Review Questions for the ECON 1102 Final Exam (Winter
2023) - SOLUTIONS
1. Which of the following transactions would count in GDP?
Select one or more of the answers from the choices shown.
a. Kerry buys a new sweater to wear this winter.
b. Patricia receives a Canada Pension Plan cheque.
c. Roberto gives his daughter $50 for her birthday.
d. Latika sells $1,000 of Tim Horton stock.
e. Karen buys a new car.
f. Amy buys a used car.
Answer: a and e
2. If real GDP grows at 7 percent per year, then real GDP will double in approximately _________ years.
a. 70.
b. 14.
c. 10.
d. 7.
Answer: c
3. Most economists agree that the immediate cause of the large majority of cyclical changes in the levels
of real output and employment is unexpected changes in ___________________.
a. The level of total spending.
b. The level of the stock market.
c. The level of the trade deficit.
d. The level of unemployment.
Answer: a
4. Suppose that an economy has 9 million people working full time. It also has 1 million people who are
actively seeking work but currently unemployed, as well as 2 million discouraged workers who have
given up looking for work and are currently unemployed. What is this economy’s unemployment rate?
a. 10 percent.
b. 15 percent.
c. 20 percent.
d. 25 percent.
Answer: a
5. Label each of the following scenarios as either frictional unemployment, structural unemployment, or
cyclical unemployment.
a. Tim just graduated and is looking for a job.
b. A recession causes a local factory to lay off 30 workers.
c. Thousands of bus and truck drivers permanently lose their jobs when driverless, computer-driven
vehicles make human drivers redundant.
d. Hundreds of Toronto legal jobs permanently disappear when a lot of legal work gets outsourced to
,lawyers in India.
Answers:
a. frictional unemployment
b. cyclical unemployment
c. structural unemployment
d. structural unemployment
6. The graph showing the (short-run) relationship between inflation and unemployment is known as the
_________________________.
a. Phillips curve
b. Environmental Kuznets curve
c. money supply curve
d. investment demand curve
e. Okun’s law
Answer: a
7. Jimmer’s nominal income will go up by 10 percent next year. Inflation is expected to be -2 percent next
year. By approximately how much will Jimmer’s real income change next year?
a. -2 percent.
b. 8 percent.
c. 10 percent.
d. 12 percent.
Answer: d
8. Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real
rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. What is the lowest
nominal interest rate that Kaitlin would be willing to accept from her local bank?
a. 4 percent.
b. 5 percent.
c. 6 percent.
d. 7 percent.
Answer: d
9. In year one, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a
total of $1,500. Out of that $1,500, he saves $200. What is Adam’s MPC out of his $500 raise?
a. 0.50.
b. 0.75.
c. 0.80.
d. 1.00.
Answer: c
10. If the MPS rises, then the MPC will:
a. fall.
b. rise.
c. stay the same.
Answer: a
11. In what direction will each of the following occurrences shift the consumption and saving schedules,
other things equal?
a. A large decrease in real estate values, including private homes.
b. A sharp, sustained increase in stock prices.
, c. A 5-year increase in the minimum age for collecting Canada Pension Plan benefits.
d. An economy-wide expectation that a recession is over and that a robust expansion will occur.
e. A substantial increase in household borrowing to finance auto purchases.
Answer: a. The consumption schedule will shift downward and the saving schedule will shift
upward given the decrease in wealth.
b. The consumption schedule will shift upward and the saving schedule will shift downward given
the increase in wealth.
c. The consumption schedule will likely shift upward and the saving schedule will likely shift
downward given that individuals will need to work 5 more years before retiring. There is less need
to save for retirement.
d. The consumption schedule will shift upward and the saving schedule will shift downward
because individuals expect to be earning higher income in the future.
e. The consumption schedule will shift upward and the saving schedule will shift downward as
individuals borrow (decrease saving) and purchase the automobiles (increase consumption).
12. If total spending is just sufficient to purchase an economy’s output, then the economy is:
a. in equilibrium.
b. in recession.
c. in debt.
d. in expansion.
Answer: a
13. If inventories unexpectedly rise, then production ________ sales and firms will respond by ________
output.
a. trails; expanding.
b. trails; reducing.
c. exceeds; expanding.
d. exceeds; reducing.
Answer: d
14. If the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by:
a. $2 billion.
b. $3 billion.
c. $8 billion.
d. $15 billion.
e. None of the above.
Answer: d
15. A recession abroad will tend to ________ our exports, which in turn will _________ net exports,
which in turn will ________ equilibrium real GDP.
a. reduce; reduce; reduce
b. increase; increase; increase
c. reduce; increase; increase
d. increase; reduce; reduce
Answer: a
16. Which of the following will shift the aggregate supply curve (short run) to the right?
a. A new networking technology increases productivity all over the economy.
b. The price of oil rises substantially.
c. Business taxes fall.
d. The government passes a law doubling all manufacturing wages.
