Course Introduction
Business Economics
Chapter Exam Questions
Business Economics examines the application of economic theories, principles, and methodologies to real-world business scenarios. This course explores the decision-making processes within firms, market structures, pricing strategies, and the allocation of resources to maximize profit. Students will analyze both microeconomic and macroeconomic factors affecting businesses, such as consumer behavior, cost analysis, production efficiency, and government policies. Critical thinking and analytical skills are developed to evaluate the economic environment and its impact on organizational strategy and performance.
Recommended Textbook
Macroeconomics 1st Canadian Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Introduction to Macroeconomics and the Great Recession
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Sample Questions
Q1) Firms are able to expand their operations by acquiring funds from households.They can do this directly through financial markets such as ________,or indirectly through financial intermediaries such as ________.
A) stock markets; bond markets
B) stock markets; banks
C) banks; bond markets
D) bond markets; stock markets
Answer: B
Q2) The underlying fluctuations in real GDP due to the business cycle are reflected by fluctuations in
A) inflation.
B) population growth.
C) the labour force.
D) real GDP per capita.
Answer: D
Q3) What is the key macroeconomic issue of the short run and what is the key macroeconomic issue of the long run?
Answer: In the short run,macroeconomics focuses on the business cycle,and in the long run,macroeconomics focuses on long-run economic growth.
Page 3
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Chapter 2: Measuring the Macroeconomy
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Sample Questions
Q1) Many provincial and local governments find themselves faced with increasing retirement expenditures for retired government employees.These increasing expenditures will ________ GDP because they are categorized as ________.
A) increase; government purchases
B) increase; gross private domestic investment
C) decrease; state and local government purchases
D) not change; transfer payments.
Answer: D
Q2) Which of the following does not indicate a change in price levels?
A) inflation rate
B) consumer price index
C) GDP deflator
D) nominal GDP
Answer: D
Q3) <b>Refer to Figure 2.4.</b>The inflation rate for 2012 is
A) -8.22%.
B) 8.95%.
C) 9.13%.
D) 10.89%.
Answer: A
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Chapter 3: The Canadian Financial System
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Sample Questions
Q1) The relationship among interest rates on bonds that are otherwise similar but that have different maturities is known as the
A) term structure of interest rates.
B) risk structure of interest rates.
C) term premium.
D) Treasury bond coupon.
Answer: A
Q2) When multiple banks have to sell the same assets,such as securitized loans,the prices of these assets are likely to decline.This process is called
A) securitization.
B) asset deflation.
C) whole-selling.
D) syndication.
Answer: B
Q3) Suppose an increase in real GDP is accompanied by an increase in the money supply from $600 billion to $700 billion.Draw a graph of the money market showing these changes,where the equilibrium nominal interest rate remains at 5%.
Answer: 11ea42c1_d8d5_e8b3_9832_a7fffecfd21a_TB4177_00
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Page 5
Chapter 4: Money and Inflation
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Q1) The quantity theory of money predicts that,in the long run,inflation results from the A) money supply growing at a slower rate than real GDP.
B) money supply growing at a faster rate than real GDP.
C) velocity of money growing at a slower rate than real GDP.
D) velocity of money growing at a faster rate than real GDP.
Q2) Suppose the annual growth rate of real GDP for the nation of Vicuna is 8%,the growth rate of velocity is 0%,and the growth rate of the money supply is 12%.
a. What is the current rate of inflation?
b. What will happen to the inflation rate if the growth of the money supply increases to 16%?
c. What will happen to the inflation rate if the growth of the money supply increases to 16%,and,at the same time,the growth rate of velocity increases to 4%?
Q3) An intrinsically useful good that plays the role of money is called
A) fiat money.
B) a medium of exchange.
C) commodity money.
D) legal tender.
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Chapter 5: The Global Financial System and Exchange Rates
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Sample Questions
Q1) <b>Refer to Figure 5.3.</b>All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would cause which of the following shifts?
A) S to S and D to D
B) S to S and D to D
C) S to S and D to D
D) S to S and D to D
Q2) An agreement among countries about how relative currency values should be determined is known as
A) an exchange rate system.
B) an international currency market.
C) a free-trade arrangement.
D) a parity intervention.
Q3) One disadvantage of a floating exchange rate system compared to a fixed or managed float exchange rate system is
A) it does not allow the exchange rate to reflect demand and supply in the market.
B) it is difficult to maintain.
C) it can make business planning difficult.
D) it eliminates the possibility of depreciation during a recession.
