Contemporary Economic Issues
Exam Answer Key
Course Introduction
This course provides an in-depth analysis of current economic challenges facing the global and national economies. Topics include income inequality, globalization, environmental sustainability, labor market shifts, technological innovation, public policy responses, and financial market dynamics. Students will critically examine contemporary debates, evaluate policy options, and apply economic concepts to real-world problems, preparing them to understand and engage with the evolving economic landscape.
Recommended Textbook Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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3576 Verified Questions
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) What might a government do to enact a policy to increase living standards?
A) allow corporate tax write-offs for money spent on worker safety
B) make it more difficult to receive unemployment benefits
C) increase educational opportunities for workers
D) prohibit unions from organizing
Answer: C
Q2) Which statement is consistent with the tenth principle of economics?
A) If we increase the rate of inflation from 3 percent to 6 percent,then the rate of unemployment will temporarily fall.
B) If we increase the rate of inflation from 3 percent to 6 percent,then the rate of unemployment will temporarily rise.
C) If we increase the rate of inflation from 3 percent to 6 percent,then the rate of unemployment will permanently fall.
D) If we increase the rate of inflation from 3 percent to 6 percent,then the rate of unemployment will permanently rise.
Answer: A
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Why do economists use models?
A) to learn how the economy works
B) to attract the attention of government officials
C) to make economics accessible to the public
D) to make sure that all of the details of the economy are included in their analysis
Answer: A
Q2) Refer to Figure 2-3.At which point or points can the economy produce?
A) points B,D,and E
B) points A,B,D,and E
C) points D and C
D) point D
Answer: A
Q3) The tradeoff between the production of different goods can change because of technological improvement over time.
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) If there is no trade,which of the following is most likely?
A) A country is better off because it will become self-sufficient.
B) A country's production possibilities frontier is also its consumption possibilities frontier.
C) A country can still benefit from international specialization.
D) A country has more product variety available.
Answer: B
Q2) Refer to Table 3-2.How could the farmer and rancher both benefit?
A) by the farmer specializing in meat and the rancher specializing in potatoes
B) by the farmer specializing in potatoes and the rancher specializing in meat
C) by the farmer specializing in neither good and the rancher specializing in both goods
D) by the farmer specializing in both goods and the rancher specializing in neither good
Answer: B
Q3) International trade may make some individuals in a nation better off,while other individuals are made worse off.
A)True
B)False
Answer: True
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Market demand is given as QD = 300 - 6P.Market supply is given as QS = 4P.If price increases from $25 to $30,what is the price elasticity of demand?
A) 0.7
B) 0.8
C) 1.0
D) 1.2
Q2) If the supply of a product increases,what would we expect?
A) equilibrium price to increase and equilibrium quantity to decrease
B) equilibrium price to decrease and equilibrium quantity to increase
C) equilibrium price and equilibrium quantity to both increase
D) equilibrium price and equilibrium quantity to both decrease
Q3) Refer to the Figure 4-5.Which of the four graphs represents the market for school supplies in September?
A) graph A
B) graph B
C) graph C
D) graph D
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Refer to the Table 5-4.Using 2014 as the base year,what can we conclude for 2013?
A) Real GDP is $760,and the GDP deflator is 100.
B) Real GDP is $760,and the GDP deflator is 125.
C) Real GDP is $880,and the GDP deflator is 80.
D) Real GDP is $950,and the GDP deflator is 80.
Q2) In 2014,how large were Canadian government purchases of goods and services?
A) 5 percent of GDP
B) 12 percent of GDP
C) 21 percent of GDP
D) 26 percent of GDP
Q3) With respect to GDP,how are transfer payments treated?
A) They are included in GDP because they represent income to individuals.
B) They are not included in GDP because they are not payments for currently produced goods or services.
C) They are included in GDP because the income will be spent for consumption.
D) They are not included in GDP because taxes will have to be raised to pay for them.
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) If the cost of health and personal care increases by 20 percent,then,other things the same,how much is the CPI likely to increase?
