# Online Multiple Choice Test

Question 1

/ 1 pts
If business inventories at the beginning of the year equal \$40 billion and at the end of the year equal \$55 billion, then GDP will

increase by \$15 billion

decrease by \$15 billion

increase by \$55 billion

increase by \$40 billion

not change

Question 2

/ 1 pts

Suppose that the total expenditures for a typical household in 2000 equalled \$2500 per month, while the cost of purchasing exactly the same items in 2003 was \$3000. If 2000 is the base year, the CPI for the year 2003 equals

1.25

1.30

0.83

1.00

Correct!

1.20

Question 3

/ 1 pts

If the total expenditures of a typical family equalled \$35 000 per year in 2000 and the exact same basket of goods and services cost \$40 000 in the year 2003, the family’s cost of living

increased by 12.5 per cent

was unchanged

decreased by 12.5 per cent

decreased by 14 per cent

Correct!

increased by 14 per cent

Question 4

/ 1 pts

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 10% and inflation turns out to be 7% over the life of the loan, then the borrower _____ and the lender ______.

gains; loses

loses; loses

gains; gains

is not affected; gains

Correct!

loses; gains

Question 5

/ 1 pts

If the nominal interest rate is 8% and the
inflation rate is 3%, then the real interest rate is approximately

8%

Correct!

5%

11%

3%

24%

Question 6

/ 1 pts

The real rate of interest will always be lower than the nominal rate of interest if

the inflation rate is decreasing

the inflation rate is increasing

the inflation rate is positive

none of the above

the inflation rate is zero

Question 7

/ 1 pts
If the population of a country is 300 million, of whom 250 million are available to work, the unemployment rate is 5% and the participation rate is 65%, the size of the labour force and the number of unemployed workers are, respectively

195.0 million and 15.5 million

Correct!

162.5 million and 8.125 million

155.5 million and 8.750 million

175.5 million and 12.55 million

Question 8

/ 1 pts
Consider a simple model where workers can be either employed or unemployed. If the job separation rate is s = 0.025 per month and the job finding rate is f = 0.475 per month, the steady state unemployment rate and expected duration of an employment spell are, respectively:

0.05% and 2.1 months

5% and 2.1 months

5% and 3.33 years

5% and 3.33 months

Question 9

/ 1 pts

Suppose the unemployment rate is 3% and actual output is 2% below potential output. Assuming the text book version of Okun’s Law holds with “Beta” = 2, then

the natural rate of unemployment is 3%

the natural rate of unemployment is 5%

Correct!

the frictional unemployment rate plus the structural unemployment rate is 2%

the cyclical unemployment is 3%

the cyclical unemployment is.5%

Question 10

/ 1 pts
Which of the following is false?

The marginal propensity to consume is the extra amount individuals will spend if you give them an extra \$1

All else equal, the higher the marginal propensity to consume the higher will be the multiplier

At zero income individuals may have positive levels of consumption

Correct!

The marginal propensity to consume is the average amount an individual will spend

Question 11

/ 1 pts
Consider a simple closed economy model where Y = C + I + G, consumption is given by the function C = 200 + (1/2)(Y – T), investment is I = 100, government purchases are G = 50, and the budget is balanced. Which of the following is false?

equilibrium GDP is 650

the multiplier is 2.0

equilibrium disposable income is 600

Correct!

autonomous spending is 350