Applied Macroeconomics
Final Test Solutions
Course Introduction
Applied Macroeconomics focuses on the practical application of macroeconomic theories and models to real-world economic issues and policy-making. The course explores topics such as economic growth, inflation, unemployment, fiscal and monetary policy, and international trade, emphasizing how aggregate economic variables interact within a global context. Students learn to analyze macroeconomic data, interpret government reports, assess policy impacts, and utilize economic tools to address current macroeconomic challenges. Through case studies and empirical research, the course bridges the gap between theoretical concepts and their practical implications for businesses, governments, and financial markets.
Recommended Textbook
Macroeconomics 2nd Canadian Edition by Glenn Hubbard
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15 Chapters
4089 Verified Questions
4089 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Which of the following statements is true?
A)Anytime you have to decide which action to take you are experiencing economic equity.
B)Trade-offs do not apply when the consumers purchase a product for which there is excess supply,such as a stock clearance sale.
C)Every individual,no matter how rich or poor,is faced with making trade-offs.
D)Economics is a social science that studies the trade-offs we are forced to make because resources are unlimited.
Answer: C
Q2) Suppose your provincial government encouraged new medical school graduates to take over rural and small town practices from doctors wishing to retire by paying both the new and retiring doctors $100,000.These doctors would be exemplifying the economic idea that A)people are rational.
B)people respond to economic incentives.
C)optimal decisions are made at the margin.
D)equity is more important than efficiency.
Answer: B
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Which of the following is a factor of production?
A)a sofa produced by a furniture manufacturer
B)20 shares of Microsoft stock
C)the janitor at the local elementary school
D)$500 in cash
Answer: C
Q2) Refer to Table 2.12.If the two countries specialize and trade,who should export cell phones?
A)There is no basis for trade between the two countries.
B)Estonia
C)Finland
D)They should both be importing cell phones.
Answer: C
Q3) Refer to Figure 2.11.If the economy is currently producing at point X,what is the opportunity cost of moving to point W?
A)3 million tons of steel
B)19 million tons of steel
C)5 million tons of paper
D)9 million tons of paper
Answer: A
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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314 Flashcards
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Sample Questions
Q1) In October,market analysts predict that the price of platinum will fall in November.What happens in the platinum market in October,holding everything else constant?
A)The supply curve shifts to the right.
B)The supply curve shifts to the left.
C)The quantity demanded and the quantity supplied of platinum increase.
D)The demand curve shifts to the right.
Answer: A
Q2) Refer to Figure 3.6.If the current market price is $10,the market will achieve equilibrium by
A)a price increase,increasing the supply and decreasing the demand.
B)a price decrease,decreasing the supply and increasing the demand.
C)a price decrease,decreasing the quantity supplied and increasing the quantity demanded.
D)a price increase,increasing the quantity supplied and decreasing the quantity demanded.
Answer: D
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5
Chapter 4: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Which of the following is not an example of a transfer payment?
A)employment insurance payments
B)the government's contribution to a teacher's pension plan
C)social program payments to retirees
D)social program payments to disabled persons
E)government payments to parents with small children
Q2) Which of the following goods is directly counted in GDP?
A)the lettuce that Subway purchases for its sandwiches
B)the bread that Subway purchases for its sandwiches
C)a 12-inch Subway sandwich purchased by a student
D)the plastic bags that Subway purchases to wrap its sandwiches
E)the rent paid by the Subway franchise owner for their restaurant
Q3) For developed countries like Canada,GDP will always exceed GNI.
A)True
B)False
Q4) Refer to Table 4.6.Suppose that a simple economy produces only four goods and services: iPods,t-shirts,bottled water,and oranges.Calculate nominal GDP for this simple economy.
Q5) In the term "real GDP," what does "GDP" stand for and what does it measure? What does "real" indicate?
Page 6
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Chapter 5: Unemployment and Inflation
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300 Flashcards
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Sample Questions
Q1) What does the PPI measure?
A)the average change in the prices paid for all goods produced in the economy over a given year
B)the average of the prices received by producers of goods and services at all stages of the production process
C)the level of production of goods and services generated in the economy in a given year
D)the difference between the prices consumers pay for goods and services and the prices producers pay for goods and services
E)the average change in prices paid by producers for their factors of production
Q2) Workers laid off as a result of a recession suffer
A)frictional unemployment.