A) by about 1 percent
B) by about 2 percent
C) by about 3 percent
D) by about 4 percent
Q2) In 1969,Don bought a Dodge Dart for $2500.In 2015,he bought a Honda Civic for $22,000.If the price index in 1969 was 39.2 and the price index in 2015 was 190,what is the price of the Dodge Dart in 2015 prices?
A) $3583
B) $4500
C) $9762
D) $12,117
Q3) Why does the GDP deflator give a different rate of inflation than the CPI does?
Q4) If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years,then you need to be making $35,000 to have kept pace with consumer price inflation.
A)True
B)False
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Chapter 7: Production and Growth
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Sample Questions
Q1) How does productivity explain the differences in standard of living across countries?
A) Productivity tends to be lower in countries with high population,and therefore in those countries standards of living are lower.
B) Productivity explains very little of the differences across countries in the standard of living.
C) Productivity explains some,but not most,of the differences across countries in the standard of living.
D) Productivity explains most of the differences across countries in the standard of living.
Q2) The following table shows real GDP per person in a few countries over a period of about a century.
a)Does this data support the catch-up theory of economic growth? Explain your answer. b)What additional information would be necessary when testing the catch-up theory?
Q3) A forest is an example of a nonrenewable resource.
A)True
B)False
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) If Parliament instituted an investment tax credit,the demand for loanable funds would shift right.
A)True
B)False
Q2) Other things the same,the higher the rate of saving and investment in a country,the higher the standard of living will be.
A)True
B)False
Q3) If the inflation rate is 3 percent and the real interest rate is 4 percent,what is the nominal interest rate?
A) 1 percent
B) 3 percent
C) 5 percent
D) 7 percent
Q4) Compared to bonds,what does stock offer the holder?
A) lower risk
B) partial ownership
C) lower return
D) higher return
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Which term refers to unemployment that is the result of a well-functioning economy that rewards innovation and new ideas?
A) frictional unemployment
B) cyclical unemployment
C) structural unemployment
D) innovative unemployment
Q2) Firms might offer efficiency wages in order to attract a better pool of applicants.
A)True
B)False
Q3) About what fraction of unemployed persons have been unemployed for less than a month?
A) 1 / 3
B) 2 / 3
C) 3 / 4
D) 4 / 5
Q4) About half of all spells of unemployment end when the unemployed person leaves the labour force.
A)True
B)False
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Chapter 10: The Monetary System
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Sample Questions
Q1) Which agency is responsible for regulating the money supply in Canada?
A) the Currency and Securities Commission
B) the Bank of Canada
C) the TD Bank
D) the Canadian Payments Association
Q2) What characterizes fiat money?
A) It has no intrinsic value.
B) It is backed by gold.
C) It has intrinsic value equal to its value in exchange.
D) It is an illiquid asset.
Q3) Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?
A) Bank reserves increase,and the money supply increases.
B) Bank reserves increase,and the money supply decreases.
C) Bank reserves decrease,and the money supply increases.
D) Bank reserves decrease,and the money supply decreases.
Q4) Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?
Q5) If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.
Page 12
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) According to the quantity equation,if Y doubles,V is constant,and M doubles,what factor does the price level multiply by?
A) 1 / 4
B) 1 / 2
C) 1
D) 2
Q2) There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?
A) the velocity concept
B) the Keynesian principle
C) the classical dichotomy
D) the classical theory of money
Q3) Assume you buy stock and its price rises just as much as the price level.Before taxes,what have you made?
A) a nominal and real gain,but you pay taxes only on the nominal gain
B) a nominal and real gain,but you pay taxes only on the real gain
C) a nominal gain,but no real gain,yet you pay taxes on the nominal gain
D) a nominal gain,but no real gain,so you pay no taxes on the nominal gain
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Suppose that the real return from operating factories in Australia rises relative to the real rate of return in Canada.What are the effects of this transaction?
A) This will increase Canadian net capital outflow and decrease Australian net capital outflow.
B) This will decrease Canadian net capital outflow and increase Australian net capital outflow.
