Contemporary Economic Issues
Final Test Solutions
Course Introduction
This course offers an in-depth exploration of pressing economic challenges faced by societies today. Through the analysis of topics such as globalization, income inequality, environmental sustainability, technological change, labor markets, and public policy responses, students will develop a critical understanding of how economic theories and principles are applied to current real-world issues. The course emphasizes critical thinking, empirical analysis, and the evaluation of competing viewpoints, preparing students to engage thoughtfully with debates on economic policy and the impacts of contemporary economic trends.
Recommended Textbook
Macroeconomics 2nd Canadian Edition by Glenn Hubbard
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15 Chapters
4089 Verified Questions
4089 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Which of the following is a macroeconomics question?
A)What determines the inflation rate?
B)What determines the size of the film industry in Canada?
C)What factors determine the price of carrots?
D)What determines the wage of auto workers?
Answer: A
Q2) Explain the economic idea that "people respond to incentives."
Answer: Human beings act from a variety of motives,including religious belief,envy,and compassion."People respond to incentives" means that people will act if they feel it is in their best economic interest to do so.
Q3) The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.
A)True
B)False
Answer: True
Q4) List the five main factors of production.
Answer: The five main factors of production are labour,capital,human capital,natural resources,and entrepreneurial ability.
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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311 Verified Questions
311 Flashcards
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Sample Questions
Q1) To compete in the automobile market,Toyota must make many strategic decisions,such as whether to introduce a new car model,whether to produce alternative-fuel vehicles,and where to advertise.At Toyota's Cambridge,Ontario plant,managers must decide on the monthly production quantities of their Corolla,Matrix,Rav4,and Lexus RX 450h models.In making these decisions,the managers
A)face no trade-offs because the Cambridge plant only produces these four models of the many Toyota models produced worldwide.
B)face trade-offs,because producing more of one model means producing less of the others.
C)will choose to only produce the quantity of Corolla,Matrix,Rav4,and RX 350 models where marginal cost equals zero.
D)will always decide on production quantities at which revenues are maximized.
Answer: B
Q2) An outward shift of a nation's production possibilities frontier represents A)economic growth.
B)rising prices of the two goods on the production possibilities frontier model.
C)an impossible situation.
D)a situation in which a country produces more of one good and less of another.
Answer: A
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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314 Verified Questions
314 Flashcards
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Sample Questions
Q1) All else equal,an increase in the number of firms producing energy drinks will
A)shift the supply curve for energy drinks to the right.
B)shift the supply curve for energy drinks to the left.
C)shift the demand curve for energy drinks to the right.
D)shift the demand curve for energy drinks to the left.
Answer: B
Q2) If a decrease in income leads to an increase in the demand for macaroni,then macaroni is
A)an inferior good.
B)a neutral good.
C)a necessity.
D)a normal good.
Answer: A
Q3) If a decrease in income leads to in a decrease in the demand for ice cream,then ice cream is
A)a normal good.
B)a neutral good.
C)a complement.
D)a necessity.
Answer: A
Page 5
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Chapter 4: GDP: Measuring Total Production and Income
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277 Verified Questions
277 Flashcards
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Sample Questions
Q1) Which of the following could cause nominal GDP to increase,but real GDP to decrease?
A)The price level rises,and the quantity of final goods and services produced rises.
B)The price level rises,and the quantity of final goods and services produced falls.
C)The price level falls,and the quantity of final goods and services produced rises.
D)The price level falls,and the quantity of final goods and services produced falls.
Q2) Nominal GDP is GDP in a given year
A)adjusted for inflation.
B)adjusted for anticipated inflation.
C)valued in the prices of that year.
D)valued in the prices of the base year.
E)adjusted for interest rates.
Q3) How can a firm have a negative valued added,as supposedly some state-owned businesses did in the former Soviet Union? What has to be true for value added to be negative?
Q4) Give two reasons why GDP does not reflect total production in an economy.
