Economic Principles MCQs Question

What is the inflation rate if during a one-year period nominal GDP increases by 7% and real GDP increases by 3.5%?

  1. 3.5%.
  2. 10.5%.
  3. 0.5%.
  4. 7.0%.

An economy is experiencing rising prices and unemployment. The government passes legislation lowering the minimum wage. What is the likely result for inflation and structural unemployment?

  1. Increase in inflation and decrease in structural unemployment.
  2. Decrease in inflation and increase in structural unemployment.
  3. Decrease in inflation and structural unemployment.
  4. Increase in inflation and increase in structural unemployment.

The economy’s unemployment rate is currently trending above the Bank of Canada’s estimate of the natural unemployment rate. What is the likely effect of this level of unemployment on this economy's inflation rate and interest rates, assuming all other factors remain constant?

  1. Inflation rate will rise and interest rates will fall.
  2. Inflation and interest rates will both rise.
  3. Inflation and interest rates will both fall.
  4. Inflation rate will fall and interest rates will rise.

Canada gives $10,000,000 in aid to Third World countries. How would this affect the accounts in the Balance of Payments?

  1. Capital and Financial Account both increase.
  2. Current account decreases.
  3. Current Account increases.
  4. Capital and Financial Account both decrease.

The Canadian Government increases its foreign debt with a new bond issue. How will this affect the Current Account and the Capital and Financial Account?

  1. Capital and Financial Account claims increase, and Current Account decreases.
  2. Current Account increases, Capital and Financial Account liabilities increase.
  3. Current Account increases, no effect on the Capital and Financial Account.
  4. Capital and Financial Account liabilities increase, no effect on the Current Account.

What is the effect on the Balance of Payment accounts if the Canadian government takes action to reduce its foreign debt by redeeming an outstanding issue of government bonds?

  1. Decrease Capital and Financial Account claims, decrease the Current Account.
  2. Decrease Capital and Financial Account liabilities, no effect on the Current Account.
  3. Increase Current Account, increase Capital and Financial Account liabilities.
  4. Increase Current Account, no effect on Capital and Financial Account.

What is the approximate inflation rate if the Consumer Price Index (CPI) was 130.6 last year and 136.9 this year?

  1. 4.60
  2. 6.30
  3. 5.31
  4. 4.82 

What impact will a decline in the value of the Canadian dollar have on the volume of exports and imports if the price of Canadian goods remain unchanged?

  1. Exports will rise and imports will fall.
  2. Imports and exports will rise.
  3. Imports and exports will fall.
  4. Imports will rise and exports will fall.

Thierry lost his job several months ago. He is willing and able to work but is having trouble finding a job, and has decided to stop looking. How would Thierry be classified?

  1. Cyclically unemployed worker.
  2. Member of labour force.
  3. Underemployed.
  4. Discouraged worker.

During Year 1, nominal GDP increased by 7% and real GDP increased by 3.5%. During Year 2, nominal GDP increased by 5% and real GDP increased by 4%. Based on these figures, and ignoring any other considerations, how did the rate of inflation change over the two periods?

  1. Rate of inflation increased.
  2. Rate of inflation fell.
  3. Nominal rate of inflation increased.
  4. Rate of inflation was unchanged.

What monetary policy tool would the Bank of Canada implement if the overnight rate is trading above the target rate?

  1. Redeposits.
  2. Sale and Repurchase Agreement (SPAs).
  3. Special Purchase and Resale Agreements (SPRAs).
  4. Drawdowns.

How is the Bank Rate determined?

  1. 3-month T-bill rate plus 0.5%.
  2. 3-month T-bill rate minus 0.5%.
  3. Mid-point of the operating band for overnight financing by the Bank of Canada.
  4. Upper limit of the operating band for overnight financing by the Bank of Canada.

The Bank of Canada increases the target rate for the overnight rate of interest by 0.5%. By how many basis points will the rate change?

  1. 500 basis points.
  2. 50 basis points.
  3. 5 basis points.
  4. 0.5 basis points.

Overnight money is currently trading above the target of the operating band and the Bank of Canada wants to implement a strategy to offset the impact this may have on the economy. What type of open market operation is most appropriate?

  1. Drawdown.
  2. Redeposit.
  3. Special Purchase and Resale Agreement.
  4. Sale and Repurchase Agreement.

Overnight money is currently trading below the target of the operating band and the Bank of Canada implements a Sale and Repurchase Agreement to offset the impact this may have on the economy. Why would the Bank of Canada implement this strategy?

  1. Belief that inflationary pressures are slowing.
  2. Belief that nominal GDP is growing too quickly.
  3. Belief that inflationary pressures could rise.
  4. Belief that money supply is growing too slowly.

What action would the Bank of Canada take to relieve upward pressure on interest rates?

  1. Sale and Repurchase Agreement (SPAs).
  2. Drawdown.
  3. Special Purchase and Resale Agreement.
  4. Sell T-bills.

What fiscal policy challenge could affect the success of a government’s decision to immediately reduce inflationary pressures in the economy by reducing consumer taxes instead of spending on new construction and other projects?

  1. Political considerations.
  2. Timing lag.
  3. Future expectations.
  4. Impact of international economies.

What action will Bank XYZ take if it finds that its balance in the Large Value Transfer System (LVTS) is a $25 million deficit?

  1. Borrow from another LVTS participant.
  2. Issue securities to raise funds.
  3. Notify the Bank of Canada.
  4. Request a redeposit from the Bank of Canada.

What actions could a central bank take to improve the state of the economy in a country that is currently in a recession?

Reduce the money supply.

Increase the money supply.

Raise interest rates.

Lower interest rates.

  1. 2 and 4.
  2. 1 and 4.
  3. 2 and 3.
  4. 1 and 3.

What is occurring if the government has borrowed a large amount in the capital markets and as a result corporate borrowers are having difficulties in finding capital to borrow?

  1. Budget deficit.
  2. Drawdown.
  3. Crowding out.
  4. Fiscal policy.
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