ECON 1000 V – Introduction to Economics

| October 22, 2018

CARLETON UNIVERSITY
Department of Economics
ECON 1000 V – Introduction to Economics
2015 Summer

.gif”>ASSIGNMENT 5: Covers MACROECONOMICS
Chapters 9-12. Topics: Unemployment and
its natural rate; The monetary system; Money, growth and inflation; Open
economy macroeconomics.

There
are THREE sections: MCQs (Section A, 50 marks), short free response questions
(Section B, 20 marks) and longer free response questions (Section C, 30 marks).
TOTAL MARKS: 100
The
deadline to submit the answersonline(through
cuLearn) is AUGUST 2 at 11:55 pm. This deadline will be strictly enforced.

GOOD
LUCK!

PLEASE NOTE THE FOLLOWING

ALL TECHNICAL
ISSUES REGARDING POSTING OF COMPLETED ASSIGNMENT MUST

BE RESOLVED BY
THE STUDENTS BY CONSULTING CCS.

st your work on
the cuLearn. The second assignment will be

I assume that you have learnt by this
time how the system works. So be very sure next time to adhere to the
deadline and also know how to po posted very soon. So even now if you are not
sure about how to submit your work in one file and on the cuLearn, immediately
seek help from the CCS or CUOL.

One of the TAs observed the following:
Would you please take these comments/observations into

consideration as you complete the
assignment 2, please??

-Some students took pictures of
their assignments (or graphs), however some pictures were blurry and hard to
read. It would be great if you could mention to the students that they need
to be sure the TA can read it.


Would you also be able to remind people to
put all their answers in 1 file (some people used a zip file, with several
files in that folder).

Would you also be able to ask people to
put their name either in the title of the document or at the top of the
document – this would avoid having a possible mix up

Yet another TA
observed that some students did not read the questions properly as they
answered all

questions in a
section where they were supposed to answer only a few of them, not all. I
also personally

feel that some
students are missing the instructions as in the assignment two, some MCQs
were not there

(MCQ 5, 12 and
37) and I mentioned it at the beginning of section 1. In spite of that, at
least 20 students

E-mailed about
that they are not finding questions 5, 12 and 34. SO, Read instructions real well

SECTION A: Multiple Choice. Answer any
25. (50 marks, each question is worth 2 marks). Any extra questions

answered will be crossed out.

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

____

1. Which of the following conditions causes structural
unemployment?
a.
Wages are kept above the equilibrium level.
b.
People choose not to work at the equilibrium wage.
c.
Some wages are below the equilibrium level.
d.
Conditions for unemployment insurance benefits relax.

___

2. What is the effect of unions on wages and employment?
a.
Unions are unlikely to affect wages and employment.
b.
Unions raise wages above the competitive equilibrium
level.
c.
Unions increase the level of employment in unionized
firms.
d.
Unions decrease the level of employment in
nonunionized firms.

____

3. Which of the following is included in M2?
a.
gold
b.
mortgages
c.
currency
d.
investment accounts

____

4. Suppose a
bank uses $100 of its $500 excess reserves to make a new loan when the
reserve ratio is 20 percent.
How does this action
by itself initially change the money supply? a. The money supply increases by
$80.
b.
The money supply decreases by $80.
c.
The money supply increases by $100.
d.
The money supply decreases by $100.

____

5. If the reserve
ratio increased from 10 percent to 20 percent, which of the following would
happen to the money multiplier?
a.
It would rise from10 to 20.
b.
It would rise from 5 to 10.
c.
It would fall from 10 to 5.
d.
It would fall from 20 to 5.

____

6. Which of the following do the Bank of Canada’s policy
decisions have an important influence on?

a. both
the rate of inflation and the level of employment in the short run
b. the
rate of inflation in the long run and the level of employment in the short run
c. the
rate of inflation in the short run and the level of employment in the long run
d. both
the rate of inflation and the level of employment in both the short run and the
long run

____ 7. Suppose the public decides to hold
more currency and fewer deposits in banks. Which of the following best
describes the effects of this decision?
a. Bank
reserves decrease, and the money supply eventually decreases.
b. Bank
reserves decrease, but the money supply does not change.
c. Bank
reserves increase, and the money supply eventually increases.
d. Bank
reserves increase, but the money supply does not change.

