Canadian Macroeconomic Policy
Question Bank
Course Introduction
This course provides an in-depth analysis of the formulation, implementation, and impact of macroeconomic policy in Canada. Students will explore the roles of monetary and fiscal policy, the functions of the Bank of Canada, and the government's approach to managing economic growth, inflation, unemployment, and public debt. Through examination of historical trends, contemporary case studies, and theoretical frameworks, the course emphasizes understanding the dynamic interplay between policy decisions and economic outcomes in the Canadian context, while considering global influences and the challenges of economic stabilization in an open economy.
Recommended Textbook
Macroeconomics 5th Canadian Edition by N
Gregory Mankiw
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1476 Verified Questions
1476 Flashcards
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Page 2
Chapter 1: The Science of Macroeconomics
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Sample Questions
Q1) In the Canadian economy today,real GDP per person,compared with its level in 1900,is about:
A) 50 percent higher.
B) twice as high.
C) three times as high.
D) 11 times as high.
Answer: D
Q2) Assume that the equation for demand for bread at a small bakery is Q<sup>d</sup> = 60 - 10P<sub>b</sub> + 3Y,where Q<sup>d</sup> is the quantity of bread demanded in loaves and Y is the average income in the town in thousands of dollars.
a.If the average income in the town is 10,state the equation for Q<sup>d</sup> in terms of P<sub>b</sub>.
b.Draw a graph of the demand curve with Q<sup>d</sup> on the horizontal axis and P<sub>b</sub> on the vertical axis.Label the curve DD.
Answer: a.Q<sub>d</sub> = 90 10P<sub>b</sub>
b. 11ecba22_f821_c604_9548_45ef5d5589ab_TB4794_11
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Page 3
Chapter 2: The Data of Macroeconomics
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Sample Questions
Q1) National income equals net national product:
A) minus depreciation.
B) plus depreciation.
C) minus indirect business taxes.
D) plus indirect business taxes.
Answer: C
Q2) Net national product equals GDP:
A) plus net investment.
B) minus net investment.
C) plus depreciation.
D) minus depreciation.
Answer: D
Q3) The GDP deflator is a:
A) Laspeyres price index.
B) Paasche price index.
C) Laspeyres quantity index.
D) Paasche quantity index.
Answer: B
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Chapter 5: The Open Economy
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Sample Questions
Q1) Net capital outflow is equal to the amount that:
A) foreign investors lend here.
B) domestic investors lend abroad.
C) foreign investors lend here minus the amount domestic investors lend abroad.
D) domestic investors lend abroad minus the amount that foreign investors lend here.
Q2) (Exhibit: Saving and Investment in a Small Open Economy)In a small open economy if the world interest rate is r<sub>1</sub>,then the economy has:
A) a trade surplus.
B) balanced trade.
C) a trade deficit.
D) negative capital outflows.
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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5
Chapter 6: Unemployment
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Sample Questions
Q1) The employment insurance system may be desirable because unemployment insurance:
A) raises the natural rate of unemployment.
B) reduces the rate of job finding.
C) increases workers' uncertainty about their incomes.
D) induces workers to reject unattractive job offers.
Q2) In the model of the steady-state unemployment rate with a fixed labour force,the rate of job finding equals the percentage of the ______ who find a job each month,while the rate of job separation equals the percentage of the ______ who lose their job each month.
A) labour force; labour force
B) labour force,unemployed
C) employed,labour force
D) unemployed,employed
Q3) In recent years,the highest unemployment rates in Canada have been in the ________ age bracket.
A) 15-19
B) 20-24
C) 45-54
D) 55-64
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Chapter 7: Economic Growth I
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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) If capital lasts an average of 25 years,the depreciation rate is ______ percent per year.
A) 25
B) 5
C) 4
D) 2.5
Q3) To determine whether an economy is operating at its Golden Rule level of capital stock,a policymaker must determine the steady-state saving rate that produces the:
A) largest MPK.
