Business Economics
Practice Questions
Course Introduction
Business Economics explores the application of economic theories and methodologies to business decision-making processes. The course examines fundamental concepts such as demand and supply, market structures, pricing strategies, production and cost analysis, and the impact of government policies on businesses. Through real-world case studies and quantitative techniques, students learn how businesses respond to economic fluctuations and market dynamics, enabling them to make informed managerial decisions in both local and global contexts.
Recommended Textbook Principles of Macroeconomics 1st Edition by
N. Gregory Mankiw
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17 Chapters
3530 Verified Questions
3530 Flashcards
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) How can trade benefit a family?
A) by allowing the family to buy a greater variety of goods and services at a lower cost
B) by allowing each person to buy only the goods and services they want most
C) only if the family is not in economic competition with other families
D) trade can only benefit entire nations, not individuals
Answer: A
Q2) What does the term "market failure" refer to?
A) a situation in which the market on its own fails to allocate resources efficiently
B) an unsuccessful advertising campaign that reduces consumer demand
C) a situation in which competition among firms leads to bankruptcies
D) a firm that is forced out of business because of new by-laws
Answer: A
Q3) From which of the following is the word "economy" derived?
A) environment
B) one who manages a household
C) one who participates in a market
D) allocation
Answer: B
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) An economic model can accurately explain how the economy is organized because it is designed to include every feature of the real world.
A)True
B)False
Answer: False
Q2) What happens in the markets for factors of production?
A) Households provide firms with labour, land, and capital.
B) Households provide firms with savings for investment.
C) Firms provide households with goods and services.
D) The government provides firms with inputs for the production process.
Answer: A
Q3) Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from 0 to 100?
A) 50 fire trucks
B) 100 fire trucks
C) 150 fire trucks
D) 200 fire trucks
Answer: A
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4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) According to Adam Smith, what should a person never attempt to make at home?
A) whatever will cost one more to make than to buy
B) everything one person needs to live
C) what one doesn't know how to make
D) any necessity of life
Answer: A
Q2) Refer to Table 3-5. Which country has an absolute or comparative advantage in each product?
A) Japan has an absolute advantage in both goods, and Canada has a comparative advantage in cars.
B) Japan has an absolute advantage in both goods, and Canada has a comparative advantage in neither good.
C) Japan has an absolute advantage in cars, and Canada has a comparative advantage in airplanes.
D) Japan has an absolute advantage in airplanes, and Canada has a comparative advantage in cars.
Answer: C
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Market demand is given as QD = 220 - 4P. Market supply is given as QS = 2P + 40. If price increases from $50 to $53, what is the price elasticity of demand?
A) 0.1
B) 1.0
C) 12.0
D) 14.7
Q2) Refer to the Table 4-1. What would the equilibrium price and quantity be?
A) $6 and 30
B) $9 and 60
C) $12 and 40
D) $15 and 20
Q3) You have decided to purchase a new Mustang convertible. A friend tells you that Ford will be offering a $3000 rebate on Mustangs starting next month. As a result of this information, what will happen to your demand curve for Mustangs?
A) could shift either right or left
B) shifts right today
C) curve will be unaffected
D) shifts left today
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) With respect to GDP, how are welfare payments treated?
A) They are included in GDP because they represent payment for work performed in the past.
B) They are included in GDP because they represent potential consumption.
C) They are excluded from GDP because they do not represent current government purchases of goods and services.
D) They are excluded from GDP because they are not private pensions.
Q2) Which of the following is counted in Canadian GDP?
A) goods and services produced by Canadian citizens working in the U.S.
B) American intermediate goods used in the production of Canadian final goods
C) Canadian final goods and services purchased by the American government
D) American final goods and services purchased by the Canadian government
Q3) If a small country has current nominal GDP of $20 billion and the GDP deflator is 125, what is its real GDP?
A) $16 billion
B) $105 billion
C) $ 145 billion
D) $625 billion
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Which change in the price index shows the greatest rate of inflation?
A) 80 to 100
B) 100 to 120
C) 150 to 170
D) 200 to 220
Q2) For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?
A) 26.8, 16.4
B) 16.1, 27.5
C) 19.3, 16.1
D) 16.1, 19.3
Q3) Refer to the Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the consumer price index for 2015 if the base year is 2014?
