Contemporary Economic Issues
Textbook Exam Questions
Course Introduction
Contemporary Economic Issues explores the major challenges and developments facing modern economies around the world. The course examines topics such as globalization, income inequality, unemployment, inflation, environmental sustainability, technological change, and financial crises. Students will analyze how these issues impact economic policy decisions and society, drawing on current data, case studies, and theoretical perspectives. By the end of the course, learners will be equipped to engage critically with ongoing economic debates and understand the implications of contemporary issues for both local and global economies.
Recommended Textbook
Understanding Economics 7th Edition by Mark Lovewell
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Page 2
Chapter 1: The Economic Problem
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Sample Questions
Q1) The study of economics is carried out because:
A)government interferes with the efficient distribution of scarce resources
B)resources are scarce in relation to consumer wants
C)the market system is an obstacle to the efficient use of plentiful resources to satisfy limited wants
D)resources are overly abundant as compared with wants and, therefore, a distribution problem exists
E)government aids in the efficient distribution of scarce resources
Answer: B
Q2) The role of the entrepreneur involves:
A)waiting for leadership
B)manual labour
C)bearing risks
D)hiring chartered accountants to make business decisions for them
E)acting as a landowner
Answer: C
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Chapter 2: Demand and Supply
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Sample Questions
Q1) An economist for a bicycle company predicts that,ceteris paribus,a rise in consumer incomes increases the demand for bicycles.This prediction is based upon the assumption that:
A)there are many goods that are substitutes for bicycles
B)there are many goods that are complementary to bicycles
C)there are few goods that are substitutes for bicycles
D)bicycles are normal products
E)bicycles are inferior products
Answer: D
Q2) Assume that the demand curve for product C is downward-sloping.If the price of C falls from $2 to $1.75,then:
A)a smaller quantity of C is demanded
B)a larger quantity of C is demanded
C)the demand for C increases
D)the demand for C decreases
E)a smaller quantity of complementary product D is demanded
Answer: B
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Chapter 3: Elasticity
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Sample Questions
Q1) A rise in the price of butter from $3 to $5 per kilogram causes the quantity demanded of margarine to increase from 100 000 to 200 000 kilograms.The numerical value of the cross-price elasticity between these two goods is therefore:
A)-0.75
B)0.75
C)1.33
D)1.50
E)-1.33
Answer: C
Q2) A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4.It was also found that total revenue decreased when price was raised from $5 to $6.It can be concluded that:
A)the demand for pizza is elastic above $5 and inelastic below $5
B)the demand for pizza is elastic both above and below $5
C)the demand for pizza is inelastic above $5 and elastic below $5
D)the demand for pizza is inelastic both above and below $5
E)$5 is not the equilibrium price of pizza
Answer: A
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Chapter 4: Costs of Production
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Sample Questions
Q1) The long-run average cost curve:
A)will rise once the law of diminishing marginal returns begins to apply
B)will fall once the law of diminishing marginal returns begins to apply
C)will rise if increasing returns to scale apply
D)will be vertical if constant returns to scale apply
E)is based on the assumption that all resources are variable
Q2) Marginal cost:
A)is the total cost of producing each unit of output
B)is the change in total cost divided by the change in average product
C)rises as long as marginal product continues to fall
D)is average product divided by the change in total cost
E)is marginal product divided by the change in total cost
Q3) Average fixed cost:
A)is intersected by marginal cost at its minimum point
B)may be found for any output by adding average variable cost and average cost
C)graphs as a U-shaped curve
D)declines so long as output increases
E)graphs as a hill-shaped curve
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Chapter 5: Perfect Competition
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Sample Questions
Q1) The labour demand curve of a business in a perfectly competitive labour market:
A)slopes downward because the elasticity of demand is always less than unity
B)slopes downward because of declining marginal product
C)is perfectly elastic at the prevailing wage rate
D)slopes downward because of diminishing marginal utility
E)slopes upward because of the business's ability to set its resource price
Q2) The demand curve of an individual perfectly competitive business is:
A)horizontal at a price set by the business
B)downward-sloping with price set solely by the forces of supply and demand
C)perfectly inelastic
D)horizontal at a price set by the forces of market supply and demand
E)upward-sloping with price set solely by the forces of supply and demand
Q3) Marginal revenue may be defined as the:
