Applied Macroeconomics
Exam Questions
Course Introduction
Applied Macroeconomics explores the practical applications of macroeconomic theories and models to real-world economic issues and policy-making. Students will examine topics such as national income determination, economic growth, inflation, unemployment, fiscal and monetary policy, and international trade and finance. Through the use of case studies, empirical data analysis, and contemporary policy discussions, the course equips students with the analytical tools necessary to understand and interpret macroeconomic trends, evaluate policy effectiveness, and make informed economic decisions in both domestic and global contexts.
Recommended Textbook
Macroeconomics 6th Canadian Edition by Andrew B. Abel
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15 Chapters
1206 Verified Questions
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Adam Smith's idea of the "invisible hand" tries to convey the idea that while there are free markets and people conduct their economic affairs in their own best interests,
A) any country can become an advanced, industrialized nation.
B) markets will eliminate problems of hunger and dissatisfaction.
C) most inequalities between the rich and the poor will be eliminated.
D) the overall economy will work well.
Answer: D
Q2) The inflation rate is the
A) percent increase in the average level of prices over a year.
B) percent increase in output over a year.
C) percent increase in the unemployment rate over a year.
D) price level divided by the level of output.
Answer: A
Q3) If the price level is 100 in 2000 and 105 in 2001, the inflation rate is A) 105%.
B) 100%.
C) 50%.
D) 5%.
Answer: D
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Page 3
Chapter 2: The Measurement and Structure of the Canadian Economy
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Sample Questions
Q1) If real GDP falls by 1 percent, but the nominal GDP rises by 5 percent, then we must conclude that
A) the price level rises by 5 percent.
B) the price level falls by 1 percent.
C) the price level rises by 6 percent.
D) the price level falls by 4 percent.
Answer: C
Q2) The income-expenditure identity says that
A) Y = C + S + G.
B) Y = C + I = G.
C) Y = C + I + G + NX.
D) Y = C + I + G + NX = CA.
Answer: C
Q3) If a country runs a current account ________, it means that its national saving is ________ than investment.
A) deficit, greater
B) deficit, less
C) surplus, greater
D) balance, less
Answer: B
Page 4
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) What is the participation rate if there are 125 million people in the labour force, 100 million people employed, and 25 million not in the labour force?
A) 83%
B) 80%
C) 75%
D) 67%
Answer: A
Q2) In the production function Y = AF(K,N), A is
A) labour productivity.
B) total factor productivity.
C) capital productivity.
D) the marginal productivity of capital.
Answer: B
Q3) A favourable supply shock, such as a fall in the price of oil, would
A) cause firms to demand less labour at any given real wage.
B) cause the labour demand curve to shift to the left.
C) increase the marginal product of labour.
D) decrease the real wage.
Answer: C
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Page 5
Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) You are trying to figure out how much capacity to add to your factory. You will increase capacity as long as
A) the expected marginal product of capital is positive.
B) the expected marginal product of capital is greater than or equal to the marginal product of capital.
C) the expected marginal product of capital is greater than or equal to the expected marginal product of labour.
D) the expected marginal product of capital is greater than or equal to the user cost of capital.
Q2) All else equal, a decrease in effective tax rate will lead to
A) a fall in the desired investment.
B) an increase in the interest rate.
C) an increase in the desired investment.
D) an increase in inventory.
Q3) An increase in the expected real interest rate tends to
A) raise desired savings only.
B) raise desired investment only.
C) raise both desired savings and desired investment.
D) raise desired savings, but lower desired investment.
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Page 6
Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) A small open economy increases its desired saving. This causes the world real interest rate to ________ and the country's current account balance to ________.
A) fall; fall
B) remain unchanged; rise
C) fall; rise
D) remain unchanged; fall
Q2) If all international factor payment flows are investment income, then net investment income from abroad equals A) net exports.
B) the current account balance.
C) the trade balance.
D) net factor payments from abroad.