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Chapter 5: Unemployment and Inflation
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) Eliminating all structural unemployment would be good for the economy.
A)True
B)False
Q2) Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%,what was the real interest rate you paid?
A)17 percent
B)10 percent
C)7 percent
D)3 percent
E)1.5 percent
Q3) Statistics Canada counts as employed people who work part-time,but would prefer to work full-time.Suppose the people who had part-time jobs,but wanted full-time jobs,were counted as unemployed.Explain how the unemployment rate and the labour force participation rate would change.
Q4) There are no costs to inflation if it is fully anticipated.
A)True
B)False
Q5) Explain what economists mean by full employment and why this rate of unemployment is not zero.
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Chapter 6: Economic Growth, the Financial System, and Business Cycles
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262 Verified Questions
262 Flashcards
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Sample Questions
Q1) If,in an economy experiencing inflation,the government decided to tax real interest income rather than nominal interest income,this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds to ________.
A)fall; rise
B)fall; fall
C)rise; fall
D)rise; rise
Q2) Retained earnings are sufficient to finance a firm's rapid expansion in a high-growth economy.
A)True
B)False
Q3) Potential GDP is always greater than real GDP in an economy.
A)True
B)False
Q4) At the end of an expansion,wages of workers are usually rising faster than prices.
A)True
B)False
Q5) How are unemployment,inflation,and the business cycle related?
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Chapter 7: Long-Run Economic Growth: Sources and Policies
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280 Verified Questions
280 Flashcards
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Sample Questions
Q1) The question of whether economic growth is desirable is a positive question,easily settled by economic analysis.
A)True
B)False
Q2) Refer to Figure 7.1.Diminishing marginal returns is illustrated in the per-worker production function in the figure above by a movement from
A)A to C.
B)B to C.
C)C to D.
D)D to C.
E)A to D.
Q3) For how long does a patent give a firm the exclusive legal right to a product?
A)10 years
B)17 years
C)20 years
D)50 years
E)the life of the patent filer
Q4) Explain how market economies are generally better able to achieve technological progress than are centrally planned economies.
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Chapter 8: Aggregate Expenditure and Output in the Short Run
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309 Flashcards
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Sample Questions
Q1) Given the equations for C,I,G,and NX below,what is the equilibrium level of GDP? C = 1,000 + 0.8Y
I = 1,500
G = 1,250
NX = 100
A)$3,080
B)$3,850
C)$6,930
D)$19,250
E)$38,500
Q2) An increase in the price level in Canada will have what effect on the aggregate expenditure line?
A)Aggregate expenditure will shift downward.
B)Aggregate expenditure will become steeper.
C)Aggregate expenditure will shift upward.
D)Aggregate expenditure will shift downward and become less steep.
E)Aggregate expenditure will not be affected by an increase in the price level in the Canada.
Q3) Explain how a stock market crash has the potential to lead to a recession in an economy.
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Chapter 9: Aggregate Demand and Aggregate Supply Analysis
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246 Verified Questions
246 Flashcards
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Sample Questions
Q1) Which of the following will shift the aggregate demand curve to the right,ceteris paribus?
A)an increase in interest rates
B)a decrease in disposable income
C)a decrease in expected profits for firms
D)an increase in net exports
E)an decrease in government spending
Q2) Canada suffered a mini recession in the first half of 2015 due to
A)falling consumer confidence.
B)falling government spending.
C)the rising value of the Canadian dollar.
D)falling investment spending.
E)rising imports from China.
Q3) Refer to Figure 9.7.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?
A)0.9%
B)1.8%
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Chapter 10: Money, Banks, and the Bank of Canada
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285 Verified Questions
285 Flashcards
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Sample Questions
Q1) To increase the money supply,the Bank of Canada could
A)lower the overnight interest rate.
B)decrease income taxes.
C)raise the desired reserve ratio.
D)conduct an open market sale of government securities.
E)reduce lending to commercial banks.
