Quiz 1. Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Quiz 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Macroeconomics includes the study of topics such as a. national output, the inflation rate, and the trade deficit. b. the price of Cisco stock, wage differences between genders, and antitrust laws. c. differences in market structure, and how consumers maximize utility. 2. The goal of macroeconomics is a. to explain how economic changes affect prices of particular goods. b. to devise policies to deal with market failures such as externalities and monopoly. c. to explain changes that affect households and firms in general. 3. The basic tools of supply and demand are a. useful only in the analysis of economic behaviour in individual markets. b. useful in analyzing the overall economy, but not in analyzing individual markets. c. not particularly useful in either macroeconomic or microeconomic analysis. d. central to macroeconomic analysis as well as to microeconomic analysis. 4. The simple circular-flow diagram illustrates that a. expenditure generates income so that income and production are the same. b. the economy's income exceeds its expenditure. c. the expenditure of an economy exceeds its income. d. None of the above are necessarily correct. 5. Over time people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example people eat at restaurants relatively more and prepare their own meals at home relatively less. By itself this change would a. make GDP fall over time. b. not make any change in GDP over time. c. make GDP rise over time. d. change GDP, but in an uncertain direction. 6. George buys and lives in a newly constructed home he paid $200,000 for in He sells the house in 2006 for $225,0000. a. The 2006 sale increases 2006 GDP by $225,000 and does nothing to 2005 GDP. b. The 2006 sale increases 2006 GDP by $25,000 and does nothing to 2005 GDP. c. The 2004 sale does not increase 2006 GDP and does nothing to 2005 GDP. d. The 2006 sale increases 2006 GDP by $225,000 and 2005 GDP is revised upward by $25,000. e. None of the above are correct. 7. Which of the following is included in Canadian GDP? a. the difference in the price of the sale of an existing home and its original purchase price b. goods produced by foreign citizens working in Canada c. known illegal activities

2 8. Retained earnings are the part of income that a. households retain after paying taxes. b. businesses retain after paying taxes. c. corporations pay to their owners in the form of dividends. d. corporations do not pay to their owners in the form of dividends. Use the following table to answer the following questions. Table 5-1 GDP $200 Income Earned by Citizens Abroad $ 15 Income Foreigners Earn here $ 25 Depreciation $ 7 Indirect Business Taxes $ 12 Business Subsidies $ 4 Statistical Discrepancy $ 0 Retained Earnings $ 8 Corporate Income Taxes $ 10 Social Insurance Contributions $ 14 Interest Paid to Households by Government $ 6 Transfer Payments to Households from Government $ 20 Personal Taxes $ 35 Non-tax payments to Government $ Refer to Table 5-1. National income for this economy is a. $215. b. $192. c. $185. d. $170. e. $164 Table 5-2 GDP $440 Income Earned by Citizens Abroad $20 Income Foreigners Earn Here $50 Depreciation $16 Capital Consumption Allowance $16 Indirect Business Taxes $20 Business Subsidies $8 Statistical Discrepancy $0 Retained Earnings $25 Corporate Income Taxes $18 Social Insurance Contributions $35 Interest Paid to Households by Government $12 Transfer Payments to Households from Government $22 Personal Taxes $70 Non-tax Payments to Government $5

