) zero.
B) healthy.
C) positive.
D) unethical.
E) negative.

15) Students at the FU School buy Pizza and Coke  nothing else. Prices and
quantities are shown in the table below.

Slices of Price per Cans of Price per

Year Pizza Slice Coke Can
2019 40 10 10 20
2020 60 12 20 24

In 2020, the Consumer Price Index (using 2019 as base year when CPI = 100)
was
A) 167.
B) 100.
C) 200.
D) 120.
E) 150.

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16) Which statement is correct ? Inflation
A) has no effect on savers or borrowers.
B) hurts savers and borrowers.
C) hurts savers but benefits borrowers.
D) benefits savers and borrowers.
E) benefits savers but hurts borrowers.

17) Which of the following causes cost-push inflation?

A) expansion
B) regulation
C) positive supply shocks
D) contraction
E) negative supply shocks

18) An increase in the quantity of money__________, according to the Quantity

Theory of Money.
A) increases both real GDP and velocity.
B) decreases real GDP, and increases velocity.
C) increases real GDP, and decreases velocity.
D) has no effect on real GDP, and decreases velocity.
E) has no effect on real GDP or velocity.

5
Answer Key
Testname: F20_105_MACRO_TERMTEST_MC

1) A
2) E
3) E
4) D
5) B
6) A
7) B
8) B
9) A
10) A
11) E
12) B
13) C
14) A
15) D
16) C
17) E
18) E