Page 7
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Chapter 6: The Labour Market
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Sample Questions
Q1) How might employment insurance increase the efficiency of labour markets and the economy? How might it reduce the efficiency of labour markets and the economy?
Q2) If Alberto Reyes increases his work hours when his real wage increases,then
A) the substitution effect of the wage increase outweighs the income effect.
B) the income effect of the wage increase outweighs the substitution effect.
C) leisure is an inferior good to Alberto.
D) the substitution effect of the wage increase is completely offset by the income effect.
Q3) If the real wage is below the equilibrium real wage,there would be a ________ of workers and the real wage would ________.
A) surplus; decline
B) surplus; rise
C) shortage; decline
D) shortage; rise
Q4) What factors can cause the natural rate of unemployment to change?
Q5) What is the substitution effect of a wage increase? What is the income effect of a wage increase? Explain under what conditions the labour supply curve will be upward sloping and when it will be downward sloping.
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Page 8
Chapter 7: The Standard of Living Over Time and Across Countries
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Sample Questions
Q1) Diminishing marginal returns do not exist for increases in A) capital stock.
B) labour.
C) total factor productivity.
D) Diminishing marginal returns exist for all of the above answers.
Q2) All else equal,if the demand for labour increases and the supply of labour does not change,the equilibrium real wage will ________ and the equilibrium quantity of labour will ________.
A) increase; increase
B) increase; not change
C) decrease; decrease
D) not change; increase
Q3) Suppose that the production function for the economy is Y = AK . . .If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,real GDP is
A) $60 000.
B) $75 000.
C) $150 000.
D) $300 000.
Q4) What is human capital? How do workers acquire human capital?
Page 9
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Chapter 8: Long-Run Economic Growth
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Sample Questions
Q1) AK growth models argue that which type or types of capital may not be subject to diminishing returns?
A) only physical capital
B) physical capital and human capital
C) human capital and knowledge
D) knowledge and physical capital
Q2) In the two-sector growth models,endogenous growth arises from
A) increased saving.
B) the research sector.
C) increased capital.
D) the manufacturing sector.
Q3) Changes in the saving rate,labour-force growth rate,and depreciation rate will ________ the steady-state level of real GDP per capita and will ________ the steady-state growth rate.
A) affect; affect
B) affect; not affect
C) not affect; affect
D) not affect; not affect
Q4) Describe the steady state in the Solow growth model.
Q5) Why does growth occur in two-sector growth models?
Page 10
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Chapter 9: Business Cycles
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Sample Questions
Q1) When an economy begins to move from a recession to an expansion,the output gap typically
A) remains positive.
B) remains negative.
C) switches from negative to positive.
D) switches from positive to negative.
Q2) At full-employment GDP,
A) the long-run aggregate demand curve is horizontal.
B) the long-run aggregate demand curve is vertical.
C) the long-run aggregate supply curve is horizontal.
D) the long-run aggregate supply curve is vertical.
Q3) If households spend $0.40 of each additional dollar of increased income,the expenditure multiplier will be
A) 1.67.
B) 2.5.
C) 4.
D) 6.
Q4) Explain why price and wage stickiness in the short run are reasons that macroeconomic shocks can result in fluctuations in total employment and total production.
Page 11
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Chapter 10: Explaining Aggregate Demand: the Is-Mp Model
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Sample Questions
Q1) <b>Refer to Table 10.1</b>.Suppose that all of the information given in the table remains the same except that taxes equal $0.5 billion.If potential GDP equals $17 billion,by how much would government purchases have to change for equilibrium GDP to equal potential GDP?
A) $0.225 billion
B) $1.25 billion
C) $1.5 billion
D) $5 billion
Q2) If the MPC = 0.75,a decrease in personal taxes from $100 billion to $80 billion will increase real GDP by
A) $20 billion.
B) $40 billion.
C) $60 billion.
D) $80 billion.
Q3) A positive demand shock causes a ________ the IS curve and a ________ the aggregate demand curve.
A) movement up along; shift to the right of
B) shift to the right of; movement down along C) movement down along; movement down along D) shift to the right of; shift to the right of
Page 12
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Chapter 11: The Is-Mp Model: Adding Inflation and the Open Economy
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Sample Questions
Q1) Assume the expected inflation for this year was 2%,but the actual inflation turned to be 6%.What are the implications of this unanticipated inflation on:
a) your salary?
b) your student loan?
