Canadian Economics Exam Bank
Course Introduction
Canadian Economics offers a comprehensive exploration of the economic systems, policies, and issues unique to Canada. This course examines the structure and performance of the Canadian economy, including its natural resources, labor force, and industrial sectors. Students will analyze the roles of government and financial institutions, investigate trade relationships particularly with the United States and consider the impact of globalization. Emphasis is placed on contemporary challenges such as regional disparities, Aboriginal economic development, and environmental sustainability. Through theoretical frameworks and practical case studies, students will develop a solid understanding of the factors shaping Canadas economic landscape.
Recommended Textbook
Macroeconomics 8th Canadian Edition by Andrew
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Page 2
B. Abel
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) How did Keynes propose to solve the problem of high unemployment?
A)increase the growth rate of the money supply
B)allow wages to decline so that firms will want to hire more workers
C)put on wage and price controls so that wages won't rise and firms won't have to lay people off to cut costs
D)have the government increase its demand for goods and services
Answer: D
Q2) Explain what Keynes meant by the phrase "in the long-run we are all dead."
Answer: Keynes argued that wages and prices will eventually adjust to equate demand and supply,but this adjustment might be slow to occur.Therefore,the phrase makes the point that it might not be good government policy to wait for that eventual adjustment in wages and prices.He therefore proposed that governments take actions to alleviate the unemployment resulting from the slow adjustment of wages and prices.
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Chapter 2: The Measurement and Structure of the Canadian Economy
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Q1) If the price index last year was 1.0 and today it is 1.4,what is the inflation rate over this period?
A)-4%
B)1.4%
C)4%
D)40%
Answer: D
Q2) If nominal GDP in 2015 exceeds real GDP in 2015,then we know with certainty that
A)the price level in 2015 is less than the price level in the base year.
B)real GDP in 2015 is less than real GDP in the base year.
C)real GDP in 2015 is equal to the real GDP in the base year.
D)the price level in 2015 is greater than the price level in the base year.
Answer: A
Q3) Explain why in agricultural countries the official GDP are often underestimated.
Answer: Since in agricultural countries many people grow their own food,make their own clothes,and provide services for each other within a family or village group,these non-market activities are not counted in the official GDP.
Page 4
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Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) Which of the following statements is true?
A)The marginal product of capital is positive as long as the production function's slope is positive.
B)The marginal product of capital is positive as long as the production function's slope is zero.
C)The marginal product of capital is negative as long as the production function's slope is positive.
D)The marginal product of capital is negative as long as the production function's slope is zero.
Answer: A
Q2) What is the unemployment rate if there are 170 million people employed,25 million people unemployed,and 35 million not in the labour force?
A)14.7%
B)13.7%
C)12.8%
D)10.9%
Answer: C
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Chapter 4: Consumption, saving, and Investment
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Q1) Three factors that cause interest rates among different financial instruments to vary are
A)default risk,expected inflation,and taxability.
B)default risk,current inflation,and taxability.
C)default risk,maturity,and taxability.
D)default risk,expected inflation,and maturity.
Q2) A decrease in the real interest rate will
A)increase the desired capital stock.
B)decrease the desired capital stock.
C)have no effect on the desired capital stock.
D)have the same effect on the desired capital stock as an increase in corporate taxes.
Q3) Suppose the real interest rate has declined.We expect that Tobin's q will
A)increase because of higher savings.
B)decrease because of higher stock prices.
C)increase because of higher stock prices.
D)decrease because of higher expected profits.
Q4) Explain how and why Canadians might change their consumption in response to an increase in wealth arising from a rise in stock prices and an increase in housing prices.
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Chapter 5: Saving and Investment in the Open Economy
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Q1) When there are two large open economies,if desired international lending by the domestic country exceeds desired international borrowing by the foreign country,then
A)domestic saving must rise.
B)domestic saving must fall.
C)the world real interest rate must fall.
D)the world real interest rate must rise.
Q2) Assuming no change in the effective tax rate on capital,an increase in the government budget deficit will raise the current account deficit if and only if the increase in the budget deficit
A)reduces desired national saving.
B)increases desired national saving.
C)reduces desired national investment.
D)increases desired national investment.
Q3) If there are no factor payments from abroad and no unilateral transfers,net exports of $10 billion is the same as
A)a current account deficit of $10 billion.