____
8. How can inflation be measured?
a. by
the change in the consumer price index
b. by
the percentage change in the consumer price index
c. by
the percentage change in the price of a specific commodity
d. by
the change in the price of a specific commodity

____
9. Which of the following does real GDP
measure?
a. the
total quantity of final goods and services produced
b. the
dollar value of the economy’s output of final goods and services
c. the
total income received from producing final goods and services at current prices

d. the
change in prices from the base year to current year

____ 10. An assistant professor of economics gets a
$100-a-month raise, but then she figures that with her current
monthly salary she can’t buy as
many goods as she could last year. What has happened to her real and nominal
wage?
a. Her
real and nominal wages have risen.
b. Her
real and nominal wages have fallen.
c. Her
real wage has risen, but her nominal wage has fallen.
d. Her
real wage has fallen, but her nominal wage has risen.

____ 11.
According to the classical dichotomy theory, when the money supply doubles,
which of the following also doubles?
a. the
price level
b. the
real interest rate
c. the
inflation rate
d. the
real income

____ 12. According to the quantity
equation, if Y doubles, V is constant, and M doubles, what factor does the price level multiply by? a. 1/4
b. 1/2

c. 1

d. 2

____ 13. What does the evidence gained from studying
hyperinflation indicate?
a. The
rate of inflation is not closely related to the rate at which the money supply
changes.
b. Nominal
interest rates are independent of the money supply.
c. Inflation
rates parallel money supply growth rates.
d. Inflation
rates move in the opposite direction as the growth rate in money supply.

____

14. Suppose that velocity and output are constant and that the quantity
theory and Fisher effect are both correct. If the nominal interest rate is 8
percent and inflation is 3 percent, what is the money supply growth rate or
the real interest rate?
a.
The money supply growth rate is 3 percent.
b.
The real interest rate is 11 percent.
c.
The real interest rate is 8 percent.
d.
The money supply growth rate is 11 percent.

____

15. Since 1992,
the Bank of Canada has successfully maintained the inflation rate around what
level? a. ?2 percent
b.
?1
percent
c.
1 percent
d.
2 percent

____

16. A firm in India
sells jackets to a Canadian department store chain. Which of the following
correctly identifies the effects of this transaction?
a.
It increases Canadian and Indian net exports.
b.
It decreases Canadian and Indian net exports.
c.
It increases Canadian net exports and decreases
Indian net exports.
d.
It decreases Canadian net exports and increases
Indian net exports.

____

17. Tony, an Italian citizen, opens and
operates a spaghetti factory in Canada. Which of the following does this
counts as?
a.
Italian foreign direct investment that increases
Italian net capital outflow
b.
Italian foreign direct investment that decreases
Italian net capital outflow
c.
Italian foreign portfolio investment that increases
Italian net capital outflow
d.
Italian foreign portfolio investment that decreases
Italian net capital outflow

____

18. Which of the following was an important change in the
Canadian economy after 1999?
a.
National saving fell below investment, and net
capital outflow was a large positive number.
b.
Net capital outflow turned positive.
c.
Investment equalled saving every year.
d.
Investment fell below saving, so net capital outflow
was a large negative number.

____

19. Suppose that a kilogram can of coffee costs about $6 in Canada.
Suppose the exchange rate is 0.7 euro per dollar and that a kilogram can of
coffee in Belgium costs about 2.1 euros. What is the real exchange rate? a.
2.45 cans of Belgian coffee per can of Canadian coffee
b.
2 cans of Belgian coffee per can of Canadian coffee
c.
3/4 cans of Belgian coffee per can of Canadian coffee

d.
3/5 cans of Belgian coffee per can of Canadian coffee

____

20. If P = domestic prices, P* = foreign prices, and e is the nominal
exchange rate, what is implied by purchasing-power parity? a. P = e/P*
b.
1 = e/P*
c.
e = P*/P
d.
P/P*=1

____ 21. If
the world real interest rate exceeds the Canadian real interest rate, what
would Canadian savers most likely do?
a. Canadian
savers would prefer to buy foreign assets.
b. Canadian
savers would prefer to buy Canadian assets.
c. Canadian
savers will prefer to wait until the two real interest rates are again equal.
d. Canadian
savers will sell their foreign assets and buy Canadian assets instead.

