CARLETON UNIVERSITY

Department of Economics

ECON 1000 V – Introduction to Economics

ASSIGNMENT 4: Covers MACROECONOMICS Chapters 5-8. Topics: Measuring National Income; Measuring the Cost of Living; Production and Growth; Savings, Investment and the Financial System.

There are two sections: MCQs (section 1), and free response questions (Section B). TOTAL MARKS: 100

The deadline to submit the answersonline(through cuLearn) is July 21 at 11:55 pm. This deadline will be strictly enforced.

PLEASE NOTE THE FOLLOWING
	ALL TECHNICAL ISSUES REGARDING POSTING OF COMPLETED ASSIGNMENT MUST
BE RESOLVED BY THE STUDENTS BY CONSULTING CCS.	how to submit your work in one file and on
I assume that you have learnt by this time how the system works. So be very sure next time to adhere to the deadline and also know how to post your work on the cuLearn. The second assignment will be posted very soon. So even now if you are not sure about the cuLearn, immediately seek help from the CCS or CUOL. http://carleton.ca/ccs/contact/ Computing and communications services (CCS) Telephone 613-520-3700 E-mail ccs.service.desk@carleton.ca ............................................................................................ http://carleton.ca/cuol/contact-us/ cuol contact centre Phone: 613-520-4055 Fax: 613-520-3459 Email General Inquiries: cuol@carleton.ca Video On Demand Support: vod@carleton.ca CUOL Exam queries: cuolexams@carleton.ca Graded material/convocation DVDs: student_centre@carleton.ca
	One of the TAs observed the following: Would you please take these comments/observations into
consideration as you complete the assignment 2, please??
-Some students took pictures of their assignments (or graphs), however some pictures were blurry and hard to read. It would be great if you could mention to the students that they need to be sure the TA can read it. - Would you also be able to remind people to put all their answers in 1 file (some people used a zip file, with several files in that folder). - Would you also be able to ask people to put their name either in the title of the document or at the top of the document - this would avoid having a possible mix up
	Yet another TA observed that some students did not read the questions properly as they answered all
questions in a section where they were supposed to answer only a few of them, not all. I also personally
feel that some students are missing the instructions as in the assignment two, some MCQs were not there
(MCQ 5, 12 and 37) and I mentioned it at the beginning of section 1. In spite of that, at least 20 students
E-mailed about that they are not finding questions 5, 12 and 34. SO, Read instructions real well

GOOD LUCK!

SECTION A: Multiple Choice. Answer any 25 question. (50 marks).Any extra questions answered will be crossed
out.

Identify the choice that best completes the statement or answers the question.

____	1. Which of the following is included in GDP? a. the sale of stocks and bonds b. the sale of used goods c. the sale of services such as visits to a doctor d. the sale of ownership in a new company
____	2. What is the goal of macroeconomics? a. to explain how economic changes affect prices of particular goods b. to explain market failures, such as externalities and monopoly c. to explain changes that affect the economy as a whole d. to explain how an income tax influences a person’s decision to work
____	3. Which of the following is NOT included in GDP? a. unpaid cleaning and maintenance of houses b. services such as those provided by lawyers and hairstylists c. final goods that are produced but not sold by the end of the year d. production of foreign citizens living in Canada
____	4. With respect to GDP, how is unemployment compensation treated? a. It is included as part of GDP because it represents income. b. It is not included as part of GDP because it is a transfer payment. c. It is included as part of GDP because the recipients must have worked in the past to qualify. d. It is not included as part of GDP because the payments reduce business profits.
____	5. Which of the following supports the idea of using GDP as a measure of well-being? a. Countries with higher GDP tend to have more luxury cars. b. Countries with higher GDP tend to have more schools. c. Countries with higher GDP tend to have more fast food restaurants. d. Countries with higher GDP tend to have more food.
____	6. How is a country’s wealth related to other measures of well-being such as life expectancy and literacy? a. positively with both life expectancy and literacy

b. unrelated with life expectancy; positively with literacy

c. negatively with life expectancy; unrelated to literacy

d. negatively with both life expectancy and literacy

In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes, and 2 litres of gasoline. The per-unit prices of these goods have been as follows:

