Canadian Macroeconomics Exam Bank
Course Introduction
Canadian Macroeconomics explores the broad economic factors that shape Canadas economy, including national income, inflation, unemployment, fiscal and monetary policy, and trade. The course examines how these indicators interact within the Canadian context, focusing on the tools and strategies policymakers use to address macroeconomic challenges and stabilize growth. Using real-world data and case studies, students will analyze Canadas economic performance, understand the impact of global events on Canadian markets, and evaluate the effectiveness of government interventions in steering the national economy.
Recommended Textbook
Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) If Canada decides to trade with Mexico,what do we know about the probable outcome?
A) Mexico will be better off,but trade with a less developed country will not help Canada.
B) It will not benefit Mexico because workers in Canada are more productive.
C) It will benefit Mexico because workers in Canada are more productive.
D) Mexico and Canada can both be better off.
Answer: D
Q2) From which of the following is the word "economy" derived?
A) environment
B) one who manages a household
C) one who participates in a market
D) allocation
Answer: B
Q3) What is the best way to measure the opportunity cost of gasoline?
A) by the average price of a litre of gasoline
B) by the fuel efficiency of the average North American car
C) by the pollution emitted per 1 km of driving
D) by the number of minutes of work needed to pay for 1 km of driving
Answer: D
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Page 3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What is the y-coordinate?
A) the first number of an ordered pair,which represents the point's horizontal location
B) the second number of an ordered pair,which represents the point's horizontal location
C) the first number of an ordered pair,which represents the point's vertical location
D) the second number of an ordered pair,which represents the point's vertical location
Answer: D
Q2) What is NOT a common characteristic of economic models?
A) They are often built using the tools of mathematics.
B) They are useful to economists,but not to policymakers.
C) They include only the important features of an economy.
D) They are built using assumptions.
Answer: B
Q3) Economic growth causes a production possibilities frontier to shift outward. A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Figure 3-1.What is the opportunity cost of 1 bushel of wheat for Cliff?
A) 1 / 3 bushel of corn
B) 2 / 3 bushel of corn
C) 1 bushel of corn
D) 3 / 2 bushels of corn
Answer: B
Q2) Refer to Figure 3-3.For Jerry,what is the opportunity cost of 1 kg of cones?
A) 2 / 3 kg of ice cream
B) 1 kg of ice cream
C) 2 kg of ice cream
D) 3 kg of ice cream
Answer: A
Q3) Refer to Table 3-5.What is the opportunity cost of one car for Canada?
A) 1 / 4 airplane
B) 1 / 3 airplane
C) 3 airplanes
D) 4 airplanes
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) A shortage will occur at any price below equilibrium price and a surplus will occur at any price above equilibrium price.
A)True
B)False
Q2) Pens are normal goods.What will happen to the equilibrium price of pens if the prices of pencils falls,consumers experience an increase in income,writing in ink becomes fashionable,people expect the price of pens to fall in the near future,the population increases,fewer firms manufacture pens,and the wages of pen-makers decrease?
A) price will rise
B) price will fall
C) price will stay exactly the same
D) price change will be ambiguous
Q3) Refer to the Figure 4-9.Which graph could be used to show the result of 5 percent of the country's smokers deciding to stop smoking?
A) graph a
B) graph b
C) graph c
D) both a and c could be used to show the result
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Which of the following is included in Canadian GDP?
A) Canadian exports of goods and services
B) CPP / QPP payments
C) the sale of used goods
D) Canadian imports of goods and services
Q2) With respect to GDP,how is unemployment compensation treated?
A) It is included as part of GDP because it represents income.
B) It is not included as part of GDP because it is a transfer payment.
C) It is included as part of GDP because the recipients must have worked in the past to qualify.
D) It is not included as part of GDP because the payments reduce business profits.
Q3) Which of the following best defines national income?
A) all income produced within a country
B) the total income earned by a nation's residents from the production of goods and services within the borders of the country
C) the total income earned by a nation's residents in the production of goods and services
D) the income received by the national government
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) How often does the basket of goods in the consumer price index change?
A) occasionally,as does the basket of goods used to compute the GDP deflator
B) yearly,as does the basket of goods used to compute the GDP deflator
C) occasionally,while the basket of goods used to compute the GDP deflator changes yearly
D) yearly,while the basket of goods used to compute the GDP deflator changes occasionally
Q2) Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.Why is this?
