Page | 1
EC250 Final Questions with Detailed Verified
Answers
Q: What is the reason for the larger drop in employment and labour
force in the current recession?
Ans: Government provided relief for the unemployed, resulting in less
people looking for jobs
Q: What triggered the Great Recession and what was the reason
for it?
Ans: Collapse of Lehman brothers, gov didn't bail them out due to
moral hazard
Q: Who is Ben Bernanke?
Ans: Chairman of the Federal Reserve
Q: Define Quantitative easing
Ans: Government purchase of assets of longer maturity with the goal
of affecting long term interest rates directly
Q: Define forward guidance
Ans: Promise to hold interest rates low for an extended period of time
(encourages spending rather than saving)
Q: What is a NINJA loan?
Ans: No Income, No Job or Assets - was originally for people with
good credit but difficulty tracking income
Q: What were the factors to the lack of consumption?
, Page | 2
Ans: 1. Lower household wealth
2. Reduced availability of credit
3. Unemployment concerns (Save money)
4. Desire to reduce debt
Q: What are the reasons for Canada enduring the recession better
than US?
Ans: 1. Banks leveraged less
2. Resource dominant exports benefited from growth in Asian countries
3. CAD depreciated significantly (More demand for US bonds)
improving our competitive position
Q: In which recession did output drop more and for what reasons?
Ans: Current (lockdown) recession
- Services stable in previous recessions, not in current
Q: Describe the relationship between hours worked and output in
the current recession
Ans: Current recession hours dropped more than output because those
who lost their jobs were less productive (blue-collar workers) & in
previous recessions many workers were put on part time which did not
happen as much in the lockdown
Q: What were the 3 main reasons for the housing boom
, Page | 3
Ans: 1. Loan securitization (more money available for mortgages)
2. Subprime loans (Banks had little risk in giving out mortgages)
3. Increasing leverage by banks (banks used high leverage to make
more profit, resulted in higher demand of securities)
Q: What was the cause of the drop in house prices?
Ans: Overbuilding houses -> i rates increasing -> decrease in house
demand -> drop in prices
Q: Is GDP a stock or a flow?
Ans: * A flow meaning that is it based on an INTERVAL OF TIME as
opposed to one moment which is a stock
Q: Why did the usefulness of GDP decline with the current
recession?
Ans: - More household work
- Value of services not the same however output maintained (online vs.
in-person school)
Q: What is the formula for percentage change in output?
Ans: (New value - Old value) / Old value
Q: Why do we use GDP over NDP when NDP is preferred?
Ans: NDP cannot be calculated as precisely because depreciation is
hard to value
Q: What are the 3 methods of calculating GDP and how are they
calculated?
, Page | 4
Ans: Production - calculates value added
Value added = Production of all final g/s - cost of intermediate
goods
Inventories (Expenditure)
Finals g/s + Change in inventory
Income
Q: What are the factors omitted from GDP?
Ans: - Household work
- Unreported activities
- Environmental effects
- Used Goods
- Leisure
Q: Describe the Easterlin Paradox
Ans: Relative wealth correlates with higher satisfaction. Long-term
wealth gain does not
Q: What is included in GHP?
EC250 Final Questions with Detailed Verified
Answers
Q: What is the reason for the larger drop in employment and labour
force in the current recession?
Ans: Government provided relief for the unemployed, resulting in less
people looking for jobs
Q: What triggered the Great Recession and what was the reason
for it?
Ans: Collapse of Lehman brothers, gov didn't bail them out due to
moral hazard
Q: Who is Ben Bernanke?
Ans: Chairman of the Federal Reserve
Q: Define Quantitative easing
Ans: Government purchase of assets of longer maturity with the goal
of affecting long term interest rates directly
Q: Define forward guidance
Ans: Promise to hold interest rates low for an extended period of time
(encourages spending rather than saving)
Q: What is a NINJA loan?
Ans: No Income, No Job or Assets - was originally for people with
good credit but difficulty tracking income
Q: What were the factors to the lack of consumption?
, Page | 2
Ans: 1. Lower household wealth
2. Reduced availability of credit
3. Unemployment concerns (Save money)
4. Desire to reduce debt
Q: What are the reasons for Canada enduring the recession better
than US?
Ans: 1. Banks leveraged less
2. Resource dominant exports benefited from growth in Asian countries
3. CAD depreciated significantly (More demand for US bonds)
improving our competitive position
Q: In which recession did output drop more and for what reasons?
Ans: Current (lockdown) recession
- Services stable in previous recessions, not in current
Q: Describe the relationship between hours worked and output in
the current recession
Ans: Current recession hours dropped more than output because those
who lost their jobs were less productive (blue-collar workers) & in
previous recessions many workers were put on part time which did not
happen as much in the lockdown
Q: What were the 3 main reasons for the housing boom
, Page | 3
Ans: 1. Loan securitization (more money available for mortgages)
2. Subprime loans (Banks had little risk in giving out mortgages)
3. Increasing leverage by banks (banks used high leverage to make
more profit, resulted in higher demand of securities)
Q: What was the cause of the drop in house prices?
Ans: Overbuilding houses -> i rates increasing -> decrease in house
demand -> drop in prices
Q: Is GDP a stock or a flow?
Ans: * A flow meaning that is it based on an INTERVAL OF TIME as
opposed to one moment which is a stock
Q: Why did the usefulness of GDP decline with the current
recession?
Ans: - More household work
- Value of services not the same however output maintained (online vs.
in-person school)
Q: What is the formula for percentage change in output?
Ans: (New value - Old value) / Old value
Q: Why do we use GDP over NDP when NDP is preferred?
Ans: NDP cannot be calculated as precisely because depreciation is
hard to value
Q: What are the 3 methods of calculating GDP and how are they
calculated?
, Page | 4
Ans: Production - calculates value added
Value added = Production of all final g/s - cost of intermediate
goods
Inventories (Expenditure)
Finals g/s + Change in inventory
Income
Q: What are the factors omitted from GDP?
Ans: - Household work
- Unreported activities
- Environmental effects
- Used Goods
- Leisure
Q: Describe the Easterlin Paradox
Ans: Relative wealth correlates with higher satisfaction. Long-term
wealth gain does not
Q: What is included in GHP?