B)structural unemployment.
C)cyclical unemployment.
D)seasonal unemployment.
E)natural unemployment.
Q3) There are no costs to inflation if it is fully anticipated.
A)True
B)False
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Page 7
Chapter 6: Economic Growth, the Financial System, and Business Cycles
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262 Flashcards
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Sample Questions
Q1) Which of the following goods would see the largest decline in demand during a recession?
A)automobiles
B)food
C)clothing
D)haircuts
E)huggies diapers
Q2) If the CPI is currently 202,what does this tell you about inflation between last year and this year?
A)There was deflation in the economy between this year and last year.
B)Inflation in the economy between this year and last year was 2%.
C)Inflation in the economy between this year and last year was 102%.
D)The CPI measures only the level of prices in a given year,not the percentage change in prices from one year to the next.
E)This economy is suffering from deflation.
Q3) Explain and show graphically how a decrease in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.
Q4) Explain how unemployment changes over the business cycle.Why do these changes occur?
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Chapter 7: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) GDP in a country grew from $10 billion to $14 billion over the span of 5 years.The average annual growth rate of GDP was
A)2%.
B)4%.
C)7%.
D)10%.
E)40%.
Q2) Political stability is not a prerequisite to economic growth.
A)True
B)False
Q3) If real GDP per capita in Ireland is estimated to be $7,400 in 2012,what will real GDP per capita be in 2017 if real GDP per capita grows at an annual rate of 2.8%?
A)$7,607
B)$8,496
C)$9,472
D)$20,720
E)$21,375
Q4) Suggest two policies the federal government could pursue to help increase the accumulation of knowledge.
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Chapter 8: Aggregate Expenditure and Output in the Short Run
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309 Flashcards
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Sample Questions
Q1) John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,
A)this will increase investment spending in the short run and expand the economy in the long run.
B)the economy will benefit in the short run but the effect will not last into the long run.
C)this will have a major negative impact on the economy in both the short run and in the long run.
D)they may make themselves worse off by causing aggregate expenditure to fall,thereby pushing the economy into a recession.
E)they will improve the economy in both the short and long run.
Q2) Inventories refer to
A)goods which have been presold before they are produced.
B)goods that have been produced but not yet sold.
C)goods that have been planned but not yet produced.
D)goods that have been produced and sold in the same year.
E)goods that have been sold but are waiting to be picked by customers.
Q3) Why do economists care about aggregate expenditures?
Q4) What are the four categories of aggregate expenditure?
Page 10
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Chapter 9: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Short-run macroeconomic equilibrium occurs when
A)aggregate demand and short-run aggregate supply intersect.
B)the equilibrium lies on the long-run aggregate supply curve.
C)structural and frictional unemployment equal zero.
D)cyclical unemployment is equal to zero.
E)A and B
Q2) An increase in imports increases aggregate demand.
A)True
B)False
Q3) Refer to Figure 9.3.Ceteris paribus,an increase in the expected future price level would be represented by a movement from
A)SRAS<sub>1</sub> to SRAS<sub>2</sub>.
B)SRAS<sub>2</sub> to SRAS<sub>1</sub>.
C)point A to point B.
D)point B to point A.
Q4) Inflation is generally the result of total spending growing slower than total production.
A)True
B)False
Q5) Why does the short-run aggregate supply curve slope upward?
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Chapter 10: Money, Banks, and the Bank of Canada
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285 Flashcards
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Sample Questions
Q1) M1++ includes
A)currency outside banks; and all chequable and non-chequable deposits at chartered banks,trust and mortgage loan companies,credit unions,and caisses populaires.
B)currency outside banks; everything in M1 and M1+; and all chequable deposits at chartered banks,trust and mortgage loan companies,credit unions and caisses populaires.
C)currency outside banks; savings account balances; chequing account deposits in banks; and holdings of traveller's cheques.
D)coins,paper currency,savings account balances,and traveller's cheques.
E)currency outside banks; chequable deposits at chartered banks; and outstanding credit card balances.
Q2) The largest liability on the balance sheet of most banks is their A)loans.
B)holdings of securities.
C)deposits with the Bank of Canada.
D)chequing account and savings account deposits of their customers.
E)vault cash.
Q3) How do open market operations work?
Q4) What is the principle monetary policy tool used by the Bank of Canada.Why?