A) because new goods and services are always of higher quality than existing goods and services
B) because new goods and services have better product warranties than existing goods and services
C) because new goods and services cost more than existing goods and services
D) because when a new good is introduced,it gives consumers greater choice,thus reducing the amount they must spend to maintain their standard of living
Q3) 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) Compared to the income of the typical Canadian 138 years previously,how much was the income of the typical Pakistani in 2010?
A) about 1 / 2 as much
B) about 2 / 3 as much
C) about the same
D) about 2 times as much
Q2) If a production function has constant returns to scale,how can output be doubled?
A) by doubling labour
B) by doubling any one of the inputs
C) by doubling all of the inputs
D) by increasing all inputs by more than double
Q3) Why are property rights important for the growth of a nation's standard of living?
Q4) What is a direct determinant of productivity?
A) human capital
B) wage
C) price of natural resources
D) unemployment rate
Q5) How do inward-oriented policies affect a nation's growth?
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) In a closed economy,investment must be equal to private saving.
A)True
B)False
Q2) A decrease in taxes on interest income would increase the interest rate.
A)True
B)False
Q3) Which statement best describes a characteristic of a bond?
A) The maturity of a bond refers to the amount to be paid back.
B) The principal of the bond refers to the person buying the bond.
C) A bond buyer cannot sell a bond before it matures.
D) The interest paid by a bond depends on its price.
Q4) What is a dividend yield?
A) It is the dividend as a percentage of the stock price.
B) It is the stock price as a percentage of the dividend.
C) It is the dividend as a percentage of the retained earnings per share.
D) It is the retained earnings per share as a percentage of the dividend.
Q5) Melinda buys a paint sprayer and a hydraulic lift for her car customizing shop.A macroeconomist would refer to these purchases as investment.
A)True
B)False
Page 10
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Why did Henry Ford decide to pay $5 per day to his workers?
A) He was forced by a union to pay $5 per day.
B) He paid $5 per day to improve worker nutrition.
C) He believed that $5 a day would increase worker productivity.
D) He paid $5 per day to illustrate that he was a humanitarian.
Q2) What is the effect of anything that makes the efficiency wage rise relative to the market-clearing wage?
A) It increases both the quantity demanded and the quantity supplied of labour.
B) It decreases both the quantity demanded and the quantity supplied of labour.
C) It increases the quantity demanded and decreases the quantity supplied of labour.
D) It decreases the quantity demanded and increases the quantity supplied of labour.
Q3) What is a possible effect of unions?
A) Unions decrease the natural rate of unemployment.
B) Unions decrease the wages of workers in the union.
C) Unions raise the profits of firms they work for.
D) Unions cause wages of nonunionized workers to fall.
Q4) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
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Chapter 10: The Monetary System
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Sample Questions
Q1) In order for currency to be widely used as a medium of exchange,it is sufficient for the government to designate it as legal tender.
A)True
B)False
Q2) Jeremiah deposits in a bank an amount of $1000 that he had been holding at home in a jar for a long time.
a.If the banking system is 100 percent reserve,how does the money supply change?
b.If the reserve requirement is 10 percent and the bank holds no excess reserves,how does the money supply change?
c.If the reserve requirement is 10 percent and the bank holds an excess reserve of 2 percent,how does the money supply change?
Q3) What is a bank's capital?
A) the bank's reserves
B) the bank's deposits
C) the bank's debt
D) the bank's equity
Q4) Bottles of very fine wine have less liquidity than demand deposits.
A)True
B)False
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Last year,Tealandia produced 60,000 bags of green tea,which sold at 10 units each of Tealandia's currency-the leaf.Tealandia's money supply was 15,000.What was the velocity of money in Tealandia?
A) 1 / 30
B) 5 / 6
C) 30
D) 40
Q2) Refer to the Figure 11-1.If the current money supply is located at MS1 and the value of money is 2,what is the excess demand or supply?
A) 0
B) 1
C) 2
D) 3
Q3) According to the classical dichotomy,what increases when the money supply increases?
A) the real interest rate
B) the real GDP
C) the value of money
D) the price level
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Page 13
Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) What happened after the introduction of the euro as the common currency of many European countries?
A) It led to less international trade.
B) It reduced the costs of trading within Europe.
C) It led to greater differences in monetary policy amongst participating countries.