B)a capital account surplus of $10 billion.
C)net acquisition of foreign assets of $10 billion.
D)net foreign borrowing of $10 billion.
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Page 7
Chapter 6: Long-Run Economic Growth
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Q1) An increase in the saving rate in a steady-state economy would cause
A)a rightward movement along the saving-per-worker curve and an increase in the capital-labour ratio.
B)an upward shift in the saving-per-worker curve and an increase in the capital-labour ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labour ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labour ratio.
Q2) An economy's output of goods and services depends on all of the following except
A)the quantity of capital input.
B)the quantity of labour input.
C)the productivity of inputs.
D)the interest rate.
Q3) Total factor productivity growth is that part of economic growth due to
A)capital growth plus labour growth.
B)capital growth less labour growth.
C)capital growth times labour growth.
D)neither capital growth nor labour growth.
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Page 8
Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) One of the major contributing factors to the 2008 financial crisis in the U.S.was
A)low housing prices.
B)high interest rates.
C)failure of effective regulation in the financial market.
D)willingness to own a house.
Q2) Suppose the real money demand function is M /P = 2000 + 0.2Y - 10,000 (ii ).Assume M = 4000,P = 2.0,i = .04, = .03,and Y = 5000.The real interest rate that clears the asset market is
A)3%.
B)6%.
C)11%.
D)14%.
Q3) Describe the Bank of Canada's policy of gradualism in the 1970s.What money aggregate did they attempt to target.What led to great difficulties in their targeting? How long was this policy followed?
Q4) Explain the main factors contributing to the 2008 financial crisis in the U.S.How did this crisis impact the Canadian economy?
Q5) Explain how growth in the money supply and inflation are related.
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Chapter 8: Business Cycles
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Q1) The fact that business cycles are periodic but not recurrent means that A)business cycles occur at predictable intervals,but do not last a predetermined length of time.
B)the business cycle's standard contraction-trough-expansion-peak pattern has been observed to recur over and over again,but not at predictable intervals.
C)business cycles occur at predictable intervals,but do not all follow a standard contraction-trough-expansion-peak pattern.
D)business cycles last a predetermined length of time,but do not all follow a standard contraction-trough-expansion-peak pattern.
Q2) The tendency for declines in economic activity to be followed by further declines,and for growth in economic activity to be followed by more growth is called A)persistence.
B)comovement.
C)periodicity.
D)recurrence.
Q3) How has the severity and duration of business cycles changed over time in Canada?
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Page 10
Chapter 9: The Is-Lm-Fe Model: a General Framework for
Macroeconomic Analysis
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Q1) The IS curve shows the combinations of output and the real interest rate for which
A)the goods market is in equilibrium.
B)the labour market is in equilibrium.
C)the financial asset market is in equilibrium.
D)an increase in output will cause the market-clearing interest rate to be bid up.
Q2) What adjusts to restore general equilibrium after a shock to the economy?
A)the LM curve
B)the IS curve
C)the FE line
D)the labour supply curve
Q3) Which of the following is true for a temporary adverse supply shock effects?
A)lower output,higher interest rate and price level
B)lower output,lower interest rate and price level
C)higher output,lower interest rate and price level
D)lower output,higher interest rate and lower price level
Q4) Describe the effects,in both the short run and the long run,of a decline in the money supply.Explain what happens to real output and the price level.
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Chapter 10: Exchange Rates, business Cycles, and Macroeconomic Policy
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Sample Questions
Q1) Goods market equilibrium in the open economy occurs when
A)desired saving equals desired investment.
B)output equals desired consumption plus desired investment plus government spending.
C)desired consumption equals desired investment.
D)desired saving minus desired investment equals net exports.
Q2) A classical economy is described by the equations AD Y = 1000 + 100M/P AS Y = 1500.The real exchange rate is 3 bushels/bottle,the domestic nominal money supply is 30 florins,and the foreign price level is 8 crowns/bushel.
a.What is the nominal exchange rate?
b.If the government wants to maintain an official nominal exchange rate of 6 crowns/florin,what must the nominal money supply be?
Q3) Compared to a system of fixed exchange rates,currency unions are beneficial because they
A)restrict what countries can do with fiscal policy.
B)allow exchange rates to float.
C)allow every country to have an independent monetary policy.
