Canadian Macroeconomic Policy Final
Exam Questions
Course Introduction
Canadian Macroeconomic Policy explores the frameworks, tools, and effectiveness of macroeconomic policy decisions in Canada. The course examines the roles and responsibilities of institutions like the Bank of Canada and the federal government, focusing on issues such as monetary policy, fiscal policy, inflation targeting, and the management of business cycles. Students analyze how Canadian policy responds to domestic and global economic challenges, including unemployment, exchange rates, government debt, and economic growth, using theoretical and empirical approaches. The course also considers the impacts of globalization, trade, and regional disparities on policy choices and outcomes in the Canadian context.
Recommended Textbook
Macroeconomics 2nd Canadian Edition by Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) As professors and teachers get closer to retirement age they typically spend more time reading and thinking about the financial planning as well as the stock market.By gathering and using all available information as they act to achieve their goals,these teachers are 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: A
Q2) At a recent faculty meeting,Lorraine Waverly,president of Skywalker College,announced that enrollment is up by 12 percent over the previous semester.If enrollment the previous semester was 3,250 students,what is the student enrollment this semester?
A)390
B)2,860
C)3,640
D)4,030
Answer: C
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Households
A)purchase final goods and services in the factor market.
B)purchase final goods and services in the product market.
C)purchase resources in the product market.
D)purchase resources in the factor market.
Answer: B
Q2) An increase in population shifts the production possibility frontier inwards over time.
A)True
B)False
Answer: False
Q3) If opportunity costs are ________,the production possibilities frontier would be graphed as a negatively sloped straight line.
A)decreasing
B)increasing
C)negative
D)constant
Answer: D
Q4) List the four broad categories of factors of production.
Answer: labour,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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Sample Questions
Q1) The phrase "demand has increased" means that A)a demand curve has shifted to the left.
B)there has been an upward movement along a demand curve.
C)there has been a downward movement along a demand curve.
D)a demand curve has shifted to the right.
Answer: D
Q2) Buyers rush to purchase stocks in Ontario vineyards following a forecast of a 30 percent decline in this year's grape harvest.What happens in the Ontario wine market as a result of this announcement?
A)The demand curve for Ontario wine shifts to the left in anticipation of higher prices in the future.
B)The demand curve for Ontario wine shifts to the right in anticipation of higher prices in the future.
C)The supply curve for Ontario wine shifts to the right in anticipation of higher prices in the future.
D)The supply curve for Ontario wine shifts to the left in anticipation of lower quantities in the future.
Answer: B
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Chapter 4: GDP: Measuring Total Production and Income
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Sample Questions
Q1) In 2015,Canadian household spending accounted for ________ of GDP.
A)70 percent
B)56 percent
C)30 percent
D)46 percent
E)25 percent
Q2) GDP is
A)entirely unrelated to personal well-being.
B)imperfectly related to personal well-being.
C)the only method of measuring the success of a country.
D)entirely pointless.
E)the only valid approach to measuring improvements in well-being.
Q3) Why do we not count the value of intermediate goods and services in gross domestic product?
Q4) What is the largest component of spending in Canada?
A)final consumption spending
B)gross fixed capital formation
C)government purchases
D)spending on inventories
E)inventory investment
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Chapter 5: Unemployment and Inflation
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Sample Questions
Q1) The nominal interest rate plus the inflation rate equals the real interest rate.
A)True
B)False
Q2) If inflation is positive and is perfectly anticipated
A)those that borrow money lose.
B)those that lend money lose.
C)those that hold paper money lose.
D)no one in the economy loses.
E)those who receive government benefits lose.
Q3) If your nominal wage rises more slowly than the price level,we can say your real wage has ________ and the purchasing power of a dollar has ________.
A)fallen; fallen
B)fallen; risen
C)risen; risen
D)risen; fallen
Q4) Currently,the base year for the CPI is 2002.
A)True
B)False
Q5) Describe the three types of unemployment.