Answer: a and c
2023) - SOLUTIONS
1. Which of the following transactions would count in GDP?
Select one or more of the answers from the choices shown.
a. Kerry buys a new sweater to wear this winter.
b. Patricia receives a Canada Pension Plan cheque.
c. Roberto gives his daughter $50 for her birthday.
d. Latika sells $1,000 of Tim Horton stock.
e. Karen buys a new car.
f. Amy buys a used car.
Answer: a and e
2. If real GDP grows at 7 percent per year, then real GDP will double in approximately _________ years.
a. 70.
b. 14.
c. 10.
d. 7.
Answer: c
3. Most economists agree that the immediate cause of the large majority of cyclical changes in the levels
of real output and employment is unexpected changes in ___________________.
a. The level of total spending.
b. The level of the stock market.
c. The level of the trade deficit.
d. The level of unemployment.
Answer: a
4. Suppose that an economy has 9 million people working full time. It also has 1 million people who are
actively seeking work but currently unemployed, as well as 2 million discouraged workers who have
given up looking for work and are currently unemployed. What is this economy’s unemployment rate?
a. 10 percent.
b. 15 percent.
c. 20 percent.
d. 25 percent.
Answer: a
5. Label each of the following scenarios as either frictional unemployment, structural unemployment, or
cyclical unemployment.
a. Tim just graduated and is looking for a job.
b. A recession causes a local factory to lay off 30 workers.
c. Thousands of bus and truck drivers permanently lose their jobs when driverless, computer-driven
vehicles make human drivers redundant.
d. Hundreds of Toronto legal jobs permanently disappear when a lot of legal work gets outsourced to
,lawyers in India.
Answers:
a. frictional unemployment
b. cyclical unemployment
c. structural unemployment
d. structural unemployment
6. The graph showing the (short-run) relationship between inflation and unemployment is known as the
_________________________.
a. Phillips curve
b. Environmental Kuznets curve
c. money supply curve
d. investment demand curve
e. Okun’s law
Answer: a
7. Jimmer’s nominal income will go up by 10 percent next year. Inflation is expected to be -2 percent next
year. By approximately how much will Jimmer’s real income change next year?
a. -2 percent.
b. 8 percent.
c. 10 percent.
d. 12 percent.
Answer: d
8. Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real
rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. What is the lowest
nominal interest rate that Kaitlin would be willing to accept from her local bank?
a. 4 percent.
b. 5 percent.
c. 6 percent.
d. 7 percent.
Answer: d
9. In year one, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a
total of $1,500. Out of that $1,500, he saves $200. What is Adam’s MPC out of his $500 raise?
a. 0.50.
b. 0.75.
c. 0.80.
d. 1.00.
Answer: c
10. If the MPS rises, then the MPC will:
a. fall.
b. rise.
c. stay the same.
Answer: a
11. In what direction will each of the following occurrences shift the consumption and saving schedules,
other things equal?
a. A large decrease in real estate values, including private homes.
b. A sharp, sustained increase in stock prices.
, c. A 5-year increase in the minimum age for collecting Canada Pension Plan benefits.
d. An economy-wide expectation that a recession is over and that a robust expansion will occur.
e. A substantial increase in household borrowing to finance auto purchases.
Answer: a. The consumption schedule will shift downward and the saving schedule will shift
upward given the decrease in wealth.
b. The consumption schedule will shift upward and the saving schedule will shift downward given
the increase in wealth.
c. The consumption schedule will likely shift upward and the saving schedule will likely shift
downward given that individuals will need to work 5 more years before retiring. There is less need
to save for retirement.
d. The consumption schedule will shift upward and the saving schedule will shift downward
because individuals expect to be earning higher income in the future.
e. The consumption schedule will shift upward and the saving schedule will shift downward as
individuals borrow (decrease saving) and purchase the automobiles (increase consumption).
12. If total spending is just sufficient to purchase an economy’s output, then the economy is:
a. in equilibrium.
b. in recession.
c. in debt.
d. in expansion.
Answer: a
13. If inventories unexpectedly rise, then production ________ sales and firms will respond by ________
output.
a. trails; expanding.
b. trails; reducing.
c. exceeds; expanding.
d. exceeds; reducing.
Answer: d
14. If the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by:
a. $2 billion.
b. $3 billion.
c. $8 billion.
d. $15 billion.
e. None of the above.
Answer: d
15. A recession abroad will tend to ________ our exports, which in turn will _________ net exports,
which in turn will ________ equilibrium real GDP.
a. reduce; reduce; reduce
b. increase; increase; increase
c. reduce; increase; increase
d. increase; reduce; reduce
Answer: a
16. Which of the following will shift the aggregate supply curve (short run) to the right?
a. A new networking technology increases productivity all over the economy.
b. The price of oil rises substantially.
c. Business taxes fall.
d. The government passes a law doubling all manufacturing wages.
Answer: a and c