C) This will only affect Canadian net capital outflow.
D) This will only affect Australian net capital outflow.
Q2) Which statement best defines net capital outflow?
A) It is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
B) It is the purchase of foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents.
C) It is the purchase of domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents.
D) It is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?
A) There would be an increase in net capital outflow.
B) The demand for loanable funds curve to shift right.
C) The supply for loanable funds curve to shift left.
D) There would be a decrease in net capital outflow.
Q2) What is net capital outflow equal to?
A) national saving minus the net exports
B) domestic investment plus national saving
C) national saving minus domestic investment
D) domestic investment minus national saving
Q3) If Canada imposes an import quota on bicycles,which statement would best predict the consequences?
A) Canadian exports increase,imports increase,and net exports are unchanged.
B) Canadian exports increase,imports decrease,and net exports increase.
C) Canadian exports decrease,imports increase,and net exports decrease.
D) Canadian exports decrease,imports decrease,and net exports are unchanged.
Q4) Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand curve for foreign-currency exchange.
Page 15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Make a list of expenditures whose sum equals GDP.
Q2) What has been suggested as a cause of the Great Depression?
A) a decline in output
B) a decrease in prices
C) strong bank regulations
D) a fall in net exports
Q3) Which statement best describes what happens when the price level falls?
A) Households increase foreign bond purchases,and the supply of dollars increases.
B) Households increase foreign bond purchases,and the supply of dollars decreases.
C) Households decrease foreign bond purchases,and the supply of dollars increases.
D) Households decrease foreign bond purchases,and the supply of dollars decreases.
Q4) If the government increased the money supply in response to a decrease in aggregate supply,unemployment would return towards its natural rate,but prices would rise even more.
A)True
B)False
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) What is the most likely effect of an increase in government spending on goods to build or repair infrastructure?
A) It would shift the aggregate-demand curve to the left.
B) It would shift the long-run aggregate-supply curve to the left.
C) It would shift the short-run aggregate-supply curve to the left.
D) It would shift the long run aggregate-supply curve to the right.
Q2) If the MPC is 0,what is the multiplier?
A) 0
B) 1
C) 10
D) 100
Q3) When the Bank of Canada lowers the growth rate of the money supply,what must it take into account?
A) the short-run effects on production and inflation
B) the long-run effects on production and inflation
C) the long-run effect on production and the short-run effect on inflation
D) the short-run effect on production and the long-run effect on inflation
Q4) Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.
Page 17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Suppose the natural rate of unemployment is 6 percent,the expected inflation is 2 percent,and the constant "a" in the short-run Phillips curve equation is 0.8.Describe the process of adjustment when the expected inflation rate changes from 2 percent to 3 percent.
Q2) The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?
A) by shifting the short-run and long-run Phillips curves left
B) by shifting the short-run and long-run Phillips curves right
C) by shifting only the short-run Phillips curve left
D) by shifting only the short-run Phillips curve right
Q3) A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right.
A)True
B)False
Q4) According to the Friedman-Phelps analysis,in the long run,actual inflation equals expected inflation,and unemployment is at its natural rate.
A)True
B)False
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Q1) Why should the government balance its budget?
A) because government debt imposes higher taxes or more borrowing on current generations
B) because a balanced budget will smooth the business cycle
C) because moderate budget deficits are unsustainable
D) because recent history shows that the government will not run deficits unless they are justified by war or recession
Q2) How is "leaning against the wind" exemplified?
A) by a tax cut when there is economic expansion
B) by a decrease in the money supply when there is a recession
C) by an increase in government expenditures when there is a recession
D) by an increase in government spending when there is economic expansion
Q3) Proponents of zero inflation argue that reducing inflation implies which of the following?
A) that reducing inflation eventually reduces inflation expectations
B) that reducing inflation eventually raises real interest rates
C) that reducing inflation permanently decreases output
D) that reducing inflation permanently raises unemployment
Q4) Identify three government policies that discourage saving.
Q5) Explain the main argument in favour of economic stabilization.
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