Business Economics
Review Questions
Course Introduction
Business Economics explores how economic principles and tools are applied within business decision-making processes. The course examines key concepts such as supply and demand, production costs, market structures, pricing strategies, and the impact of government policies on business operations. Students will analyze real-world case studies to understand how businesses optimize resources, assess market opportunities, and respond to economic fluctuations. By connecting microeconomic theory with business practice, this course equips students with analytical skills to make informed decisions in a competitive marketplace.
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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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) How does the invisible hand primarily work to promote general well-being in the economy?
A) through government intervention
B) through the political process
C) through self-interest
D) through altruism
Answer: C
Q2) For most students, what is the largest single cost of a university education?
A) the wages given up to attend school
B) tuition, fees, and books
C) room and board
D) transportation, parking, and entertainment
Answer: A
Q3) What is the definition of productivity?
A) the amount of goods and services produced from each hour of a worker's time
B) the amount of labour that can be saved by replacing workers with machines
C) the actual amount of effort workers put into an hour of working time
D) the estimated amount of effort workers put into an hour of working time
Answer: A
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Page 3
Chapter 2: Thinking Like an Economist
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239 Flashcards
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Sample Questions
Q1) Two economists, Adam and Joan, are discussing the possibility of substantially reforming the current federal tax system. Adam thinks the current system is fine, but Joan is in favour of reform. Which statement is the least likely explanation for the disagreement?
A) Adam is a positive economist, and Joan is a normative economist.
B) Adam and Joan have different positive views about the effect of changing the tax system.
C) Adam and Joan have different values, and so they have different normative views about policy.
D) Adam is better off under the current system, and Joan would be better off if the reforms were implemented.
Answer: A
Q2) Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of fire trucks from 450 to 500?
A) 50 dolls
B) 100 dolls
C) 150 dolls
D) 200 dolls
Answer: B
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) It takes Barbara 3 hours to make a pie and 4 hours to make a shirt. It takes Gary 2 hours to make a pie and 5 hours to make a shirt. Barbara should specialize in making shirts and Gary should specialize in making pies, then they should trade.
A)True
B)False
Answer: True
Q2) Refer to Table 3-2. What is the opportunity cost of 1 kilogram of meat for the farmer?
A) 1/4 hour of labour
B) 1 hour of labour
C) 4 kilograms of potatoes
D) 1/4 kilogram of potatoes
Answer: C
Q3) Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) New oak tables are normal goods. What will happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables, and the price of wood saws increased?
A) price will fall and the effect on quantity is ambiguous
B) price will rise and the effect on quantity is ambiguous
C) quantity will fall and the effect on price is ambiguous
D) quantity will rise and the effect on price is ambiguous
Q2) If the demand for a product decreases, what would we expect?
A) equilibrium price to increase and equilibrium quantity to decrease
B) equilibrium price to decrease and equilibrium quantity to increase
C) equilibrium price and equilibrium quantity to both increase
D) equilibrium price and equilibrium quantity to both decrease
Q3) What does the law of demand imply?
A) price and quantity supplied are inversely related
B) price and quantity demanded are inversely related
C) price and quantity demanded are positively related
D) price and quantity supplied are positively related
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6
Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Which market is the model of supply and demand most appropriate for?
A) markets in which there is one large seller and many buyers
B) markets in which there is one large buyer and many sellers
C) markets in which there are few sellers and few buyers
D) markets in which there are many sellers and many buyers
Q2) An Italian company opens a pasta company in Ottawa. Where are the profits from this pasta company included?
A) in both Canadian and Italian GNP
B) in both Canadian and Italian GDP
C) in Canadian GNP and Italian GDP
D) in Canadian GDP and Italian GNP
Q3) A professional gambler moves from a province where gambling is illegal to a province where gambling is legal. What impact does this move have on Canada's GDP?
A) It raises GDP.
B) It decreases GDP.
C) It does not change GDP because gambling is never included in GDP.
D) It does not change GDP because in either case his income is included.
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) What happened in the early 2000s?
A) Real interest rates were high, and nominal interest rates were low.
B) Real interest rates were low, and nominal interest rates were high.
C) Both real interest rates and nominal interest rates were high.
D) Both real interest rates and nominal interest rates were low.
Q2) Suppose that increases in the prices of Canadian medical care cause the CPI to increase by 2 percent, while all other prices remain the same. How much will the GDP deflator most likely increase by?