A)change in product price associated with the sale of one more unit of output
B)change in average revenue associated with the sale of one more unit of output
C)difference between product price and average cost
D)change in total revenue associated with the sale of one more unit of output
E)total revenue divided by the number of units of output produced
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7
Chapter 6: Monopoly and Imperfect Competition
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Sample Questions
Q1) The monopolist's demand curve is:
A)non-existent
B)perfectly elastic
C)unit-elastic
D)perfectly inelastic
E)identical to the market demand curve
Q2) For this firm,the marginal revenue of the third machine is:
A)$600 000
B)$400 000
C)$200 000
D)$0
E)-$200 000
Q3) Defenders of industrial concentration argue that:
A)only businesses with substantial market power will earn enough profit to sustain operations in the long run
B)only large businesses can take advantage of increasing returns to scale
C)large businesses often operate in perfectly competitive markets
D)competition should be enhanced in a concentrated market
E)small businesses are able to take advantage of decreasing returns to scale
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Page 8
Chapter 7: Economic Welfare and Income Distribution
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Sample Questions
Q1) Income inequality may be desirable if:
A)equity is achieved only at the expense of decreased economic growth
B)it limits the desire for further education
C)it provides a disincentive for increased entrepreneurial risk-taking
D)it leads to discrimination
E)it is caused by government tax policies
Q2) The Lorenz curve is used to portray the:
A)government revenues gained through the federal tax system
B)extent to which our welfare system affects incentives to work
C)degree of inequality in the distribution of income
D)degree of discrimination against minorities
E)government expenditures on transfer payments
Q3) The shift of the demand curve from D<sub>0</sub> to D<sub>1</sub> in the second diagram might be caused by a per unit:
A)subsidy paid to the producers of this product
B)tax on the producers of this product
C)subsidy paid to the buyers of this product
D)tax on the buyers of this product
E)tax on the buyers of this product combined with a subsidy paid to producers
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Page 9
Chapter 8: Measures of Economic Activity
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Sample Questions
Q1) A nation's capital stock will decline when:
A)gross investment exceeds net investment
B)net investment is positive, but less than gross investment
C)gross investment exceeds depreciation
D)depreciation exceeds gross investment
E)gross investment is positive, but less than net investment
Q2) "Value added" refers to:
A)any increase in GDP that has been adjusted for negative environmental effects
B)the excess of a country's exports over its imports
C)the excess of gross investment over net investment
D)the difference between GDP and GNI
E)the difference between the value of a business's output and the value of the resources that it has purchased from others
Q3) In calculating GDP,national income accountants:
A)treat inventory changes as an adjustment to personal consumption expenditures
B)ignore inventories because they do not represent final products
C)subtract increases in inventories or add decreases in inventories
D)add increases in inventories or subtract decreases in inventories
E)subtract increases in inventories but ignore decreases in inventories
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Page 10
Chapter 9: Inflation and Unemployment
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Sample Questions
Q1) A college or university graduate searching for a job following graduation would best be classified as:
A)not officially a member of the labour force
B)a part of structural unemployment
C)a part of cyclical unemployment
D)a part of frictional unemployment
E)a part of secular unemployment
Q2) In a given year,a country's nominal income rose by 8 percent and its price level rose by 5 percent.We can conclude that the country's real income:
A)may have either increased or decreased
B)rose by 13 percent
C)rose by 3 percent
D)fell by 13 percent
E)fell by 3 percent
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Chapter 10: Economic Fluctuations
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Sample Questions
Q1) What will be the effect of positive unplanned investment?
A)a decline in the rate of interest
B)an unintended reduction in inventories by businesses
C)a rise in the price level
D)a fall in the price level
E)a rise in the rate of interest
Q2) During an economic expansion:
A)the aggregate demand curve shifts leftward
B)households and businesses spend less due to growing pessimism about the future
C)households and businesses spend more due to growing optimism about the future
D)exports tend to decrease
E)imports tend to decrease
Q3) Which of the following statements is correct?
A)Unplanned investment is zero only at equilibrium.
B)All price levels where unplanned investment is positive are too low for equilibrium.
C)All price levels where unplanned investment is negative are too high for equilibrium.
D)Unplanned investment is zero at all possible price levels.
E)Unplanned investment is zero at all possible price levels below equilibrium.