Q6) Why would a firm pay efficiency wages?
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Chapter 6: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) The demand for loanable funds has a ________ slope because the lower the interest rate,the ________ the number of profitable investment projects,and the ________ the quantity of loanable funds demanded.
A)negative; greater; greater B)negative; greater; lower C)negative; lower; greater D)positive; lower; lower E)negative; lower; lower
Q2) Retained earnings are sufficient to finance a firm's rapid expansion in a high-growth economy.
A)True
B)False
Q3) Which of the following would encourage economic growth through increases in the capital stock?
A)a change from an income tax to a consumption tax
B)an increase in household saving
C)a decrease in the government deficit
D)all of the above
Q4) How are unemployment,inflation,and the business cycle related?
Page 8
Q5) Carefully define the two categories of saving in the economy.
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Chapter 7: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) Which of the following explains the ability of the Canadian economy to avoid diminishing marginal returns and experience accelerating growth in the early to mid-20th century?
A)continuing technological change
B)immigration
C)additions of a greater amount of capital of the same quality
D)a decrease in the quality of labour
E)every faster capital accumulation
Q2) Between 1960 and now,deaths rates among children have
A)declined in most high-income countries and have risen in most low-income countries.
B)declined in nearly all countries,including most low-income countries.
C)remained relatively unchanged in most high-income countries and have declined in most low-income countries.
D)declined in most high-income countries and have remained relatively unchanged in most low-income countries.
E)risen in virtually all countries.
Q3) Most of the countries of Africa are considered newly industrializing countries.
A)True
B)False
Page 9
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Chapter 8: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) Suppose Canada experiences a long period of inflation relative to other countries.How will this affect Canadian net exports?
Q2) All of the following are true statements about the multiplier,except
A)the multiplier rises as the MPC rises.
B)the smaller the MPS,the larger the multiplier.
C)the multiplier is a value between zero and one.
D)the multiplier effect occurs when autonomous expenditure changes.
E)the multiplier effect is caused by induced consumption.
Q3) On the 45-degree line diagram,for points that lie above the 45-degree line,
A)planned aggregate expenditure is greater than GDP.
B)planned aggregate expenditure is less than GDP.
C)planned aggregate expenditure is equal to GDP.
D)planned aggregate expenditure is less than aggregate income.
E)planned aggregate expenditure is greater than potential GDP.
Q4) If planned investment is equal to actual investment,then aggregate expenditure is equal to GDP.
A)True
B)False
Page 10
Q5) Why do economists care about aggregate expenditures?
Q6) What is the difference between aggregate expenditure and consumption spending?
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Chapter 9: Aggregate Demand and Aggregate Supply
Analysis
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Q1) Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?
A)SRAS shifted to the right by more than LRAS.
B)AD shifted to the right by more than SRAS.
C)AD shifted to the right by less than SRAS.
D)AD did not shift and SRAS shifted to the left.
E)LRAS shifted leftward and AD shifted rightward.
Q2) If,due to a recession,workers begin to leave Canada to search for temporary work in other countries until the recession has ended,this will
A)shift the short-run aggregate supply curve of the other country to the left.
B)shift the short-run aggregate supply curve of the other country to the right.
C)move the other country's economy up along a stationary short-run aggregate supply curve.
D)move the other country's economy down along a stationary short-run aggregate supply curve.
E)shift the other country's long-run aggregate supply to the left.
Q3) Stagflation occurs when aggregate supply and aggregate demand both increase.
A)True
B)False
Page 12
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Chapter 10: Money, Banks, and the Bank of Canada
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Sample Questions
Q1) Fiat money
A)has no or very little value except as money.
B)is rarely used in modern economies.
C)functions well only if can be redeemed for gold or other precious metals.
D)serves well as a medium of exchange,but not as a store of value.
E)is hard to exchange for other forms of money.
Q2) When a financial asset is first sold,the sale takes place in the ________ market,and subsequent sales take place in the ________ market.