Q2) Suppose you deposit $2,000 into Royal Bank and the bank's desired reserve ratio is 10 percent.How does this affect the bank's balance sheet?
A)Reserves rise by $200.
B)Desired reserves rise by $2,000.
C)Deposits rise by $1,000.
D)Excess reserves rise by $1,800.
E)The bank's desired reserve ratio will rise by 10 percent.
Q3) The ________ the reserve ratio,the ________ the money multiplier.
A)smaller; smaller
B)smaller; larger
C)larger; larger
D)None of the above is correct.
Q4) What are the implications of the quantity theory of money for monetary policy and price stability?
Page 12
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Chapter 11: Monetary Policy
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Sample Questions
Q1) Refer to Figure 11.9.Suppose the Bank of Canada sells government of Canada bonds in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from
A)A to B.
B)B to D.
C)C to B.
D)B to C.
E)C to D.
Q2) What is a symmetric inflation targeting,and what does it mean for the Bank of Canada?
Q3) Refer to Figure 11.12.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)an increase in income taxes
B)a decrease in the desired reserve ratio
C)an open market purchase of Canada bonds
D)an open market sale of Canada bonds
E)a decrease in lending to commercial banks
Q4) List the Bank of Canada's four main monetary goals.
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Chapter 12: Fiscal Policy
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303 Flashcards
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Sample Questions
Q1) Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?
Q2) Refer to Figure 12.1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from
A)D to C.
B)A to E.
C)C to D.
D)C to B.
E)E to A.
Q3) What is the difference between federal purchases and federal expenditures?
Q4) If the federal budget has an actual budget surplus of $7.5 billion,but a cyclically adjusted budget surplus of $5.0 billion,then the economy must be above potential real GDP.
A)True
B)False
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Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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265 Flashcards
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Sample Questions
Q1) The curve showing the short-run relationship between ________ and the ________ is called the Phillips curve.
A)nominal interest rate; real interest rate
B)the unemployment rate; the inflation rate
C)price level; real GDP
D)exchange rate; real interest rate
E)the interest rate; government budget deficits
Q2) Which of the following would be the source of a "real" business cycle?
A)changes in technology
B)anticipated expansionary monetary policy
C)unanticipated expansionary monetary policy
D)unanticipated contractionary monetary policy
E)anticipated expansionary fiscal policy
Q3) In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?
A)if expectations are rational
B)if changes in monetary policy are unanticipated
C)if actual inflation is higher than expected
D)if actual inflation is lower than expected
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E)if actual inflation is equal to expected inflation
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Chapter 14: Macroeconomics in an Open Economy
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280 Flashcards
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Sample Questions
Q1) Refer to Figure 14.4.The appreciation of the Canadian dollar is represented as a movement from
A)B to A.
B)D to C.
C)C to B.
D)C to A.
Q2) The large budget deficits of the early 1990s resulted in large current account deficits.
A)True
B)False
Q3) 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.
Q4) Explain and show graphically how an increase in incomes in Canada will affect equilibrium in the foreign exchange market.
Q5) What is the difference between net exports and the current account balance?
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Chapter 15: The International Financial System
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Sample Questions
Q1) Refer to Figure 15.7.Which of the following would cause the change depicted in the figure above?
A)An increase in investment in infrastructure causes Canadian productivity to rise relative to Mexican productivity.
B)A growing preference for Margaritas causes Canadian consumers to increase their preferences for Mexican tequila relative to Canadian-produced alcohol.
C)Dumping accusations result in Canada placing tariffs on produce imported from Mexico.
D)A contractionary monetary policy causes a decrease in the price level of Canadian goods relative to Mexican goods.
E)The Canadian federal government runs a large budget surplus increasing national savings.
Q2) In order to maintain an undervalued yuan to encourage a trade surplus,the Chinese government must buy U.S.dollars and increase the supply of yuan.
A)True
B)False
Q3) Explain why international capital markets have expanded since the 1980s.
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