A) 120.00
B) 129.17
C) 136.11
D) 150.00
Q4) List the three major problems in using the CPI as a measure of the cost of living.
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Chapter 7: Production and Growth
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Sample Questions
Q1) All else equal, which of the following would tend to cause GDP per person to rise?
A) high immigration growth
B) investment in human capital
C) rapid growth in the labour force population
D) policies to reduce imports
Q2) Which situation is an example of the "brain drain"?
A) A country's most highly educated workers immigrate to rich countries.
B) A country has such a poor educational system that knowledge is lost over time.
C) A country's population grows so fast that the educational system can't keep up.
D) A country steals patented technology from another country.
Q3) Compared to the income of the typical Canadian 138 years previously, how much was the income of the typical Pakistani in 2010?
A) about 1/2 as much
B) about 2/3 as much
C) about the same
D) about 2 times as much
Q4) How do inward-oriented policies affect a nation's growth
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9
Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) If people become less optimistic about the future earnings of Hyde Park Records Corporation, the price of stock in the company will fall.
A)True
B)False
Q2) Suppose that Parliament were to institute an investment tax credit. What would most likely happen in the market for loanable funds?
A) The demand for and supply for loanable funds would shift left.
B) The demand for and supply of loanable funds would shift left.
C) The demand for loanable funds would shift right.
D) The supply of loanable funds would shift right.
Q3) If the inflation rate is 3 percent and the real interest rate is 4 percent, what is the nominal interest rate?
A) 1 percent
B) 3 percent
C) 5 percent
D) 7 percent
Q4) Mutual funds are a type of financial intermediary.
A)True
B)False
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Which term refers to unemployment that is the result of a well-functioning economy that rewards innovation and new ideas?
A) frictional unemployment
B) cyclical unemployment
C) structural unemployment
D) innovative unemployment
Q2) What do the laws governing the activity of labour unions achieve?
A) They prevent unions from acting as cartels.
B) They allow workers joining a unionized firm to choose not to join the union.
C) They allow workers the right to representation and collective bargaining.
D) They limit the number of unionized organizations.
Q3) Refer to the Table 9-1. What is the adult female labour-force participation rate in Bolivar?
A) 4.76 percent
B) 37.03 percent
C) 38.10 percent
D) 63.16 percent
Q4) Unemployment due to job search is best classified as structural unemployment.
A)True
B)False
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Chapter 10: The Monetary System
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Sample Questions
Q1) What is most likely to happen under a fractional reserve banking system?
A) Banks hold more reserves than deposits.
B) Banks generally lend out a majority of the funds deposited.
C) Banks cause the money supply to fall by lending out reserves.
D) Banks only accept savings deposits.
Q2) The use of money allows trade to be roundabout.
A)True
B)False
Q3) During wars, the public tends to hold relatively more currency and relatively fewer deposits. Which statement best describes the effects of this increase in currency holdings?
A) Reserves would decrease, and the money supply would increase.
B) Reserves and the money supply would decrease.
C) Reserves would increase, but the money supply would be unchanged.
D) Reserves would decrease, but the money supply would be unchanged.
Q4) Which statement might explain why Canada has so much currency per person?
A) Canadian citizens are holding a lot of foreign currency.
B) Currency may be a preferable store of wealth for criminals.
C) People use credit and debit cards more frequently.
D) Much of Canadian currency is held by foreigners.
Page 12
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) According to the classical dichotomy, what is influenced by monetary factors?
A) production
B) the interest rate adjusted for inflation
C) the current-dollar wage
D) the constant-dollar GDP
Q2) Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.
A)True
B)False
Q3) The source of all four classic hyperinflations was high rates of money growth.
A)True
B)False
Q4) In recent years, Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?
Q5) If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.
A)True
B)False
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) A Canadian firm buys apples from New Zealand with Canadian currency. The New Zealand firm then uses this money to buy packaging equipment from a Canadian firm. How do these transactions affect net exports or net capital outflow?
A) They increase New Zealand net capital outflow and New Zealand net exports.
B) They increase New Zealand net exports but not New Zealand net capital outflow.
