Canadian Macroeconomic Policy
Question Bank
Course Introduction
Canadian Macroeconomic Policy examines the development, implementation, and impact of macroeconomic policies in Canada, focusing on areas such as fiscal policy, monetary policy, and exchange rate management. The course explores how federal and provincial governments, as well as the Bank of Canada, use various policy tools to achieve objectives like economic growth, price stability, and low unemployment. Through analysis of historical events and current economic issues, students will assess the effectiveness and limitations of these policies in responding to domestic and global economic challenges, and consider policy debates surrounding public debt, inflation targeting, and sustainable economic development within the Canadian context.
Recommended Textbook
Macroeconomics 5th Canadian Edition by N Gregory Mankiw
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14 Chapters
1476 Verified Questions
1476 Flashcards
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Chapter 1: The Science of Macroeconomics
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) In the relationship expressed in functional form,Y = G(K,L),Y stands for real GDP,K stands for the amount of capital in the economy,and L stands for the amount of labour in the economy.In this case G( ):
A) is the growth rate of real GDP when the amount of capital and labour in the economy is fixed.
B) indicates that the variables inside the parentheses are endogenous variables in the model.
C) is the symbol that stands for government input into the production process.
D) is the function telling how the variables in the parentheses determine real GDP.
Answer: D
Q2) In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally:
A) the supply curve slopes upward and to the right.
B) the demand curve slopes upward and to the right.
C) the supply curve slopes downward and to the right.
D) at the equilibrium price,the supply of pizza exceeds the demand for pizza.
Answer: A
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Page 3
Chapter 2: The Data of Macroeconomics
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116 Flashcards
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Sample Questions
Q1) The value added on an item produced means:
A) a firm's profits on the item sold.
B) the value of the labor inputs in the production of an item.
C) the value of a firm's output less the value of its costs.
D) the value of a firm's output less the value of the intermediate goods that the firm purchases.
Answer: D
Q2) When a firm sells a product out of inventory,GDP:
A) increases.
B) decreases.
C) is not changed.
D) increases or decreases,depending on the year the product was produced.
Answer: C
Q3) National income equals net national product:
A) minus depreciation.
B) plus depreciation.
C) minus indirect business taxes.
D) plus indirect business taxes.
Answer: C
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Page 4
Chapter 5: The Open Economy
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Sample Questions
Q1) Suppose that the International Monetary Fund (IMF)is concerned about currency depreciation in a small open economy.Use the basic version of our exchange-rate model for your answers.a.What type of fiscal policy should the IMF propose to the government of the small open economy to generate a currency appreciation? b.Illustrate graphically the impact of the IMF proposal on the exchange rate of the small open economy.c.What will happen to the trade balance of the small open economy,assuming that it started from a position of balanced trade?
Q2) What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility,fully employed factors of production,and flexible prices?
Q3) In a small open economy,starting from a position of balanced trade,if the government increases domestic government purchases,this produces a tendency toward a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
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Page 5
Chapter 6: Unemployment
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112 Flashcards
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Sample Questions
Q1) All of the following are possible explanations for the trends in the Canadian unemployment rate in the last half of the twentieth century except:
A) the changing composition of the Canadian work force.
B) sectoral shifts.
C) a generally increasing real value of the minimum wage.
D) the links between unemployment and productivity.
Q2) Suppose that over the course of a year 100 people are unemployed for four weeks each (the short-term unemployed),while 10 people are unemployed for 52 weeks each (the long-term unemployed).Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed?
A) 9 percent
B) 10 percent
C) 43.5 percent
D) 56.5 percent
Q3) All of the following are causes of structural unemployment except:
A) minimum-wage laws.
B) the monopoly power of unions.
C) employment insurance.
D) efficiency wages.
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Page 6
Chapter 7: Economic Growth I
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114 Flashcards
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Sample Questions
Q1) The Solow growth model with population growth but no technological progress can explain:
A) persistent growth in output per worker.
B) persistent growth in total output.
C) persistent growth in consumption per worker.