Year	Apples	Bread	Robes	Gasoline
2010	$1.00	$2.00	$10.00	$1.00
2011	$1.00	$1.50	$9.00	$1.50
2002	$2.00	$2.00	$11.00	$2.00
2013	$3.00	$3.00	$15.00	$2.50

____	7. Refer to the Table 6-3. What was the inflation rate, as measured by the CPI, between 2010 and 2011? a. –8.89 percent b. –7.14 percent c. 3.75 percent d. 11.25 percent
____	8. How is a nation's standard of living determined? a. by its productivity b. by its gross domestic product c. by its national income d. by how much it has relative to others
____	9. Tom works 6 hours a day and Jerry works 8 hours. Tom can produce 6 baskets of goods while Jerry can produce 7 baskets. Which of the following can we conclude? a. Tom’s productivity is greater than Jerry’s. b. Tom’s and Jerry’s productivities are equal because they both work one day. c. Tom’s and Jerry’s productivities cannot be compared. d. Tom’s productivity is lower than Jerry’s.
____ 10. Laurie works 8 hours and produces 7 units of goods per hour. Iris works 6 hours and produces 10 units of goods per hour. Which of the following can we conclude? a. Laurie’s productivity and output are greater that Iris’s. b. Laurie’s productivity is greater than Iris’s, but Laurie’s output is less. c. Iris’s productivity and output are greater than Laurie’s. d. Iris’s productivity is greater that Laurie’s, but Iris’s output is less. ____ 11. What do economists call the equipment and structures available to produce goods and services? a. physical capital b. human capital c. the production function d. technology ____ 12. Which of the following best defines human capital? a. the knowledge and skills that workers acquire through education, training, and experience b. the stock of equipment and structures that is used to produce goods and services

c. the total number of hours worked in an economy

d. the total amount that is paid in wages in an economy

____ 13. The price index is 270 in one year and 300 in the next. What is the inflation rate? a. 1.0 percent

b. 9.3 percent

c. 10.0 percent

d. 11.1 percent

____ 14. Research done at the Bank of Canada suggests that the sources of bias in CPI, taken together, cause the Canadian CPI to overstate increases in the cost of living. How much does the research indicate it is overstated by?

a. 3.4 percentage points

b. 2.1 percentage points

c. 1.6 percentage points

d. 0.6 of a percentage point

____ 15. How do the GDP deflator and the consumer price index compare to each other?

a. The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.

b. The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

c. Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.

d. Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

____ 17. Which of the following is human capital?

a. breakfasts served in a company’s cafeteria

b. understanding how to use a company’s accounting software

c. computers that show training videos for new corporate employees

d. the average number of holiday days per year

____ 18. Jessica Smith is a teacher. Which of the following is a part of her human capital? a. her work experience

b. the textbooks she uses

c. the software she uses when delivering her lectures

d. the amount of time she spends with her students

____ 19. Suppose that an economy with constant returns to scale doubled its physical capital stock, doubled its available natural resources, and doubled its human capital, but kept the size of the labour force the same. How does the change in output compare to the change in productivity? a. Output would stay the same and so would its productivity.

b. Output and productivity would increase, but by less than double.

c. Output and productivity would increase by more than double.

d. Output would increase by less than double, but productivity would double.

____ 20. In the traditional view, which of the following production processes is considered when studying economic growth?

a. constant returns

b. increasing returns

c. diminishing returns

d. diminishing returns for low levels of capital, and increasing returns for high levels of capital

____ 21. Suppose that Poland undertakes policy to increase its saving rate. Which of the following will this policy most likely do?

a. It will have no impact on GDP growth.

b. It will lead to somewhat higher GDP growth for a few years.

c. It will lead to substantially higher GDP growth for a period of several decades.

d. It will lead to a permanently higher growth rate.

____ 22. Real GDP per person is $25 000 in Aquilonia, $10 000 in Nemedia, $15 000 in Shem, and $20 000 in Zexa.

Saving per person is $2000 in all three countries. Other things equal, what would we expect? a. All four countries will grow at the same rate.

b. Aquilonia will grow the fastest.

c. Nemedia will grow the fastest.

d. Shem will grow the fastest.

