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According to most economists, presently, what is the natural rate of unemployment in Canada?
5 - 7%
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What can we infer if the actual Canadian unemployment rate is above 10%?
a. That the economy must be on an upswing.
b. That potential GDP exceeds actual GDP.
c. That actual GDP exceeds potential GDP.
d. That actual GDP is equal to potential GDP.
e. That actual GDP is greater than real GDP.
B: That potential GDP exceeds actual GDP
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What could cause an increase in nominal GDP?
a. An increase in the output of goods and services but no change in prices.
b. An increase in the prices of goods and services but no change in their output.
c. An increase in both the output and the prices of goods and services.
d. All of the above.
D: All of the above
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Which of the following would lead to wage-push inflation?
a. The economy experiences a trend of wage increases below labour productivity increases.
b. The economy experiences an inflationary gap.
c. Producers are able to pass a wage increase on to the consumer in the form of higher prices.
d. Aggregate demand increases significantly.
C: Producers are able to pass a wage increase on to the consumer in the form of higher prices.
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Why are GDP data criticised as being inaccurate measures of economic welfare?
a. They do not measure changes in the distribution of income.
b. They do not measure changes in the amount of leisure.
c. They do not measure changes in product quality.
d. They do not measure the adverse effects of economic activity upon the environment.
e. All of the above.
E: All of the above
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Which of the following is true of frictional unemployment?
a. It is an inevitable part of a market economy.
b. It is a result of the time needed to match people seeking employment with job vacancies.
c. It often involves people seeking "the right job" rather than "just a job."
d. All of the above.
D: All of the above
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What is the cause of cyclical unemployment?
a. The recessionary phase of the business cycle.
b. The declining importance of goods production and the growing importance of service production in our economy.
c. The normal dynamics of a free market economy.
d. Technological change.
e. The changing nature of demand from one product to another.
A: The recessionary phase of the business cycle
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What is true of an increase in the economy's capacity to produce goods and services?
a. It will cause inflation.
b. It could be called economic growth.
c. It will lower real GDP per capita.
d. It will result in the production possibilities curve shifting in.
B: It could be called economic growth
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All of the following statements, except one, are correct concerning unanticipated increases in inflation. Which is the exception?
a. It redistributes wealth and income in unpredictable ways.
b. It increases the real value of savings.
c. It decreases the purchasing power of money.
d. It benefits debtors at the expense of creditors.
e. It affects some individuals much more than others.
B: It increases the real value of savings
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What occurs at the economy's natural rate of unemployment?
a. The economy achieves its output potential.
b. Frictional and structural unemployment are zero.
c. Only frictional unemployment exists.
d. Only structural unemployment exists.
e. Potential GDP is above actual GDP.
A: The economy achieves its output potential
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Which of the following are included in the consumer price index?
a. Capital goods.
b. Government spending.
c. Imports.
d. Exports.
e. None of the above.
C: Imports
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What is Unemployment? Who is included?
- Those actively seeking work but who do not have employment.
- Includes the working-age population
- Excluded those under 15, those living in the 3 territories or on an aboriginal reserve and those in full-time mental or penal institutions, hospitals or the armed forces
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If a person in retired, would that person be included in the working-age population?
YES - But not in the Labour Force
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What is Frictional Unemployment?
Unemployment caused by the time it takes for people to find their first jobs or to move between jobs.
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What is Structural Unemployment?
Unemployment that results from a mismatch in the skills or location between jobs available and the people looking for work.
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What is Cyclical Unemployment?
Occurs as a result of the recessionary phase of the business cycle. (Recession)
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What is Natural Rate of Unemployment?
- At the peak of the business cycle, there is full employment.
- No cyclical unemployment
- No economic recession
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What could make Unemployment be Understated?
- Part-timers
- Discouraged workers
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What could make Unemployment be Overstated?
- False information - EI recipients
- Underground Economy
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What is the GDP Gap?
- The difference between Potential GDP and actual GDP (real or nominal)
- GDP = Potential GDP - Actual GDP
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What is Okun's Law?
- For every 1 percent of Cyclical unemployment, an economy's GDP is 2.5% below its potential.
- GDP Gap = 2.5 * cyclical unemployment % * GDP
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What is Consumer Price Index (CPI)?
- CPI is a measurement of the average level of prices of the goods and services that a typical Canadian family consumes.
- Explicit index using a constructed bundle of goods
- Bundle of goods remains constant
- Does not include capital or government goods and services
- Included imported goods
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What is the GDP Deflator?
- A measurement of the price level of goods and services included in the GDP.
- Implicit index measuring the ratio of nominal to real GDP
- Bundle of goods changes each year
- Includes capital and government goods and services
- Excludes imported goods
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What is Nominal Income & Real Income?
- Nominal Income - The present dollar-value of a person's income
- Real Income - The purchasing power of income; that is, nominal income divided by the price level
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What is the Rule of 70?
Estimates the time it will take for a figure to double in value given a certain percentage growth rate.
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What is Demand Pull Inflation?
When total demand for goods and services exceeds the economy's capacity to produce
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What is Cost Push Inflation?
- Caused by Caused by an increase in the costs of production or in profit levels, with the effect being on the supply side
- Includes wage-push, profit-push and import-push inflation
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