3 10. Refer to Table 5-2. Personal income for this economy is a. $417 b. $367 c. $349 d. $348 e. $ In the nation of Ophelia, quarterly GDP is always higher in the second quarter than in other quarters. In order to account for this predictable jump in GDP, Ophelia's government statisticians will a. make sure to account for inventory changes during the second quarter. b. report real GDP, not nominal GDP. c. focus on GNP rather than GDP during the second quarter. d. make a seasonal adjustment for the second quarter data. e. None of the above is correct. 12. Which of these would NOT be included in the component(s) listed after them? a. Mary buys a skateboard manufactured in Germany-Canadian net exports. b. Shelly adds DVDs produced in Canada to her inventory-canadian investment. c. Emily receives her Pension Plan benefits-canadian government purchases 13. In 2005, Canadian GDP was about a. $1171 billion. b. $1271 billion. c. $1371 billion. d. $1471 billion. e. $1571 billion 14. In 2003, Canadian investment was about a. 15 percent of GDP. b. 17 percent of GDP. c. 19 percent of GDP. d. 21 percent of GDP. e. 23 percent of GDP. 15. Which statement represents most correctly the relationship between nominal GDP and real GDP? a. Nominal GDP measures base-year production using base-year prices, while real GDP measures current production using current prices. b. Nominal GDP measures current production using base-year prices, while real GDP measures current production using current prices. c. Nominal GDP measures current production using current prices, while real GDP measures current production using base-year prices. d. Nominal GDP measures current production using current prices, while real GDP measures base-year production using base-year prices. 16. The GDP deflator is the ratio of a. real GDP to nominal GDP. b. real GDP to nominal GDP multiplied by 100. c. nominal GDP to real GDP. d. nominal GDP to real GDP multiplied by If nominal GDP is $10 trillion and real GDP is $8 trillion, the GDP deflator is a. 0.8.

4 b c. 80. d Dave, a student who knits ski caps with tassels and sells them on the Quad, sells the same number of caps this year as last year, but at 20 percent higher prices. a. He must be better off than last year because his income is higher. b. We do not have enough information to tell whether he is better off this year than last year. c. He cannot be better off than last year because he sold the same number of caps both years. d. He is better off this year only if there was no inflation over the past year. 19. Which of the following statements is accurate? a. In rich countries, people typically live into their late seventies, while in poor countries, people typically live only until their fifties or early sixties. b. In rich countries, almost all the population can read, while in poor countries, about half the population is illiterate. c. Poor countries tend to have higher infant mortality rates, higher maternal mortality, and higher rates of child malnutrition than do rich countries. d. All of the above are correct. 20. Being able to measure the behaviour of the economy with statistics such as GDP a. is useful only in the accounting sense. b. is all that is necessary in order for us to be able to understand the macroeconomy. c. can be helpful in developing macroeconomic science, but is not useful for policymaking. d. is a crucial step toward developing the science of macroeconomics. Short Answer 21. Identify the immediate effect of each of the following circumstances on Canadian GDP and its components. a. James receives some pension benefits. b. John buys an Italian sports car. c. Henry buys domestically produced tools for his construction company. 22. You find that your paycheck for the year is higher this year than last. Does that mean that your real income has increased? Explain carefully.

5 Quiz 1 Answer Section MULTIPLE CHOICE 1. ANS: A PTS: 1 DIF: Easy REF: ANS: C PTS: 1 DIF: Easy REF: ANS: D PTS: 1 DIF: Easy REF: ANS: A PTS: 1 DIF: Easy REF: ANS: C PTS: 1 DIF: Challenging REF: ANS: C PTS: 1 DIF: Average REF: ANS: B PTS: 1 DIF: Average REF: ANS: D PTS: 1 DIF: Average REF: ANS: D PTS: 1 DIF: Challenging REF: ANS: D PTS: 1 DIF: Challenging REF: ANS: D PTS: 1 DIF: Average REF: ANS: C PTS: 1 DIF: Easy REF: ANS: C PTS: 1 DIF: Average REF: ANS: D PTS: 1 DIF: Average REF: ANS: C PTS: 1 DIF: Average REF: ANS: D PTS: 1 DIF: Easy REF: ANS: D PTS: 1 DIF: Easy REF: ANS: B PTS: 1 DIF: Easy REF: ANS: D PTS: 1 DIF: Easy REF: ANS: D PTS: 1 DIF: Easy REF: 115 SHORT ANSWER 21. ANS: a. Since this is a transfer payment, there is no change to GDP or to any of its components. b. Consumption and imports will rise and cancel each other out so that there is no change in Canadian GDP. c. This increases the investment component of GDP and so increases GDP. PTS: 1 DIF: Average REF: ANS: Real income is nominal income adjusted for general increase in prices. If my paycheck is higher this year than last, my nominal income has increased. Whether my real income has increased or not depends on what has happened since last year to the level of prices of things I buy with my income. If the percentage increase in prices is less than the percentage increase in my nominal income, then my real income has increased. Otherwise, my real income has not increased. PTS: 1 DIF: Average REF: