Contemporary Economic Issues
Test Bank
Course Introduction
This course explores major economic challenges and debates shaping today's global landscape, including income inequality, globalization, environmental sustainability, financial crises, and technological disruption. Students will examine how current events and policies impact economies at local, national, and international levels. Through case studies and critical analysis, the course encourages students to evaluate economic theories in real-world contexts, develop informed opinions, and propose solutions to pressing economic problems.
Recommended Textbook
Macroeconomics 8th Canadian Edition by Andrew B. Abel
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15 Chapters
1394 Verified Questions
1394 Flashcards
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) The main reason Canada has such a high standard of living is
A)low unemployment.
B)high average labour productivity.
C)low inflation.
D)low government budget deficits.
Answer: B
Q2) Macroeconomists cannot conduct experiments in the manner of physicists or chemists,because
A)macroeconomic subjects such as business cycles are very complex.
B)macroeconomists are not allowed to run experiments on human and firm subjects.
C)macroeconomists do not have access to the labs used in physics and chemistry.
D)results of macroeconomic experiments are not reliable.
Answer: B
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Chapter 2: The Measurement and Structure of the Canadian Economy
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Sample Questions
Q1) The national income accounts
A)are an accounting framework used in measuring households income.
B)are an accounting framework used in measuring firms income.
C)are an accounting framework used in measuring government income.
D)are an accounting framework used in measuring current economic activity.
Answer: D
Q2) Inventories are
A)included in the measurement of capital goods.
B)included in the measurements of intermediate goods.
C)fully included in annual measurements of GDP.
D)included in measurements of GDP only if they have changed from the preceding year.
Answer: D
Q3) Explain why in agricultural countries the official GDP are often underestimated.
Answer: Since in agricultural countries many people grow their own food,make their own clothes,and provide services for each other within a family or village group,these non-market activities are not counted in the official GDP.
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Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) When an economy is in full-employment equilibrium,
A)the natural rate of unemployment is zero.
B)there is no frictional unemployment.
C)cyclical unemployment is zero.
D)the unemployment rate is zero.
Answer: C
Q2) An adverse supply shock,such as a reduced supply of raw materials,would
A)increase the marginal product of labour.
B)decrease the marginal product of labour.
C)decrease the marginal product of capital,but have no effect on the marginal product of labour.
D)not affect the marginal product of labour.
Answer: B
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?
Q2) A temporary supply shock,such as a drought,would
A)increase the marginal product of capital and increase desired investment.
B)decrease the marginal product of capital and decrease desired investment.
C)have little or no effect on desired investment.
D)decrease both the marginal product of capital and the marginal product of labour in the long-term future.
Q3) A temporary increase in government purchases,given the level of output,will lead to
A)a higher desired consumption and a higher desired national saving.
B)a lower desired consumption and a lower desired national saving.
C)a higher desired consumption and a lower desired national saving.
D)a lower desired consumption and a higher desired national saving.
Q4) Most people would prefer
A)higher current consumption relative to future consumption.
B)higher future consumption relative to current consumption.
C)to smooth consumption over their lifetime.
D)to match current consumption to current income.
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Page 6
Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) A small open economy has a current account balance of zero.A rise in its investment demand causes
A)a current account surplus.
B)a capital account deficit.
C)income to exceed absorption.
D)net borrowing from abroad.
Q2) Suppose GDP is $20 billion,desired consumption $11 billion,desired investment $1 billion,and government purchases of goods and services $4 billion.What is the desired absorption in this economy?
A)$31 billion
B)$36 billion
C)$21 billion
D)$16 billion
Q3) Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Absorption is equal to
A)$25 billion.
B)$31 billion.
C)$35 billion.
D)$39 billion.
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Page 7
Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) You believe that democracy is compatible with high rates of economic growth.Which of the following arguments would you be least likely to use to justify this belief?
A)Democratic governments are more stable than dictatorships.
B)Democratic governments are less likely to start wars than dictatorships.