B) smallest depreciation rate.
C) largest consumption per worker.
D) largest output per worker.
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7
Chapter 8: Economic Growth II
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Sample Questions
Q1) Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find:
A) a negative correlation between the quantity of factors and the efficiency of use.
B) a positive correlation between the quantity of factors and the efficiency of use.
C) no correlation between the quantity of factors and the efficiency of use.
D) large gaps between the quantity of factors accumulated and the efficiency of use.
Q2) Public policies in Canada designed to stimulate technological progress do not include:
A) tax breaks for capital gains on investment in the stock market.
B) the temporary monopoly granted by the patent system.
C) tax breaks for research and development.
D) government grants to cover part of university students' tuition.
Q3) Explain why additional capital generates both positive and negative impacts on steady state consumption per worker in the Solow model with population growth and technological change.
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Chapter 9: Introduction to Economic Fluctuations
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Sample Questions
Q1) (Exhibit: Shift in Aggregate Demand)In this graph,initially the economy is at point E,with the price P<sub>0</sub> and output Y.Aggregate demand is given by curve AD<sub>0</sub>,and SRAS and LRAS represent,respectively,short-run and long-run aggregate supply.Now assume that the aggregate demand curve shifts so that it is represented by AD<sub>2</sub>.The economy moves first to point ______ and then,in the long run,to point ______.
A) A; D
B) D; A
C) A; B
D) B; A
Q2) The natural level of output is:
A) affected by aggregate demand.
B) the level of output at which the unemployment rate is zero.
C) the level of output at which the unemployment rate is at its natural level.
D) permanent and unchangeable.
Q3) Most economists believe that the classical dichotomy:
A) holds approximately in both the short run and the long run.
B) holds approximately in the long run but not at all in the short run.
C) holds approximately in the short run but not at all in the long run.
D) does not hold even approximately in either the long run or the short run.
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Chapter 10: Aggregate Demand I
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Sample Questions
Q1) a.Graphically illustrate the impact of an open-market purchase by the Bank of Canada on the equilibrium interest rate using the theory of liquidity preference and the market for real money balances.Be sure to label:
i.the axes
ii.the curves
iii.the initial equilibrium values
iv.the direction the curve shifts
v.the terminal equilibrium values.b.Explain in words what happens to equilibrium interest rate as a result of the open-market purchase.
Q2) In the Keynesian-cross model,if government purchases increase by 100,then planned expenditures ______ for any given level of income.
A) increase by 100
B) increase by more than 100
C) decrease by 100
D) increase,but by less than 100
Q3) Explain why an increase in the money supply,which is a change in the money market,will upset the equilibrium in the goods market.
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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>,if there is an unexpected monetary contraction that shifts aggregate demand from AD<sub>1</sub> to AD<sub>3</sub>,then the long-run neutrality of money is represented by the movement from:
A) A to B.
B) A to G.
C) A to C.
D) A to D.
Q2) The idea that the natural rate of unemployment is increased following extended periods of unemployment is called:
A) Okun's law.
B) the cold-turkey approach.
C) the natural-rate hypothesis.
D) hysteresis.
Q3) The short-run aggregate supply curve is drawn for a given:
A) output level.
B) price level.
C) expected price level.
D) level of aggregate demand.