D)eliminate the possibility of speculative attacks.
Q4) Describe the pros and cons of the fixed exchange rate system.
Page 12
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Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
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Q1) The primary reason why the Central Bank cannot systematically surprise the public with its monetary policy is
A)the nonneutrality of money.
B)the presence of productivity shocks that generate real business cycles independently of the monetary side of the economy.
C)the presence of rational expectations among the public.
D)the presence of propagation mechanisms within the economy.
Q2) According to classical economists,unemployment rises in recessions due to an increase in ________ unemployment,NOT ________ unemployment.
A)cyclical;frictional and structural
B)frictional and cyclical;structural
C)structural;frictional and cyclical
D)frictional and structural;cyclical
Q3) The formula Y/(K N¹ )provides a calculation of A)x-efficiency.
B)dynamic efficiency.
C)economywide monopoly power.
D)the Solow residual.
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Chapter 12: Keynesian Business Cycle Analysis: Non Market Clearing Macroeconomics
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Q1) Which of the following is true about the Keynesian aggregate supply (AS)curve?
A)The short-run AS is flat,but the long-run AS is vertical.
B)The short-run AS is upward sloping but the long-run AS is flat.
C)The short-run AS is upward sloping but the long-run AS is vertical.
D)The short-run and the long-run AS are upward sloping.
Q2) In the long run in the Keynesian model,a beneficial supply shock would leave the economy with a higher level of output,but also a ________ real interest rate and a ________ price level.
A)higher;lower
B)lower;higher
C)lower;lower
D)higher;higher
Q3) Explain the effects of an anticipated fiscal policy on the long-run output and price level.Discuss how Keynesian and the Classical models differ in analyzing the effect.
Q4) According to Keynesians,the primary source of business cycle fluctuations is
A)aggregate demand shocks.
B)productivity shocks.
C)oil price shocks.
D)consumer confidence shocks.
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Chapter 13: Unemployment and Inflation
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Q1) 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?
Q2) When actual inflation is greater than expected inflation,
A)unemployment rises,according to Phillips-curve analysis.
B)cyclical unemployment rises,according to Phillips-curve analysis.
C)there are transfers from borrowers to lenders.
D)there are transfers from lenders to borrowers.
Q3) The fact that the long-run Phillips curve is vertical implies that A)monetary policy can't affect unemployment.
B)money is neutral in the long run.
C)there is a natural rate of inflation.
D)money can't affect inflation in the long run.
Q4) A COLA is
A)a centre of labour activity.
B)a cost of living adjustment.
C)a contract on long-term assets.
D)a crisis of labour analysis.
Q5) Using a graph and an equation,explain the short-run and the long-run Phillips curve.What makes these two curves different?
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) The money supply is $6 million,currency held by the public is $2 million,and the reserve-deposit ratio is 0.1.The monetary base is equal to
A)$2 million.
B)$2.4 million.
C)$2.6 million.
D)$4 million.
Q2) In a fractional reserve banking,
A)the reserve-deposit ratio is 1.
B)the reserve-deposit ratio is greater than 1.
C)the reserve-deposit ratio is less than 1.
D)the reserve-deposit ratio is zero.
Q3) The Bank of Canada's largest asset is
A)foreign currency deposits.
B)advances to members of the CPA.
C)notes in circulation.
D)Treasury bills.
Q4) What types of rules for monetary policy may be sensible for policymakers to consider? What is the advantage of using rules over discretion? What problems might there be with rules?
Q5) What is inflation targeting policy? Discuss its advantages and disadvantages.
Page 16
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Taxes distort economic behaviour because
A)they change the composition of income and spending.
B)they cause deviations in economic behaviour from the efficient,free-market outcome.
C)they change the balance between private and public expenditures.
D)they change the composition of consumption,investment,government spending,and net exports.
Q2) An expansionary fiscal policy will NOT cause an increase in the price level if the government
A)reduces the corporate income tax rate.
B)increases purchases in the classical model.
C)lowers taxes and Ricardian equivalence does not hold.
D)lowers taxes and Ricardian equivalence holds.
Q3) Since the 1950s,transfer payments' share of GDP has
A)steadily increased.
B)steadily decreased.
C)remained fairly steady.
D)increased during Liberal governments and decreased during Conservative governments.
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