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Chapter 11: Monetary Policy
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Sample Questions
Q1) Refer to Figure 11.14.In the dynamic AD-AS model,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Bank of Canada pursues the appropriate policy.This will result in
A)unemployment rates higher than what would occur if no policy had been pursued.
B)inflation rates higher than what would occur if no policy had been pursued.
C)potential real GDP levels lower than what would occur if no policy had been pursued.
D)real GDP levels higher than what would occur if no policy had been pursued.
E)long-term interest rates will be lower than if no policy had been pursued.
Q2) The Bank of Canada's two main ________ are the money supply and the interest rate.
A)monetary policy targets
B)policy tools
C)fiscal policy targets
D)fiscal tools
E)monetary policy goals
Q3) Inflation targeting,typically,has been accompanied by lower inflation.
A)True
B)False
Q4) List the Bank of Canada's four main monetary goals.
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Chapter 12: Fiscal Policy
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303 Flashcards
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Sample Questions
Q1) Refer to Table 12.3.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2017 and in 2018 if the federal government does not use fiscal policy.If the federal government wants to keep real GDP at its potential level in 2018,it should
A)buy Government of Canada bonds.
B)conduct expansionary fiscal policy.
C)decrease government purchases.
D)decrease the discount rate.
E)increase infrastructure investment.
Q2) Three categories of federal government expenditures,in addition to government operations,are
A)debt charges,transfers to other levels of government,and transfer payments.
B)interest on provincial debt,defense spending,and transfer payments.
C)defense spending,budgets of federal agencies,and transfer payments.
D)defense spending,income tax,and transfers.
E)international aid,transfers to citizens,and lending to crown corporations.
Q3) Suppose that the current equilibrium GDP is $1.85 trillion and that potential GDP is $1.83 trillion.Will decreasing government purchases by $20 billion,or raising taxes by $20 billion,restore the economy to potential GDP? Explain.
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Page 14
Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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265 Flashcards
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Sample Questions
Q1) Suppose a candidate for Prime Minister makes a statement in a debate whereby he promises that he would encourage the Bank of Canada to permanently lower the unemployment rate to 3%.His opponents claim that this type of policy idea is mired in the 1960s and would only cause inflation.Explain what the opponent means.
Q2) Refer to Figure 13.1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point B,which of the following must be true?
A)The economy is producing a level of GDP equal to potential GDP.
B)Aggregate demand must have increased.
C)Equilibrium GDP at point B must be below potential GDP.
D)The Bank of Canada conducted expansionary policy to cause the move.
E)The Bank of Canada purchased government securities to cause the move.
Q3) During the 1960s,in face of moderate and stable inflation,people tended to form adaptive expectations of future inflation rates.
A)True
B)False
Q4) What is the relationship between the short-run Phillips curve and the long-run Phillips curve?
Page 15
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) If a country has a ________ exchange rate,its central bank must buy and sell its holdings of currencies to maintain a given exchange rate.
A)floating
B)flexible
C)fixed
D)managed
E)all of the above
Q2) Refer to Figure 14.1.The depreciation of the dollar is represented as a movement from
A)B to A.
B)D to C.
C)B to C.
D)A to C.
E)A to B.
Q3) The balance of payments includes all of the following accounts,except
A)the current account.
B)the financial account.
C)the capital account.
D)the national debt account.
Q4) Why is the balance of payments always zero?
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Chapter 15: The International Financial System
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Sample Questions
Q1) Refer to Figure 15.4.The equilibrium exchange rate is at A,$3/pound.Suppose the British government pegs its currency at $4/pound.At the pegged exchange rate,
A)there is a shortage of pounds equal to 600 million.
B)there is a surplus of pounds equal to 400 million.
C)there is a shortage of pounds equal to 400 million.
D)there is a surplus of pounds equal to 600 million.
E)there is a shortage of pounds equal to 200 million.
Q2) Pegging a country's exchange rate to a major currency can be advantageous in all of the following situations,except
A)if the country has extensive trade with the home of the major currency.
B)if investors believe the major currency to be more stable than the domestic country's currency.
C)if a country wishes to conduct independent monetary policy.
D)if imports are a significant fraction of the goods the country's consumers buy.
E)if potential foreign investors are deterred by potential changes in the currency's value.
Q3) What does it mean when one currency is "pegged" against another currency?
Q4) Describe the four determinants of exchange rates in the long run.
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