D) persistent growth in the saving rate.
Q2) When f(k)is drawn on a graph with increases in k noted along the horizontal axis,the:
A) graph is a straight line.
B) slope of the line eventually gets flatter and flatter.
C) slope of the line eventually becomes negative.
D) slope of the line eventually becomes steeper and steeper.
Q3) If an economy with no population growth or technological change has a steady-state MPK of 0.125,a depreciation rate of 0.1,and a saving rate of 0.225,then the steady-state capital stock:
A) is greater than the Golden Rule level.
B) is less than the Golden Rule level.
C) equals the Golden Rule level.
D) could be either above or below the Golden Rule level.
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Chapter 8: Economic Growth II
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Sample Questions
Q1) The Solow residual measures the portion of output growth that cannot be explained by growth in:
A) capital and labour.
B) technology.
C) the money supply.
D) the saving rate.
Q2) Assuming that technological progress increases the efficiency of labour at a constant rate is called:
A) endogenous technological progress.
B) the efficiency-wage model of economic growth.
C) labour-augmenting technological progress.
D) the Golden Rule model of economic growth.
Q3) What is the difference between convergence and conditional convergence with respect to predictions of the Solow growth model? Explain.
Q4) The Solow model with population growth and labour-augmenting technological progress predicts balanced growth in the steady state.Growth rates of which variables are predicted to be balanced (i.e.,will be equal)in the steady state?
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8
Chapter 9: Introduction to Economic Fluctuations
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106 Flashcards
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Sample Questions
Q1) When a long-term aggregate supply curve is drawn with real GDP (Y)along the horizontal axis and the price level (P)along the vertical axis,this curve:
A) slopes upward and to the right.
B) slopes downward and to the right.
C) is horizontal.
D) is vertical.
Q2) When the Bank of Canada increases the money supply,at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.
A) greater; inward
B) greater; outward
C) lower; inward
D) lower; outward
Q3) A short-run aggregate supply curve shows fixed ______,and a long-run aggregate supply curve shows fixed ______.
A) output; output
B) prices; prices
C) prices; output
D) output; prices
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Page 9
Chapter 10: Aggregate Demand I
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Sample Questions
Q1) If consumption is given by C = 200 + 0.75(Y - T)and investment is given by I = 20025r,then the formula for the IS curve is:
A) Y = 400 - 0.75T - 25r + G.
B) Y = 1,600 - 3T - 100r + 4G.
C) Y = 400 + 0.75T - 25r - G.
D) Y = 1,600 + 3T - 100r - 4G.
Q2) Consider the impact of an increase in thriftiness in the Keynesian-cross analysis.Assume that the marginal propensity to consume is unchanged,but the intercept of the consumption function is made smaller so that at every income level saving is greater.This will:
A) increase saving by the decrease in the intercept.
B) lead to no change in saving.
C) decrease saving by the decrease in the intercept.
D) lead to an increase in investment.
Q3) If money demand does not depend on income,then the ______ curve is ______.
A) IS; vertical
B) IS; horizontal
C) LM; vertical
D) LM; horizontal
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Page 10
Chapter 13: Aggregate Supply and the Short-Run
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Sample Questions
Q1) (Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P<sub>1</sub>,a cost-push inflation would be represented by a shift from:
A) AD<sub>1</sub> to AD<sub>2</sub>.
B) AD<sub>1</sub> to AD<sub>3</sub>.
C) AS<sub>1</sub> to AS<sub>2</sub>.
D) AS<sub>1</sub> to AS<sub>3</sub>.
Q2) In the case of demand-pull inflation,other things being equal:
A) both the inflation rate and the unemployment rate rise at the same time.
B) the unemployment rate rises but the inflation rate falls.
C) the inflation rate rises but the unemployment rate falls.
D) both the inflation rate and the unemployment rate fall.
Q3) In the sticky-price model,if no firms have flexible prices,the short-run aggregate supply schedule will:
A) be vertical.
B) be steeper than it would be if some firms had flexible prices.
C) slope upward to the right.