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Chapter 15: Stabilization Policy
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Sample Questions
Q1) Let the symbol \(\pi\) stand for the rate of inflation,with \(E\)\(\pi\) the expected inflation rate,both measured in percent.The letter u is the unemployment rate and u<sup>n</sup> is the natural rate of unemployment.Suppose the short-run Phillips curve u = u<sup>n</sup> - \(\alpha\) (\(\pi\) - \(E\)\(\pi\) )applies in a certain economy.The central bank's loss function L(u,\(\pi\) )= u + \(\gamma\)\(\pi\) <sup>2</sup>.The analysis in the appendix to textbook Chapter 14 shows that if the central bank minimizes its loss function under the assumption that \(E\)\(\pi\) is fixed and "rational" private agents know this,the expected inflation rate will be \(E\)\(\pi\) =\(\alpha\) /2\(\gamma\),and this will also be the inflation rate the government chooses.a.Suppose that \(\alpha\) = 0.5 and \(\gamma\) = 0.05.What are the expected and actual inflation rates? b.Suppose \(\alpha\) = 0.5 and \(\gamma\) = 0.50.In this case,does the central bank have greater or lesser relative distaste for inflation than in part a? What are the expected and actual inflation rates with \(\gamma\) = 0.50? Why do they differ from the inflation rates in part a?
Q2) You are hired as a consultant to set up the central bank of a new country.Suggest at least two possible ways to structure the central bank to keep inflation levels low.
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Page 12
Chapter 16: Government Debt and Budget Deficits
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Sample Questions
Q1) The cyclically adjusted budget deficit:
A) adjusts the deficit for inflation.
B) estimates what the deficit would be if the economy were operating at the natural level of output.
C) accounts for assets as well as liabilities.
D) measures the impact of fiscal policy on the lifetime incomes of individuals of different ages.
Q2) According to the traditional view of government debt,if taxes are cut without cutting government spending,then the long-run effects will be ______ capital and ______ consumption.
A) higher; higher
B) lower; lower
C) higher; lower
D) lower; higher
Q3) All of the following are arguments against Ricardian equivalence except consumers:
A) make consumption decision myopically.
B) are rational and forward looking in consumption decisionmaking.
C) are borrowing constrained.
D) do not expect future taxes to fall on them.
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Page 13
Chapter 18: Investment
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Sample Questions
Q1) If the capital stock is fixed and something happens to raise the marginal product of capital (MPK)for any given quantity of capital,then the real rental price of capital will:
A) remain the same.
B) rise.
C) fall.
D) fall and then rise.
Q2) During a banking crisis and credit crunch,the ______ curve shifts leftward,resulting in a(n)______ in aggregate demand,production,and employment.
A) IS; increase
B) IS; decrease
C) LM; increase
D) LM; decrease
Q3) Assume that a car-rental company buys cars for $20,000 each and rents them out to other businesses.The company faces a nominal interest rate of 10 percent per year,and car prices are rising at 6 percent per year.If cars depreciate at 30 percent per year,what will be the company's cost of capital per car?
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Chapter 19: Money Supply and Money Demand
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Sample Questions
Q1) Portfolio theories of money demand emphasize the ______ of money compared to other assets.
A) combination of risk and return
B) liquidity
C) optimal quantity
D) demand and supply
Q2) If the Bank of Canada wishes to increase the money supply,it should:
A) switch government deposits to chartered banks.
B) raise the Bank rate.
C) sell government bonds.
D) decrease the monetary base.
Q3) In the Baumol-Tobin model of the transactions demand for money,the average money holding will:
A) increase as the interest rate increases.
B) increase as wealth increases.
C) decrease as transaction costs per trip to the bank increase.
D) increase as expenditure increases.
Q4) Why does the Bank of Canada not have complete control over the size of the money supply? Give at least two reasons.
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Chapter 20: The Financial System
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Sample Questions
Q1) Debt financing is obtaining funds for a business by:
A) borrowing.
B) issuing ownership shares.
C) seigniorage.
D) government subsidy.
Q2) The asset price that experienced a boom prior to the 2008-2009 recession in the United States was the price of:
A) oil.
B) residential real estate.
C) technology stocks.
D) food.
Q3) To the extent that risky mortgage-backed securities that were sold to buyers who were not fully aware of the risks contributed to the financial crisis of 2008-2009 in the United States,blame for this action lies with:
A) homebuyers.
B) mortgage brokers.
C) investment banks.
D) the Federal Reserve.
Q4) How do deposit insurance and the "too big to fail" policy increase moral hazard?
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