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) A reduction in taxes may:
A)increase saving
B)increase real output
C)reduce unemployment
D)increase consumption
E)increase saving, consumption and output, as well as reduce unemployment
Q2) Functional finance:
A)is designed to increase the MPC in the interest of greater macroeconomic stability
B)leads to annually balanced budgets
C)treats the government budget primarily as a means of stabilizing the economy
D)is defended by those economists who are most sceptical of fiscal policy's effectiveness
E)leads to cyclically balanced budgets
Q3) An increase in taxes will have a greater effect on equilibrium output:
A)if the tax revenues are redistributed through transfer payments
B)the larger the MPW
C)the smaller the MPC
D)the larger the MPC
E)if the aggregate supply curve is vertical
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Page 13
Chapter 12: Money
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Sample Questions
Q1) If the reserve ratio is 5 percent,then the money multiplier for the banking system will be:
A)5
B)1/5
C)20
D)1/20
E)1/.5
Q2) The monetarist view of discretionary monetary policy is that:
A)its use has tended to destabilize the economy
B)it doesn't work because M and V always vary in opposite directions
C)it is a weaker stabilization tool than fiscal policy
D)it should be used only in combination with fiscal policy to stabilize the economy
E)it doesn't work because P and Q always move in opposite directions
Q3) Currency held within chartered banks is considered to be part of:
A)the M3 definition of the money supply
B)the M2 definition of the money supply
C)the M1+ definition of the money supply
D)the M2+ definition of the money supply
E)none of the definitions of the money supply
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Page 14
Chapter 13: Monetary Policy
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Q1) The traditional Phillips curve suggests that,if an expansionary fiscal or monetary policy is used to stimulate output and employment:
A)unemployment may actually increase
B)prices may fall
C)inflation may result
D)the natural rate of unemployment may be affected
E)prices tend to stay the same
Q2) The money supply (M),the interest rate (r),and aggregate demand (AD)are related such that a(n):
A)reduction in M reduces r and the reduction in r increases AD
B)reduction in M increases r and the increase in r decreases AD
C)increase in M increases r and the increase in r decreases AD
D)increase in M reduces r and the reduction in r decreases AD
E)increase in M increases r and the increase in r increases AD
Q3) Which of the following would be the most likely cause of cost-push inflation?
A)more aggressive wage bargaining by labour unions
B)a reduction in raw material prices
C)a decline in the number of workers belonging to labour unions
D)more rapid increases in labour productivity
E)an increase in consumption spending
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Chapter 14: The Foreign Sector
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Sample Questions
Q1) Under a system of fixed exchange rates,the shift in demand from D<sub>0</sub> to D<sub>1</sub> and in supply from S<sub>0</sub> to S<sub>1</sub> will cause:
A)no change in Canada's stocks of international monetary reserves
B)a British balance-of-payments deficit
C)a Canadian balance-of-payments deficit
D)a Canadian balance-of-payments surplus
E)an immediate fall in the value of the Canadian dollar
Q2) According to Jane Jacobs,cities achieve long-lasting prosperity mainly by:
A)producing items previously imported from outside the city's borders.
B)concentrating on the production of a few export items
C)raising their populations through a generous system of social services
D)ensuring that local businesses are adequately taxed
E)subsidising local businesses
Q3) A recession in Canada would most likely:
A)reduce a Canadian trade deficit
B)increase a Canadian trade deficit
C)increase the economic growth of our trading partners
D)increase domestic interest rates
E)cause a federal budget surplus
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Page 16
Chapter 15: Foreign Trade
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Sample Questions
Q1) The primary economic advantage of the European Union to its members is that:
A)the tax structures of each participating nation have been made nearly identical
B)each nation is free to formulate its own trade policies
C)all participating nations use a common currency
D)the reduction of trade barriers permits producers to specialize based on the principle of comparative advantage
E)all labour and safety regulations are now standardized through the area
Q2) Assuming there is no tariff,the imposition of the import quota:
A)will increase the revenue of the Canadian government by areas G + H
B)will increase the revenue of the Canadian government by areas E + F + G + H + J
C)leads to an extra revenue to foreign producers equal to areas G + H, which partly counteracts the loss they bear because of lower quantities supplied
D)will increase the revenues of foreign producers by area E
E)will increase the revenues of foreign producers by area F + J
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