Q3) Due to a change in the regulatory structure of a small open economy, the desired capital stock becomes higher for both private investment and government investment. Increased government investment spending is financed by borrowing, not by higher taxes. If both desired investment and government spending rise at the same time, will there be "twin deficits"?
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) If f(k) = 6k<sup>0.5</sup>, s = 0.1, n = 0.1, and d = 0.2, what is the value of f(k) at equilibrium?
A) 6
B) 12
C) 18
D) 24
Q2) In the past ten years, Patagonia's total output has increased from 2000 to 3000, the capital stock has risen from 4000 to 5200, and the labour force has increased from 400 to 580. Suppose a<sub>K</sub> = 0.4 and a<sub>N</sub><sub> </sub>= 0.6.
a. How much did capital contribute to economic growth over the decade?
b. How much did labour contribute to economic growth over the decade?
c. How much did productivity contribute to economic growth over the decade?
Q3) Suppose the current level of output is 5000, and the elasticity of output with respect to labour is 0.7. A 10% increase in labour would increase the current level of output to A) 5035.
B) 5070.
C) 5350.
D) 5700.
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) When a government prints money to finance its expenditures, it is likely to cause A) unemployment.
B) inflation.
C) deflation.
D) reductions in the use of barter.
Q2) Which of the following is not included in M2+?
A) money market mutual funds
B) deposits at trust and mortgage companies
C) non-personal fixed-term deposits
D) small-denomination personal fixed-term deposits
Q3) Personal fixed-term savings deposits are included in M2+ rather than M1 because
A) they are available only to institutions, not to individuals.
B) they can be used as a medium of exchange, but are not as useful as the components of M1 as a store of value.
C) they can be used as a medium of exchange, but are less useful because of restrictions on their use for transactions.
D) they can easily be turned into cash for transaction purposes, but cannot be used directly as a medium of exchange.
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Chapter 8: Business Cycles
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Sample Questions
Q1) The three main components of the aggregate demand-aggregate supply model include
A) AD, SRAS, and LM.
B) SRAS, LIRAS, and IS.
C) AD, IS, and LM.
D) AD, SRAS, and LRAS.
Q2) A higher level of consumer confidence will lead
A) output to increase and price to decrease in the short run.
B) output to increase and price to increase in the short run.
C) output to increase and price to remain the same in the short run.
D) output to remain the same and price to increase in the short run.
Q3) When aggregate economic activity is declining, the economy is said to be in A) a contraction.
B) an expansion.
C) a trough.
D) a turning point.
Q4) Describe briefly what are the major differences between the classical economists and the Keynesian economists with regard to causes of business cycles, long-run adjustments to shock, and the government policies in restoring the full employment.
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Chapter 9: The IS-LMAD-AS Model: A General Framework for
Macroeconomic Analysis
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Sample Questions
Q1) A rise in expected future output that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.
A) down; is unchanged
B) down; right
C) up; is unchanged
D) up; right
Q2) A decline in wealth that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.
A) down; is unchanged
B) down; left
C) up; is unchanged
D) up; left
Q3) Under an assumption of monetary neutrality, a change in the nominal money supply has
A) no effect on the price level.
B) a less than proportionate effect on the price level.
C) a proportionate effect on the price level.
D) a more than proportionate effect on the price level.
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Chapter 10: Exchange Rates, Business Cycles, and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) When a group of countries agree to share a common currency, they are said to have formed a
A) currency union.
B) welfare state.
C) monetary alliance.
D) monetary cartel.
Q2) The Canada-US nominal exchange and Canadian-dollar effective exchange rate are expected to move together because
A) most of Canada's trade is with the US.
B) the trade deficit between the US and Canada is not significant.
C) the US dollar and Canadian dollar are closely related to each other.
D) the trade deficits between Canada and its trading partners are not significant.
Q3) A decrease in the foreign real interest rate would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.
A) rise; shift up
B) rise; shift down
C) fall; shift up
D) fall; shift down
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Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
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Sample Questions
Q1) Which of the following restates the basic business cycle fact that money is procyclical?