A) 0.0 percent
B) 0.4 percent
C) 2.0 percent
D) 2.4 percent
Q3) Which of the following best describes nominal interest rates in the 1970s and 1990s?
A) high in the 1970s and 1990s
B) low in the 1970s and 1990s
C) high in the 1970s; low in the 1990s
D) low in the 1970s; high in the 1990s
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Chapter 7: Production and Growth
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Sample Questions
Q1) What factor did economic historian Robert Fogel focus on as one determinant of long-run economic growth?
A) education
B) national defence
C) nutrition
D) trade restrictions
Q2) Over the past century in Canada, by how much has average income grown as measured by real GDP per person?
A) about 1 percent per year, which implies a doubling about every 70 years
B) about 2 percent per year, which implies a doubling about every 35 years
C) about 3.5 percent per year, which implies a doubling about every 20 years
D) about 4 percent per year, which implies a doubling about every 17.5 years
Q3) If a country's saving rate increases, what happens in the long run?
A) Income decreases faster.
B) Productivity increases faster.
C) Productivity decreases.
D) Income increases.
Q4) A forest is an example of a nonrenewable resource.
A)True
B)False
Page 9
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Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) Suppose that the government were to replace the income tax with a consumption tax. What would happen to the interest rate and investment, respectively?
A) increase and increase
B) decrease and decrease
C) increase and decrease
D) decrease and increase
Q2) Which term refers to the sale of stocks and bonds to raise money?
A) debt finance
B) debt-equity finance
C) debt finance for stocks, and equity finance for bonds
D) equity finance for stocks, and debt finance for bonds
Q3) Reggie's income exceeds his expenditures. Which statement best describes Reggie?
A) He is a saver who demands money from the financial system.
B) He is a saver who supplies money to the financial system.
C) He is a borrower who demands money from the financial system.
D) He is a borrower who supplies money to the financial system.
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
Q5) In a closed economy, investment must be equal to private saving.
A)True
B)False
Page 10
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Who would NOT be included in the labour force?
A) Jay, who is on temporary layoff
B) Mike, who has retired and is not looking for work
C) Jane, who does not have a job, but has applied for several in the last week
D) Joan, who has a part-time job but is looking for a full-time one
Q2) What is most likely to cause frictional unemployment?
A) the minimum wage
B) a worker leaving a job to find one with better benefits
C) labour unions
D) an increase in income tax
Q3) Most spells of unemployment are short, and most unemployment observed at any given time is long term. How can this be?
Q4) Dan decides to hire some additional workers for his golf cart factory. The equilibrium wage is $15 per hour. What does efficiency wage theory suggest is a reasonable wage for Dan to offer?
A) $15 per hour
B) less than $15 per hour, since some people would be willing to work for less
C) enough to attract the number of applicants necessary to fill the jobs available
D) more than $15 per hour, so as to attract a better pool of applicants
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Chapter 10: The Monetary System
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Sample Questions
Q1) If you deposit $5000 into First Hawkeye Bank, what will the bank most likely do?
A) It will eventually increase its required reserves by the reserve ratio times $5000.
B) It will be able to lend out $5000 times the reserve ratio.
C) It will initially see reserves increase by $5000 divided by the reserve ratio.
D) It will be able to lend out $5000.
Q2) At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Freedonia now hold?
A) $13.33 million
B) $20 million
C) $33.34 million
D) $36.36 million
Q3) Are credit cards and debit cards money? What's the difference between credit and debit cards?
Q4) What is the difference between money and wealth?
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Page 12
Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) 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?
Q2) In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded, draw the Md - P curve that is implied by the quantity equation. Show how the P?2-Md curve changes when Y changes.
Q3) When the number of dollars needed to buy a representative basket of goods falls, what happens to the value of money?
A) It rises, and so the price level rises.
B) It rises, and so the price level falls.
C) It falls, and so the price level rises.
D) It falls, and so the price level falls.
Q4) 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
Q5) What are the costs of inflation?
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001, but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.
Q2) What does purchasing-power parity imply for the exchange rate?
A) that the real exchange rate is equal to one
B) that the nominal exchange rate is equal to one
C) that the real exchange rate is equal to the nominal exchange rate
D) that the real exchange rate is equal to the difference in inflation rates between the two countries
Q3) What is the formula for a closed economy's GDP?
A) Y = C + I + G
B) Y = (C - T) + I + G
C) Y = C + I + G + S
D) Y = C + I + G + NX
Q4) What does purchasing-power parity imply?