C) They increase New Zealand net capital outflow but not New Zealand net exports. D) They increase neither New Zealand net exports nor New Zealand capital outflow.
Q2) Why are net exports and net capital outflow always equal?
Q3) Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S. gasoline, 1 litre of U.S. gasoline costs $0.45 U.S., and a litre of Canadian gas costs $1.30 Canadian. What is the nominal exchange rate?
A) 0.38 U.S. dollars per Canadian dollar
B) 0.45 U.S. dollars per Canadian dollar
C) 0.69 U.S. dollars per Canadian dollar
D) 1.30 U.S. dollars per Canadian dollar
Q4) How do we find the real exchange rate from the nominal exchange rate?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.
A)True
B)False
Q2) What is the term for a limit on the quantity of an imported good?
A) a tariff
B) an excise tax
C) an import quota
D) net imports
Q3) Suppose the Canadian government institutes a "Buy Canadian" campaign, in order to encourage spending on domestic goods. What effect will this have on the Canadian trade balance?
Q4) The key determinant of net capital outflow is the real exchange rate.
A)True
B)False
Q5) How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?
Page 15
Q6) Explain why saving need not equal domestic investment in an open economy.
Q7) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Other things the same, a decrease in the price level makes the interest rate increase, which leads to an appreciation of the dollar in the foreign-currency exchange.
A)True
B)False
Q2) According to the sticky-price theory, which statement is consistent with an unexpected fall in the price level?
A) Some firms' prices are lower than desired, which increases their sales.
B) Some firms' prices are lower than desired, which depresses their sales.
C) Some firms' prices are higher than desired, which increases their sales.
D) Some firms' prices are higher than desired, which depresses their sales.
Q3) When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?
A) by a movement to the left along a given aggregate-demand curve
B) by shifting aggregate demand to the left
C) by shifting aggregate supply to the left
D) by a movement to the right along a given aggregate-demand curve
Q4) Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?
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Page 16
Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) What is the most likely effect of an increase in government spending on goods to build or repair infrastructure?
A) It would shift the aggregate-demand curve to the left.
B) It would shift the long-run aggregate-supply curve to the left.
C) It would shift the short-run aggregate-supply curve to the left.
D) It would shift the long run aggregate-supply curve to the right.
Q2) In the short run, what effect does an increase in the money supply have on interest rates and aggregate demand?
A) It causes interest rates to increase and aggregate demand to shift right.
B) It causes interest rates to increase and aggregate demand to shift left.
C) It causes interest rates to decrease and aggregate demand to shift right.
D) It causes interest rates to decrease and aggregate demand to shift left.
Q3) If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?
A) The money supply increases, and aggregate demand shifts right.
B) The money supply increases, and aggregate demand shifts left.
C) The money supply decreases, and aggregate demand shifts right.
D) The money supply decreases, and aggregate demand shifts left.
Q4) Why and in what way are fiscal policy lags different from monetary policy lags?
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Refer to the Figure 16-4. Along SRPC3, what is the expected rate of inflation?
A) 0 percent
B) 2 percent
C) 3 percent
D) 5 percent
Q2) How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?
A) as a leftward shift in the short-run Phillips curve
B) as a rightward shift in the short-run Phillips curve
C) as a downward movement along the short-run Phillips curve
D) as an upward movement along the short-run Phillips curve
Q3) If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 7 percent would require sacrificing how much annual output?
A) 2 percent of annual output
B) 7 percent of annual output
C) 9 percent of annual output
D) 10 percent of annual output
Q4) Friedman and Phelps believed that the natural rate of unemployment was constant.
A)True
B)False
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.
A)True
B)False
Q2) The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue, so it has little discretion in making policy.
A)True
B)False
Q3) Suppose the economy goes into recession. Which of the following is a list of things policymakers could do to try to end the recession?
A) increase the money supply, increase taxes, and increase government spending
B) increase the money supply, increase taxes, and decrease government spending
C) increase the money supply, decrease taxes, and increase government spending
D) decrease the money supply, increase taxes, and decrease government spending
Q4) Identify three of the five costs of inflation.
Q5) Suppose that changes in aggregate demand tended to be infrequent and that it took a long time for the economy to return to long-run output. How would this affect the arguments of those who oppose using policy to stabilize output?
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