D) It reduced trade of some European countries with Canada.
Q2) If citizens of a country are not saving much,which action should that country's government take?
A) force citizens to save
B) reduce investment
C) have foreigners invest in the domestic economy
D) prevent opportunities for citizens to buy capital assets abroad
Q3) Which of the following would be Canadian foreign direct investment?
A) A Polish company opens a shipbuilding plant in Halifax.
B) A Bolivian bank buys Canadian corporate bonds.
C) A Canadian bank buys Peruvian corporate bonds.
D) A Canadian canning company opens a plant in Ecuador.
Q4) What does purchasing-power parity imply about the real exchange rate?
Q5) How do we find the real exchange rate from the nominal exchange rate?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) When the government increases the government budget deficit,national saving decreases.
A)True
B)False
Q2) What is most likely to increase exports in the country of Lexburgh?
A) a reduction in political instability
B) ending investment tax credits
C) a reduction in the size of the government's budget surplus
D) an import quota
Q3) Suppose a prime ministerial candidate promises to increase the government budget surplus and claims that doing so will stop Canadian citizens from investing in foreign companies and increase the value of the dollar.Evaluate this promise.
Q4) What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?
A) the nominal exchange rate
B) the nominal interest rate
C) the real exchange rate
D) the real interest rate
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Q5) Explain why saving need not equal domestic investment in an open economy.
Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Increased uncertainty and pessimism about the future of the economy decreases investment spending,shifting aggregate demand to the left.
A)True
B)False
Q2) How does real GDP change over time?
A) It moves in the same direction as unemployment.
B) It moves in the same direction as inflation.
C) It has a long-term upward trend.
D) It is approximately constant because it is measured in constant dollars.
Q3) Aggregate demand shifts to the left if the money supply decreases.
A)True
B)False
Q4) Which of the following shifts the short-run aggregate supply left?
A) an increase in price expectations
B) an increase in the price level
C) an increase in the money supply
D) a decrease in the price of oil
Q5) What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) If households view a tax cut as being temporary,how does the tax cut affect aggregate demand?
A) It has no effect on aggregate demand.
B) It has a stronger effect on aggregate demand than if households view the cut as permanent.
C) It has the same effect on aggregate demand than if households view the cut as permanent.
D) It has a weaker effect on aggregate demand than if households view the cut as permanent.
Q2) Suppose that there are no crowding-out effects and the MPC is 0.8.By how much must the government increase expenditures to shift the aggregate-demand curve right by $10 billion?
Q3) According to liquidity-preference theory,other things being equal,what does a higher price level lead households to do in the short run?
A) increase residential investment
B) decrease the amount of cash they want to hold
C) buy bonds
D) decrease consumption
Q4) What is the difference between monetary policy and fiscal policy?
Page 17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Q1) Refer to Figure 16-1.If the economy starts at c and 1,then in the short run,where does an increase in the money supply move the economy?
A) a and 1
B) b and 2
C) c and 3
D) a and 3
Q2) How does the short-run Phillips curve model reflect an increase in the expected inflation?
A) as a downward shift in the short-run Phillips curve
B) as an upward shift in the short-run Phillips curve
C) as a downward movement along the short-run Phillips curve
D) as an upward movement along the short-run Phillips curve
Q3) Refer to the Figure 16-3.Starting from c and 3,in the short run,where does an unexpected decrease in money supply growth move the economy to?
A) a and 1
B) b and 2
C) e and 5
D) d and 4
Q4) 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) Why are deficits undesirable?
A) They reduce future output.
B) They reduce future consumption.
C) They increase inflation.
D) They increase unemployment.
Q2) The Bank of Canada raised interest rates in 1999 and 2000.By doing this,what did the Bank of Canada do to the money supply and why?
A) It increased the money supply because it was concerned about unemployment.
B) It increased the money supply because it was concerned about inflation.
C) It decreased the money supply because it was concerned about unemployment.
D) It decreased the money supply because it was concerned about inflation.
Q3) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?
Q4) Why should policymakers try to stabilize the economy?
A) because shocks that cause economic fluctuations are unpredictable
B) because long lags may cause stabilization policies to have an opposite effect
C) because monetary policy affects aggregate demand by changing interest rates
D) because fiscal policy must go through a long political process
Q5) Why do many economists advocate a consumption tax rather than an income tax?
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