C)Democratic governments have better relations with advanced industrial nations than dictatorships.
D)Democratic governments are better able to undertake unpopular but necessary economic reforms.
Q2) The AK model implies that
A)government should invest in R&D to maintain long-run economic growth.
B)human capital increases with the accumulation of physical capital.
C)the standard of living in all countries will converge in the long-run.
D)capital growth is subject to diminishing returns.
Q3) The idea that saving equals investment in the Solow model means that a steady state can be reached only when
A)s = k.
B)s = n + d.
C)sf(k)= (s + d)k.
D)sf(k)= (n + d)k.
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Page 8
Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?
A)Money demand rises proportionately to the rise in wealth.
B)Money demand rises,but less than proportionately to the rise in wealth.
C)The overall effect is ambiguous.
D)Money demand declines.
Q2) Which of the following statements about M1 and M2 is NOT true?
A)Current accounts are part of M1.
B)M2 is more liquid than M1.
C)M2 is larger than M1.
D)Savings accounts are part of M2.
Q3) What happens to M1 and M2+ due to each of the following changes?
a.You take $500 out of your chequing account and put it into a passbook savings account.
b.You take $1000 out of your chequing account and put it into a current account.
c.You take $1500 out of your money-market mutual fund and deposit into your chequing account.
d.You cash in $2000 in savings bonds and invest the money in a certificate of deposit.
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Chapter 8: Business Cycles
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Sample Questions
Q1) The low point in the business cycle is referred to as the A)contraction.
B)recession.
C)trough.
D)depression.
Q2) Which of the following activities is less sensitive to the business cycles?
A)car manufacturing
B)computer industry
C)insurance services
D)building material
Q3) Explain how nominal money growth varies across the business cycles and why it is volatile.
Q4) Which of the following sectors respond strongly to the business cycles?
A)food products
B)clothing products
C)education services
D)computer products
Q5) Explain why durable goods are more sensitive than semi- and non-durable goods to the business cycles.
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Chapter 9: The Is-Lm-Fe Model: a General Framework for
Macroeconomic Analysis
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Sample Questions
Q1) A financial innovation,such as money market mutual funds,which increases the liquidity of alternatives to money,would
A)increase money demand,shifting the LM curve up.
B)increase money demand,shifting the LM curve down.
C)decrease money demand,shifting the LM curve up.
D)decrease money demand,shifting the LM curve down.
Q2) A tax cut on capital will
A)shift the IS curve down and to the left.
B)shift the LM curve up and to the right.
C)shift the IS curve up and to the right.
D)shift the LM curve down and to the left.
Q3) Suppose Bank of Canada sells government bonds to the banks and public.This will cause
A)the LM curve to shift up.
B)the IS curve to shift up.
C)the LM curve to shift down.
D)the IS curve to shift down.
Q4) Using the IS-LM and AD curves,analyze the effect of a contractionary monetary policy (reducing the money supply)on output,the interest rate,and the price level.
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Chapter 10: Exchange Rates, business Cycles, and Macroeconomic Policy
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110 Flashcards
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Sample Questions
Q1) Which of the following is true when the foreign real interest rate decreases,assuming everything else remains constant?
A)The exchange rate rises and net exports declines.
B)The exchange rate rises and net exports increases.
C)The exchange rate falls and net exports declines.
D)The exchange rate falls and net exports increases.
Q2) Under a fixed exchange rate system,if the nominal interest parity condition holds,
A)the nominal interest rates in domestic and foreign economies must be the same.
B)the inflation rates in domestic and foreign economy must be the same.
C)the real exchange rates in domestic and foreign economies must be the same.
D)the net exports in domestic and foreign economies must be the same.
Q3) List two factors which cause net exports to fall.Explain the reasons for the effects.
Q4) An overvalued currency arises when
A)the demand for the currency exceeds the supply.
B)the Central Bank gains reserves while maintaining the exchange rate.