____ 22. Which of the following constitutes the labour
force?
a. the
number of people who are employed
b. the
number of people who are unemployed
c. the
number of people employed plus the number of people unemployed
d. the
number of people in the adult population

____ 23. Which of the following people would NOT be included
in the labour force?
a. Jay,
who is on temporary layoff
b. Mike,
who has retired and is not looking for work
c. Jane,
who does not have a job, but has applied for several in the last week
d. Joan,
who has a job but is looking for a new one

____ 24. Sally is on a temporary layoff
from the factory where she makes plastic tableware. If Sally participates in
the Statistics Canada survey, how will she be classified? a. as unemployed and
in the labour force
b. as
unemployed and out of the labour force
c. as
employed and in the labour force
d. as
employed and out of the labour force

____ 25. How
is Latoya, a homemaker who works as a volunteer at the local Red Cross and is
currently not looking for a job, counted?
a. as
employed and in the labour force
b. as
unemployed and in the labour force
c. as
unemployed and not in the labour force
d. as
not in the labour force

____ 26. Tara
has just finished school, but she is going to roam around the country awhile
before she starts looking for work. Which of the following best characterizes
the changes that occur in labour statistics? a. The unemployment rate
increases, and the labour-force participation rate increases.
b. The
unemployment rate is unaffected, and the labour-force participation rate is
unaffected.
c. The
unemployment rate increases, and the labour-force participation rate decreases.

d. The
unemployment rate increases, and the labour-force participation rate is
unaffected.

____ 27. How does Statistics
Canada call a person who has a temporary, part-time job? a. not in the labour
force
b. unemployed

c. partially
employed
d. employed

____ 28.
Nancy is searching for a job that suits her tastes about where to live and the
people she works with. Laura is looking for a job that makes best use of her
skills. Which of the following best describes the nature of Nancy and Laura’s
unemployment?
a. Nancy
and Laura are both frictionally unemployed.
b. Nancy
and Laura are both structurally unemployed.
c. Nancy
is frictionally unemployed, and Laura is structurally unemployed.
d. Nancy
is structurally unemployed, and Laura is frictionally unemployed.

____ 29. Which of the following best defines “job search”?
a. It
is a process through which the firms determine the equilibrium wage.
b. It
is an imbalance between labour supply and labour demand.
c. It
is the process of matching workers with appropriate jobs.
d. It
is the process through which firms hire new employees.

____ 30. How do sectoral shifts in the economy affect
unemployment?
a. They
create structural unemployment.
b. They
reduce unemployment.
c. They
increase unemployment due to job search.
d. Overall,
they leave unemployment unchanged.

____ 31. The government operates programs for job training
and job information intended to reduce unemployment.
Which of the following best describes
how economists feel about such programs?
a. Most
economists agree that such programs are of no use.
b. Most
economists agree that such programs work very well.
c. Some
economists claim that the government can do these things no better than firms,
and individuals could do them for themselves.
d. Some
economists believe that the private sector has no role in the process of job
search.

SECTION B: SHORT FREE RESPONSE QUESTIONS.
ANSWER ANY FOUR OF THE FOLLOWING

QUESTIONS. EACH QUESTION IS WORTH 5
MARKS. TOTAL MARKS: 20

INSTRUCTIONS: Your answers to the following
questions should take advantage of the relevant economic tools, principles and
perspectives. Your answers must be precise.
B1. Which two of the ten principles of economics imply that
the Bank of Canada can profoundly affect the economy?

B2.What is the difference between the reserve ratio and the
reserve requirement? Which is generally larger?

B3.List and define any two of the costs of high inflation.

B4.Suppose a
bottle of wine costs 25 euros in France and $20 in Canada. If the exchange rate
is 1.25 euros per dollar, what is the real exchange rate?

B5.What is the logic behind the theory of purchasing-power
parity?

B6.What does purchasing-power parity imply about the real
exchange rate?

B7.Suppose a lobster supper in Nova
Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is
inconsistent with purchasing-power parity and explain why the inconsistency may
exist.

SECTION C: LONGER FREE RESPONSE QUESTIONS. ANSWER ANYONEOF THE
FOLLOWING

QUESTIONS: EACH QUESTION IS WORTH 30
MARKS.

INSTRUCTION: Take a few minutes to plan and
outline each answer. In answering the questions, you should emphasize the line
of reasoning that generated your results; it is not enough to list the results
of your analysis. Include diagrams, if useful, in explaining your answers. All
diagrams should be correctly labeled.

C1. Select questions ch 9. Pp. 218. PROBLEMS AND
APPLICATIONS: Questions 4 (7 MARKS), 6 (7 MARKS), 7 (10
MARKS), 8 (6 MARKS)

C2. Select questions ch 10. Pp. 244. PROBLEMS AND
APPLICATIONS: Questions 8 (7 MARKS), 9 (7 MARKS), 10 (8 MARKS), 12 (8 MARKS)

C3. Select questions ch 12. Pp. 301-302. PROBLEMS AND
APPLICATIONS: Questions 5 (7 MARKS), 7 (8 MARKS), 8 (8 MARKS), 9 (7MARKS)

*For your
convenience, I will keep a scanned copy of the above questions on the course
web page.

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