D) be horizontal.
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11
Chapter 15: Stabilization Policy
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Sample Questions
Q1) What are two types of tools that economists use to forecast future economic developments?
A) leading indicators and computer models
B) direct imputations and indirect attributions
C) visual assessment and global positioning
D) monetary instruments and fiscal instruments
Q2) A situation where policymakers have the incentive to deviate from their initial course of action once other agents in the economy have acted is called a(n):
A) rational expectation.
B) outside lag.
C) time-inconsistent policy.
D) active policy rule.
Q3) Economic research finds that greater central-bank independence is ______ correlated with lower and more stable inflation as well as ______ correlated with the average growth and variability of real GDP.
A) strongly; strongly
B) strongly; not
C) not; strongly
D) not; not
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Page 12
Chapter 16: Government Debt and Budget Deficits
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Sample Questions
Q1) A deficit adjusted for inflation should include only government spending to pay _____ interest payments.
A) real
B) nominal
C) foreign
D) domestic
Q2) In a time of inflation when the real (i.e.,deflated)value of the government debt is constant,then the conventionally:
A) reported government budget will show a deficit equal to the inflation rate times the outstanding debt.
B) reported government budget will show a deficit equal to less than the inflation rate times the outstanding debt.
C) reported government budget will be balanced.
D) measured government budget will show a surplus equal to the inflation rate times the outstanding debt.
Q3) Many people were concerned about the federal budget deficit in the 1990s.Suggest at least three possible negative economic effects of a budget deficit and three possible economic benefits of a budget deficit.
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13
Chapter 18: Investment
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Sample Questions
Q1) The housing industry frequently complains that restrictive monetary policy adversely affects their industry more than other industries.Use the model of residential investment to illustrate graphically the impact of restrictive monetary policy on housing prices and the quantity of residential investment.Also explain your answer in words.
Q2) A firm renting out capital does not bear as cost the:
A) lost interest it could have earned by depositing the purchase price of the capital in a bank.
B) wear and tear on the capital.
C) wages of the labour that works with the capital.
D) capital loss or gain in the asset's value.
Q3) Net investment is the:
A) business fixed investment minus inventory investment.
B) change in the stock of capital.
C) gross investment minus the rate of inflation.
D) gross investment plus the replacement of depreciated capital.
Q4) Graphically illustrate how house prices and residential investment were affected by lowered lending standards that allowed many people with less than perfect credit (subprime borrowers),who had previously been unable to obtain mortgages,to purchase houses.
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Chapter 19: Money Supply and Money Demand
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102 Flashcards
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Sample Questions
Q1) Deposit insurance in Canada I: insures all deposits in chartered banks up to a maximum of $100,000.II: would generate incentives for more desirable outcomes if it involved a small deductible that is not covered.
A) I is true; II is not.
B) II is true; I is not.
C) Both I and II are true.
D) Neither I nor II is true.
Q2) The amount of capital that banks are required to hold depends on the:
A) amount of deposits held at a bank.
B) riskiness of the bank's assets.
C) reserve requirements set by the Bank of Canada.
D) level of deposit insurance coverage.
Q3) The minimum amount of owner's equity in a bank mandated by regulators is called a ______ requirement.
A) reserve
B) margin
C) liquidity
D) capital
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15
Chapter 20: The Financial System
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108 Flashcards
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Sample Questions
Q1) The TED spread is an indicator of :
A) expected defaults in the mortgage market.
B) expected inflation.
C) worries about the solvency of the banking system.
D) the ease or tightness of monetary policy.
Q2) All of the following are examples of financial intermediaries except:
A) chartered banks.
B) stock exchanges.
C) pension funds.
D) insurance companies.
Q3) The Grameen Bank is:
A) the central bank of Bangladesh.
B) a lender of last resort.
C) a lending microfinance institution.
D) a subsidiary of the World Bank.
Q4) A dislike of randomness in economic circumstances is called:
A) rational expectations.
B) risk aversion.
C) adverse selection.
D) moral hazard.
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