A) Changes in the behaviour of the money stock has been closely associated with changes in economic activity, nominal income, and prices.
B) Monetary changes have often had an independent origin; they have not been a reflection of changes in economic activity.
C) The interrelation between monetary and economic changes have been highly stable.
D) Both A and C are correct.
Q2) What do RBC economists mean by the term calibration?
A) modifying the structure of an economic theory to strengthen its logic
B) changing a theory as the economy changes
C) working out a detailed numerical example of a more general theory
D) writing out the implication of a theory for all the main economic variables
Q3) The Solow residual is
A) the waste from the production process.
B) the most common measure of productivity shocks.
C) a measure of the efficiency of the production process.
D) a measure of the proportion of involuntarily unemployed workers.
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Chapter 12: Keynesian Business Cycle Analysis:
Non-Market-Clearing Macroeconomics
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Sample Questions
Q1) Which of the following statements is false?
A) Keynesians, like classicals, believe that people's expectations are formed based on the rational expectations hypothesis.
B) Keynesians, like classicals, recognize the effect of productivity shocks on the business cycles.
C) Keynesians, like classicals, believe that the free market is able to respond quickly and efficiently to the aggregate demand shocks.
D) Keynesians, unlike classicals, believe that aggregate demand shocks are the main source of the business cycles.
Q2) The crowding-out effect will probably occur, when
A) the government budget is in surplus.
B) the government follows an easy fiscal policy.
C) the government follows a tight fiscal policy.
D) the government crowds out the economy by lowering the interest rate.
Q3) In the Keynesian model, the short run aggregate supply curve is
A) perfectly horizontal.
B) upward sloping, but relatively flat.
C) upward sloping, but relatively steep.
D) perfectly vertical.
Page 14
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Countries in which wages adjust rapidly to changes in the supply and demand for labour are likely to have ________ sacrifice ratio.
A) an infinite
B) a high
C) a low
D) a negative
Q2) The Bank of Canada announces that it will increase the money supply by 5 percent for the next five years. This will cause
A) the expected inflation to increase and the Phillips curve to shift right.
B) the expected inflation to decrease and the Phillips curve to shift right.
C) the natural rate of unemployment to decrease and the Phillips curve to shift left.
D) the natural rate of unemployment to increase and the Phillips curve to shift left.
Q3) How is the sacrifice ratio measured? How big is the sacrifice ratio in Canada? In other countries? What problems are there in measuring the sacrifice ratio?
Q4) What is the Lucas critique, and why was it so important to macroeconomists in the 1970s?
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) Which of the following is not a policy instrument of the Bank?
A) open-market operations
B) overnight rates operating board
C) changes in reserve requirements
D) changes in the government deficit
Q2) When Canadian banks borrow from one another, they must pay the A) bank rate.
B) prime rate.
C) overnight rate.
D) Interbank Offer Rate.
Q3) If you could determine the goals of the Bank of Canada, what goals would you choose? Should the Bank's policy be activist? Discuss the pros and cons.
Q4) The money supply is $10 million, currency held by the public is $2 million, and the reserve-deposit ratio is 0.2. Bank reserves are equal to
A) $1.6 million.
B) $2 million.
C) $4 million.
D) $8 million.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) According to Keynesian economists, the primary problem with using fiscal policy as a stabilization tool is that
A) fiscal policy does not have the effect on output in practice that it should have in theory.
B) fiscal policy will be effective only if it is funded through lump-sum tax changes.
C) fiscal policy will be effective only if it is funded through permanent changes in taxes.
D) fiscal policy is inflexible because a large portion of government spending is planned years in advance and cannot easily be changed.
Q2) The average cost of the distortion created by taxes
A) increases proportionately with the tax rate.
B) is lower when the tax rate is constant than when it fluctuates.
C) is higher when the tax rate is constant than when it fluctuates.
D) equals the square root of the tax rate.
Q3) Who bears the burden of the government debt? Explain why. Under what circumstances is there no burden to be borne?
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