Q2) Suppose the economy is in equilibrium with an output gap equal to zero and the actual inflation rate equals the expected inflation rate.If the economy experiences a negative demand shock,the output gap will ________ and the inflation rate will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) Under a fixed exchange rate system,if the government decides to devalue its currency,net exports will ________ and the IS curve will shift to the ________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
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Chapter 12: Monetary Policy in the Short Run
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Q1) What are the effects of an expansionary monetary policy on interest rates and output in an open economy with fixed exchange rates?
Q2) By engaging in quantitative easing,the Bank of Canada is attempting to reduce the ________,causing the MP curve to ________.
A) term premium and the real interest rate; shift down B) unemployment rate and the inflation rate; shift down C) short-term nominal and real interest rates; shift up D) federal funds rate; shift up
Q3) When and why was the Bank of Canada created?
Q4) <b>Refer to Figure 12.4.</b>Since the housing bubble burst and the economy returned to its initial,pre-bubble level before the corrective policy changed output,the impact of the change in policy is best represented as a movement from A) point A to point B.
B) point C to point D.
C) point B to point D.
D) point C to point B.
Q5) What are the effects of an expansionary monetary policy on interest rates and output in an open economy with floating exchange rates?
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Chapter 13: Fiscal Policy in the Short Run
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Sample Questions
Q1) Explain the differences between discretionary fiscal policy and automatic stabilizers,and give one example of each.
Q2) <b>Refer to Figure 13.3.</b>If exchange rates are floating,fiscal policy designed to reduce the federal deficit and the typical central bank response to the change in inflation caused by the fiscal policy would best be represented by a movement from ________ in panel (a)and a corresponding movement from ________ in panel (b).
A) point A to point D; point X to point Y
B) point C to point B; point X to point Y
C) point D to point A; point Y to point X
D) point B to point C; point Y to point X
Q3) Suppose the federal budget deficit for the year was $500 billion and the economy were in a recession.If the economy had been at potential GDP,it is estimated that tax revenue would have been $350 billion higher and government spending on transfer payments would have been $200 billion lower.Using these estimates,the cyclically adjusted budget
A) deficit was $1050 billion.
B) deficit was $650 billion.
C) surplus was $50 billion.
D) surplus was $650 billion.
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Page 15
Chapter 14: Aggregate Demand, aggregate Supply, and Monetary Policy
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Sample Questions
Q1) Assume that the Bank of Canada has a target inflation rate of 2% and that the values for how much the nominal target overnight rate responds to a deviation of inflation from its target,g,and how much the nominal target overnight rate responds to real GDP,h,are both 0.5.According to the Taylor rule,if inflation decreases by 2%,the Bank of Canada should decrease the target nominal overnight rate by A) 0%.
B) 2%.
C) 3%.
D) 4%.
Q2) Many economists believe the central banks were in large part responsible for bringing about the Great Moderation,especially by the focus of the Bank of Canada and the Federal Reserve on A) monetary policy.
B) low and stable inflation.
C) discretionary rules.
D) targeting unemployment.
Q3) Explain the difference between the Bank of Canada following discretionary policy as opposed to following a rules strategy.
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Chapter 15: Fiscal Policy and the Government Budget in the
Long Run
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Q1) What are the differences between the federal debt,the budget deficit,and the primary budget deficit?
Q2) Ricardian equivalence suggests that forward-looking households ________ the future taxes required to pay off government debt,so that reductions in lump-sum taxes have ________ effect on the economy.
A) fully anticipate; a multiplied
B) fully anticipate; no
C) are unaware of; a negative
D) are unaware of; a positive
Q3) The debt-to-GDP ratio decreases when the primary deficit ________ or when seigniorage ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Q4) <b>Refer to Table 15.1.</b>The primary budget deficit for Arugula in 2012 is
A) $135 million.
B) $195 million.
C) $380 million.
D) $600 million.
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Chapter 16: Consumption and Investment
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Q1) Credit rationing and the financial accelerator are responsible,in part,for
A) the significant volatility of gross private investment.
B) the significant volatility of real personal consumption.
C) smoothing gross private investment during severe recessions.
D) smoothing real personal consumption during expansions.
Q2) What is precautionary saving? What might cause precautionary saving to increase or decrease if households have a desired level of wealth?
Q3) The tendency for households to consume an equal amount over time is called A) the savings-consumption constraint.
B) intertemporal consumption.
C) consumption equality.
D) consumption smoothing.
Q4) Maryanne expects to work for another 30 years and expects to live another 10 years after she retires.If Maryanne completely smooths consumption over her lifetime,her marginal propensity to consume out of wealth is
A) 0.025.
B) 0.033.
C) 0.075.
D) 0.10.
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