C)the Central Bank keeps the official rate above the fundamental value.
D)the Central Bank keeps the official rate below the fundamental value.
Q5) Describe the pros and cons of the fixed exchange rate system.
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Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
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Sample Questions
Q1) Analyze the short-run and long-run effects of an unanticipated decrease in the money supply in the misperceptions model.Tell what happens to output,the price level,and the expected price level in both the short run and long run.
Q2) When,because of hiring and firing costs,firms retain workers in a recession that they would otherwise lay off,there is said to be
A)labour hoarding.
B)a decline in capacity utilization.
C)voluntary unemployment.
D)involuntary unemployment.
Q3) Which of the following is NOT a primary cause of business cycle fluctuations,according to real business cycle theory?
A)a change in the production function
B)a change in the size of the labour force
C)a change in the money supply
D)a change in the real quantity of government purchases
Q4) How is the Solow residual measured? What problems arise in its measurement when resource utilization varies over the business cycle? What implications do these measurement issues have for evidence supporting the RBC model?
Page 13
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Chapter 12: Keynesian Business Cycle Analysis: Non Market
Clearing Macroeconomics
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Sample Questions
Q1) Keynesian business cycle theory cannot account for the procyclical behaviour of A)employment,money,inflation,and labour productivity with the labour hoarding assumption.
B)unemployment,money,inflation,and labour productivity with the labour hoarding assumption.
C)employment,money,real interest rates,and real wages with sticky wages.
D)unemployment,money,inflation,and real wages.
Q2) Using the Keynesian model,the effect of an increase in corporate taxes would be to cause ________ in the real interest rate and ________ in output in the short run.
A)a decrease;a decrease
B)a decrease;no change
C)a decrease;an increase
D)no change;a decrease
Q3) In the Keynesian model in the long run,a decrease in taxes causes the price level to ________ and the real interest rate to ________.
A)fall;rise
B)fall;fall
C)rise;rise
D)rise;fall
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Which of the following would probably be the most effective at reducing structural unemployment?
A)reduce unemployment benefits
B)provide more information about the availability and location of jobs
C)retrain workers who are unemployed
D)increase union strength in the economy
Q2) In the expectations-augmented Phillips curve = - 3(u - .06),the natural rate of unemployment is
A)0.02.
B)0.03.
C)0.06.
D)18.
Q3) Countries in which the government heavily regulates the labour market are likely to have ________ sacrifice ratio.
A)an infinite
B)a high
C)a low
D)a negative
Q4) Describe the principal costs of unemployment.Are there any benefits to unemployment?
Page 15
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) Which of the following is NOT a policy instrument of the Bank?
A)open-market operations
B)overnight rates operating board
C)changes in reserve requirements
D)changes in the government deficit
Q2) Assume that the reserve-deposit ratio is 0.2.The Bank of Canada carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $2,600,000.What is the currency-deposit ratio?
A)0.2
B)0.3
C)0.4
D)0.5
Q3) The governor of the Bank of Canada
A)is elected by the government.
B)is appointed by the government.
C)is appointed by the senate.
D)is chosen by the Bank itself.
Q4) Discuss how the Bank of Canada responded to the 2008 financial crisis and compare it with Federal Reserve's policy in the U.S.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Seignorage is the revenue a government raises by A)taxation.
B)printing money.
C)borrowing money.
D)charging fees for services.
Q2) The total spending by government during a period of time includes
A)government purchases of goods and services.
B)transfer payments.
C)interest payments.
D)all of the above.
Q3) Suppose that all workers place a value on their leisure of 75 goods per day.The production function relating output per day Y to the number of people working per day N is Y = 500N - 0.4N²,and the marginal product of labour is MPN = 500 - 0.8N.A 25% tax is levied on wages.
a.How much is output per day?
b.In terms of lost output,what is the cost of the distortion introduced by this tax?
Q4) What are the main reasons (give at least three)that Ricardian equivalence might not hold?
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