EC 250 Final Exam - Questions and Answers (Complete Solutions)

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EC 250 Final Exam - Questions and Answers (Complete Solutions) The biggest economic problem at present is a) decline in output b) high inflation c) bear market in stocks d) high unemployment The eff... ect of last two recession on the US unemployment was, compared to unemployment in Canada a) greater in both the Pandemic and the Great recessions b) greater in the Pandemic recession but not in the Great recession c) smaller in the Pandemic recession but greater in the Great recession d) smaller in both the Pandemic and the Great recessions Soft landing is: a) return of the economy to normal, without a recession b) gradual reduction in inflation, at the cost of a recession c) return of inflation to the Bank of Canada target over several years d) rapid return of inflation to the Bank of Canada target (within a year) When inflation in Canada reached around 8%, the Bank of Canada a) always raised the Bank rate at least 2% above the rate of inflation b) in the past, Bank of Canada raised the Bank rate substantially, but never above 6% c) Bank of Canada raised the Bank rate to over 14%, except for the current situation d) Bank of Canada raised the Bank rate substantially, except for the current situation The boom in housing in the U.S. prior to the Great Recession a) Was not as large as the boom in housing in Canada b) Was caused in part by the decline in lending standards c) Was caused in part by securitization which reduced risk to banks from nonperforming mortgages d) Only b) and c) are true Federal deficit, in the Pandemic recession a) was about the same as in the Great recession b) was smaller than in the Great recession c) was around 5 times greater than in the Great recession d) was twice greater than in the Great recession The reduction in interest rates in Canada a) was smaller in the Pandemic recession than during the Great recession, because of zero lower bound b) was smaller in the Great recession than during the Pandemic recession, because of zero lower bound c) led to negative policy rate in Canada during the Pandemic recession d) led to negative policy rate in the US during the Great recession When Lehman Brothers failed, the result was a panic in the credit market and it was difficult to obtain credit. As a result a) investment declined b) output fell c) consumers became pessimistic about the future and cut consumption d) all of the above Quantitative easing a) is a policy that permits banks to create a greater quantity of deposits b) means that the central bank buys more short-term bonds c) means that the central bank buys assets of longer maturity, as well as non-government assets d) none of the above The Human Development Index includes a) income, life expectancy at birth and education b) income, life expectancy at birth and average age at retirement c) income, life expectancy at birth and proportion of income spent on health care d) income and education A couple buys a house, putting down 10% of the total. This means that their leverage is a) 10 b) 11 c) 90 d) none of the above A couple buys a house, putting down 10% of the total. The value of the house increases by 20%. This means that the return on the down payment is a) 10% b) 20% c) 100% d) 200% House is 100, down payment is 10, mortgage is 90. The value of the house increases 20% to 120; mortgage is 90, own money is 30. Return: 20 on 10 down payment = 200% GDP does not include a) household work b) effects on the environment c) harmful activities d) only a) and b) are true To calculate GDP, we use value added because a) otherwise, the value of intermediate products may be counted more than once b) otherwise, the value of final products may be counted more than once c) value added is always positive d) none of the above is correct GDP =GNP a) plus income of foreign factors in Canada b) plus income of foreign factors in Canada minus income of Canadian factors abroad c) minus income of foreign factors in Canada d) minus income of foreign factors in Canada plus income of Canadian factors abroad A bank has a leverage of 20. It will lose all its own money if the value of assets falls by a) 5% b) 10% c) 20% d) None of the above John received a raise of 3%, but the inflation rate was 8% a) he is better off b) his real wage increased by, approximately, 5% c) his real wage fell by, approximately, 5% d) none of the above If changes in the price level and the nominal wage are small, the change in real wage is, approximately %Δw-%ΔP=3%-8% The consumer price index a) Overestimates the inflation rate because it does not take into account substitution towards cheaper goods b) Underestimates the inflation rate because it does not take into account substitution towards cheaper goods c) Overestimates the inflation rate because it takes into account substitution towards cheaper goods d) Underestimates the inflation rate because it takes into account substitution towards cheaper goods Consider the following simple economy that produces cloth and wine: Price per 1m cloth Price per 1l wine 2020 $4 200 $5 100 2021 $5 150 $4 150 The rate of inflation calculated using the CPI is a) 0% b) 7.6% c) 14.3% d) 28.6% CPI is a base year index. So in 2020 we have 4200+5100=1300; in 2021 we have 5200+4100=1400 Inflation rate is 1400/1300 Consider the following simple economy that produces cloth and wine: Price per 1m cloth Price per 1l wine 2020 $4 200 $5 100 2021 $5 150 $4 150 The rate of inflation using the GDP deflator is a) 0% b) 7.6% c) 14.3% d) 28.6% GDP deflator is a current year index. So in 2020 we have 4150+5150=1350; in 2021 we have 5150+4150=1350 Over a long period of time, Jane's wages increased by 700% while prices increased by 500%. a) she is worse off b) her real wage increased by 100% c) her real wage increased by 33% d) none of the above Use numbers: initially the nominal wage is 10. Price level is 10. Real wage is 1. After the change nominal wage is (1+700%)10=80; Price level is (1+500%)10=60; real wage is 80/60=1 1/3 The real exchange rate of Canada versus UK is 0.9. This means that a) if something costs 9 pounds in the UK, it costs 10 dollars in Canada b) on the average, goods are cheaper in the UK than in Canada c) on the average, goods are more expensive in the UK than in Canada d) if something costs 10 pounds in the UK, it costs 9 dollars in Canada The real exchange rate between Canada and the UK is 0.9. The price level in Canada is 18, the price level in the UK is 12. This means that the nominal exchange rate of the Canadian dollar is a) 0.6 pound/dollar b) 0.7 pound/dollar c) 1 pound per dollar d) 1.35 pounds/dollar 12/18 Negative ex post interest rates on government bonds a) rarely happen b) never happen c) were common in 2016 d) were common in 2022 Money should a) be durable b) have value that is easy to assess c) be divisible d) all of the above Barter a) requires that both parties in transaction want the same good b) is a good way to avoid the use of money c) requires double coincidence of wants d) none of the above [Show More]

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