____ 23. According to the traditional view of the production process, how does output per worker change when capital per worker increases?

a. It increases. This increase is larger at larger values of capital per worker.

b. It increases. This increase is smaller at larger values of capital per worker.

c. It increases. This increase is the same at all values of capital per worker.

d. It decreases. This decrease is larger at larger values of capital per worker.

____ 24. According to the traditional view, in what direction is the slope of the production function, with capital per b

a. The slope is positive and becomes steeper as capital per worker rises.

b. The slope is positive and becomes flatter as capital per worker rises.

c. The slope is constant.

d. The slope is negative and becomes steeper as capital per worker rises.

____ 25. In medieval Europe, an important technological advance was the use of the padded horse collar for plowing.

Once this idea was thought of, other people used it. What does this example illustrate about knowledge? a. It is generally a public good.

b. It is generally a societal good.

c. It is generally a private good.

d. It is generally a normal good.

____ 26. According to Malthus’s view, which of the following is a consequence of increased population? a. increased GDP per person

b. more people imply more ideas and more labour force, which promotes growth

c. depletion of productive resources and lower standards of living

d. increase in productivity in the food sector, which is necessary to support the increase in population

____ 27. What will a rapid increase in the number of workers, other things the same, likely do in the short term?

a. raise real GDP per person but decrease real GDP

b. decrease both real GDP and real GDP per person

c. raise both real GDP and real GDP per person

d. raise real GDP but decrease real GDP per person

____ 28. Which of the following happens when a person buys shares in a mutual fund?

a. The person indirectly becomes owner or creditor to many companies.

b. The person lends to and borrows from the other shareholders in the mutual fund.

c. The person receives a fixed interest as long as he or she does not sell the shares.

d. The person lends money to the federal government.

____ 29. What makes Y = C + I + G + NX an identity?

a. Each symbol identifies a variable.

b. The right-hand and left-hand sides are equal.

c. The equality holds due to the way the variables are defined.

d. This relationship is identical for all economies.

____ 30. What would an increase in the budget deficit most likely do to investment spending?

a. It would make investment spending fall because the interest rate rises.

b. It would make investment spending rise because the interest rate falls.

c. It would make investment spending fall because the interest rate falls.

d. It would make investment spending rise because the interest rate rises.

SECTION B: FREE RESPONSE QUESTIONS. TOTAL MARKS: 50.
ANSWER ANY TWO OF THE FOLLOWING FOUR QUESTIONS: EACH QUESTION IS WORTH 25 MARKS

INSTRUCTION: Take a few minutes to plan and outline each answer. In answering the questions, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include diagrams, if useful, in explaining your answers. All diagrams should be correctly labeled.

QUESTION A (25 MARKS)

A1. What is a production function? Write an equation for a typical production function, and explain what each of the terms represents (4 MARKS).

A2. A puzzle: The share of GDP devoted to investment was similar for Canada and South Korea over the period 1960–1990. However, South Korea had a 7 percent growth rate of average annual income, while Canada had only a 2.5 percent growth rate. How can this be explained? (4 MARKS).

A3. What are the basic differences between bonds and stocks? (4 MARKS).

A4. Which of the two bonds in each example would you expect to pay the higher interest rate? Explain why.

a. a Canadian government bond or a Brazilian government bond

b. a government of Canada bond or a municipal bond of the same face value and term

c. a 6-month Treasury bill or a 20-year bond

d. a Canadian National Railway Company bond or a bond issued by a new record company

(4 MARKS)

A5. Question 6, ch 5. Pp. 122. 9 Marks(PLEASE SEE THE TEXTBOOK)

QUESTION B (25 MARKS):

CHAPTER 7. QUESTIONS 3, 4, 9 AND 10. PAGE 165 (6TH
EDITION).	Each of the questions 3, 4, and 10 is worth 5

?

marks. Question 9 is worth 10 marks.

QUESTION C (25 MARKS):

?CHAPTER 8. QUESTIONS 1, 11 AND 12. PAGE 192 (6^TH EDITION). Question 1 is worth 8 marks. Each of the questions 11 and 12 is worth 8.5 marks