A)stock; bond
B)primary; secondary
C)investment; commercial
D)secure; risk
Q3) A farm worker gets paid today in money,but plans to spend the money next week.This illustrates which function of money?
A)medium of exchange
B)unit of account
C)store of value
D)standard of deferred payment
E)exploitation of labour
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Chapter 11: Monetary Policy
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Sample Questions
Q1) Refer to Figure 11.11.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Bank of Canada?
A)a decrease in income taxes
B)an increase in the desired reserve ratio
C)an open market purchase of Canada bonds
D)an open market sale of Canada bonds
E)an increase in lending to commercial banks
Q2) Using the Taylor rule,if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP,then the overnight interest target rate ________ the sum of the current inflation rate plus the equilibrium real overnight interest rate.
A)will be greater than
B)will be less than C)will be the same as D)may be greater than or less than
Q3) The Taylor rule puts more emphasis on the inflation gap than the output gap. A)True B)False
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) Which of the following is not an option for provincial governments facing rising health care costs?
A)printing more money
B)raising income and sales taxes
C)reducing funding to education and other programs
D)reducing the level of health care services provided
Q2) A change in consumption spending caused by income changes is ________ change in spending,and a change in government spending that occurs to improve roads and bridges is ________ change in spending.
A)an induced; an autonomous
B)an expansionary; a contractionary
C)an autonomous; an induced
D)a contractionary; an expansionary
E)a discretionary; an automatic
Q3) If government spending is to be considered fiscal policy its objective must be
A)changing real GDP and employment.
B)changing tax revenues and the federal budget surplus.
C)changing disposable income and interest rates.
D)changing the money supply and money demand.
E)changing the quality of physical infrastructure.
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Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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Sample Questions
Q1) The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms.
A)unexpected
B)expected
C)perfectly predicted
D)ignored
E)undetected
Q2) Leverage is
A)a measure of the level of investment in an economy.
B)a measure of assets in terms of net worth to be used as a proxy of how much room for debt an investor has when making an investment.
C)a measure of how successfully an investor can negotiate the amount of debt assumed in making an investment.
D)a measure of how much debt an investor assumes in making an investment.
E)a measure of how likely a firm is to be able to influence government policy due to past campaign donations.
Q3) Can the Bank of Canada achieve both low inflation and low levels of unemployment? Explain.
Page 16
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) Which of the groups below would benefit from a fall in the value of the Canadian dollar?
A)Canadian consumers of imports.
B)Canadian firms selling to other countries.
C)Canadian firms with operations in other countries.
D)Canadian firms that have borrowed from savers in other countries.
E)Canadian families planning foreign vacations.
Q2) The current account does not include which of the following?
A)exports of maple syrup to Vermont
B)income received by Canadians from foreign investments
C)transfers made to residents of other countries by Canadians
D)purchases of shares in Toyota by Canadians
E)imports of Kia cars from South Korea
Q3) When Canada sends money to Syria to help refugees from the civil war,in what account is this transaction recorded?
A)the financial account
B)the capital account
C)the current account
D)the foreign exchange account
E)the balance of trade account
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Chapter 15: The International Financial System
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Sample Questions
Q1) During what period of time did Canada most consistently adhere to the gold standard?
A)from the nineteenth century until the 1930s
B)from the eighteenth century until the nineteenth century
C)from 1914 until 1929
D)from 1944 until 1980
E)from 1980 until 1993
Q2) Under a floating exchange rate,the exchange rate
A)will change whenever the price of gold changes.
B)is controlled by central bank intervention.
C)is determined by the interaction of supply of the currency and demand for the currency.
D)is pegged against the euro.
E)is determined by price of gold.
Q3) China's exchange rate system from 1994 through 2005 is an example of
A)a floating exchange rate system.
B)a managed float exchange rate system.
C)a fixed exchange rate system.
D)a flexible exchange rate system.
E)the Bretton Woods System.
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