A) that real incomes should be the same in all countries
B) that the nominal exchange rates should be equal to 1 for all currencies
C) that the price of a standard hamburger should be the same everywhere
D) that the rent for an apartment should be the same everywhere
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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195 Flashcards
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Sample Questions
Q1) What will NOT change Canadian net exports?
A) capital flight from Canada
B) an increase in the government budget deficit
C) the imposition of Canadian import quotas
D) an increase in the world interest rate
Q2) If a government increases its budget deficit, which statement would best predict the effects?
A) Interest rates rise, and the trade balance moves toward surplus.
B) Interest rates rise, and the trade balance moves toward deficit.
C) Interest rates fall, and the trade balance moves toward surplus.
D) Interest rates fall, and the trade balance moves toward deficit.
Q3) What macroeconomic measures are considered fixed in our open-economy model?
A) the exchange rate, GDP, and the world real interest rate
B) the exchange rate, world real interest rate, and the inflation rate
C) net capital outflow, the inflation rate, and the price level
D) GDP, the price level, and the world real interest rate
Q4) Our macroeconomic model assumes that GDP is constant. However, the model could be used to analyze the effects of a one-time increase in GDP. What does the model predict about the real interest rate, net capital outflow, net exports, and the real exchange rate when GDP increases?
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) What would cause prices and real GDP to rise in the short run?
A) short-run aggregate supply shifts right
B) short-run aggregate supply shifts left
C) aggregate demand shifts right
D) aggregate demand shifts left
Q2) In which situation would the long-run aggregate-supply curve shift right?
A) if immigration from abroad decreases
B) if the capital stock decreases
C) if the money supply increases
D) if technology advances
Q3) 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?
Q4) Discuss what economists believe is different about the long and short run.
Q5) An unexpected increase in the price level does not shift the aggregate-supply curve, but an expected increase in the price level shifts the aggregate-supply curve to the left.
A)True
B)False
Q6) Make a list of things that would shift the aggregate-demand curve to the right.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Suppose the closed economy is in long-run equilibrium. Advances in technology shift the long-run aggregate-supply curve $80 billion to the right. Optimistic investors have shifted the aggregate-demand curve $150 billion to the right. In order to stabilize the price level at its original value, the government wants to reduce its spending. If the crowding-out effect is always half of the multiplier effect, and if the MPC equals 0.75, by how much must the government cut its spending?
A) $4 billion
B) $40 billion
C) $75 billion
D) $150 billion
Q2) For Canada, the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.
A)True
B)False
Q3) Why and in what way are fiscal policy lags different from monetary policy lags?
Q4) During recessions, the government tends to run a budget deficit.
A)True
B)False
Page 17
Q5) Use the money market to explain why the aggregate demand curve slopes downward.
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) In the nineteenth century, some countries were on gold standards so that on average the money supply growth rate was close to zero and expected inflation was more or less constant. For these countries during this time period, we find that increases in inflation were generally associated with falling unemployment. Are these findings consistent with Friedman and Phelps's theories, and why?
A) Yes, because they argued that when inflation was higher than expected, unemployment would fall.
B) Yes, because they argued that when prices rose unemployment would fall, whether actual inflation was higher than expected or not.
C) No, because they argued that inflation and unemployment are negatively correlated.
D) No, because they argued that inflation and unemployment were unrelated.
Q2) What did Friedman and Phelps argue about the relationship between inflation and unemployment?
A) The inflation rate is related to unemployment in the long-run.
B) The inflation rate is unrelated to unemployment in the long-run.
C) The inflation rate is related to unemployment in the short-run.
D) The inflation rate is unrelated to unemployment in the short-run.
Q3) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) What would those who desire that policymakers stabilize the economy advocate when aggregate demand is insufficient to ensure full employment?
A) decreasing the money supply
B) decreasing taxes
C) decreasing government expenditures
D) decreasing government deficit
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) A recession has no benefit to society-it represents a sheer waste of resources.
A)True
B)False
Q4) How would a permanent reduction in inflation impact menu costs and unemployment?
A) It would permanently reduce menu costs and permanently lower unemployment.
B) It would permanently reduce menu costs and temporarily raise unemployment.
C) It would temporarily reduce menu costs and temporarily lower unemployment.
D) It would temporarily reduce menu costs and temporarily raise unemployment.
Q5) Identify three of the five costs of inflation.
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