Economic Analysis Practice
Exam
Course Introduction
Economic Analysis explores the fundamental principles, methodologies, and applications of economics in evaluating how individuals, firms, and governments allocate scarce resources. The course covers key concepts such as supply and demand, market structures, consumer and producer behavior, pricing strategies, efficiency, and welfare analysis. Students will learn to apply quantitative and qualitative tools to assess real-world policy issues, analyze economic decisions, and interpret market outcomes. Emphasis is placed on critical thinking and problem-solving skills, enabling students to make informed economic decisions and understand their broader societal impacts.
Recommended Textbook
Macroeconomics 1st Canadian Edition by R. Glenn Hubbard
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16 Chapters
1250 Verified Questions
1250 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics and the Great Recession
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Sample Questions
Q1) In the short run,macroeconomic analysis focuses on ________,while in the long run,the focus is on ________.
A) fiscal policy; monetary policy
B) short-run economic growth; population demographics
C) unemployment; inflation
D) the business cycle; long-run economic growth
Answer: D
Q2) How do economists measure the "openness" of an economy? Explain if the Canadian economy has become more or less "open" over the past 30 years.
Answer: Economists measure the "openness" of an economy in terms of how much it trades with other economies.Over the past 30 years,the Canadian economy has become more open,with both imports and exports steadily increasing as a percentage of GDP.
Q3) Explain the difference between correlation and causation.
Answer: Correlation refers to two or more events happening at the same time.Causation refers to one event being caused by another event.
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Chapter 2: Measuring the Macroeconomy
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78 Flashcards
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Sample Questions
Q1) The CPI does a better job than the GDP deflator at measuring changes in the A) cost of living as experienced by the typical household.
B) standard of living as experienced by the typical household.
C) the price level for the whole economy.
D) the price level for corporations.
Answer: A
Q2) <b>Refer to Figure 2.3.</b>Nominal GDP in 2007 is
A) $320.63.
B) $490.00.
C) $568.00.
D) $1282.50.
Answer: B
Q3) All of the following are government purchases,except
A) the salary paid to Prime Minister Stephen Harper.
B) the pension paid to former Prime Minister John Turner.
C) the purchase of a new office building for the Canadian Security Intelligence Service.
D) the purchase of new radar tracking equipment for the Canadian Navy.
Answer: B
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Chapter 3: The Canadian Financial System
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Sample Questions
Q1) Which of the following is not one of the three key services provided by the financial system to savers and borrowers?
A) risk sharing
B) credit counselling
C) liquidity
D) information
Answer: B
Q2) An increase in real GDP will shift the money demand curve to the ________,causing the nominal interest rate to ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer: A
Q3) Which of the following has the lowest present value?
A) $1000 received in 3 years if the current interest rate is 4%
B) $1500 received in 5 years if the current interest rate is 6%
C) $2000 received in 6 years if the current interest rate is 11%
D) $3000 received in 10 years if the current interest rate is 13%
Answer: D
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Chapter 4: Money and Inflation
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Sample Questions
Q1) The growth rate of real GDP in Astoria is 7.5%.Assume the growth rate of velocity is constant at a rate of 5%.If Astoria wishes to decrease the inflation rate from the annual rate of 5.99% to a target rate of 4.5% and maintain its current growth rate of real GDP,what will the growth rate of the money supply need to be?
A) 6.49%
B) 7%
C) 8%
D) 8.49%
Q2) If Jennifer withdraws $750 from her chequing account and holds it as currency,then M1+ will ________ and M2+ will ________.
A) decrease; not change
B) not change; increase
C) decrease; decrease D) not change; not change
Q3) Borrowers benefit and lenders lose when the
A) actual interest rate is less than the expected real interest rate. B) actual interest rate is greater than the expected real interest rate. C) actual interest rate is equal to the expected real interest rate.
D) actual inflation rate is less than the expected inflation rate.
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Page 6
Chapter 5: The Global Financial System and Exchange Rates
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Sample Questions
Q1) An increase in capital outflows from Canada will
A) decrease the balance of the Canadian current account.
B) decrease the balance of the Canadian financial account.
C) increase the balance of the capital account of Canada.
D) decrease the balance of the capital account of Canada.
Q2) If the dollar depreciates relative to the Mexican peso,
A) Canadian exports to Mexico become more expensive.
B) Canadian exports to Mexico become less expensive.
C) Mexican imports to Canada become less expensive.
D) the value of Mexican imports to Canada does not change, but the value of Canadian exports to Mexico increases.
Q3) All else equal,an increase in net exports accompanied by a decrease in expected future profits would definitely result in
A) an increase in the equilibrium real interest rate.
B) a decrease in the equilibrium real interest rate.
C) an increase in the equilibrium level of saving and investment.
D) a decrease in the equilibrium level of saving and investment.
Q4) What real-world complications keep purchasing power parity from being a complete explanation of exchange-rate fluctuations in the long run? Explain.
Page 7
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Chapter 6: The Labour Market
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Sample Questions
Q1) Compared to receiving an equilibrium wage,workers who receive efficiency wages are ________ likely to take actions that will get them fired and are ________ likely to switch jobs.
A) more; more
B) more; less
C) less; more
D) less; less
Q2) High unemployment rates persisted for several years after the official end of the Great Recession.The long duration of unemployment for many workers can be viewed as being consistent with an increase in ________ unemployment,and therefore an increase in the natural rate of unemployment.
A) frictional
B) cyclical
C) structural
D) seasonal
Q3) Changes in all of the following will shift the demand curve for labour,except
A) the real wage rate.
B) the quantity of capital.
C) the technology of production.
D) the skill level of workers.
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Chapter 7: The Standard of Living Over Time and Across Countries
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Sample Questions
Q1) The marginal product of capital is always ________ and it ________ as the capital stock increases.
A) positive; increases
B) positive; decreases C) negative; increases
D) negative; decreases
Q2) <b>Refer to Figure 7.1</b>.All else equal,an increase in total factor productivity will cause a
A) shift from PF to PF .
B) shift from PF to PF .
C) movement up and to the right along PF .
D) movement down and to the left along PF .
Q3) Which of the following equations best represents a Cobb-Douglas production function?
A) Y = AK¹ ¹
B) Y = AK³/ ¹/
C) Y = AK¹/³ ³
D) Y = AK²/³ ³/²
Q4) What is human capital? How do workers acquire human capital?
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Chapter 8: Long-Run Economic Growth
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Sample Questions
Q1) In the production function for new ideas and technology in ________,a decrease in the labour force will ________ the growth rate of technological change.
A) the AK growth models; decrease
B) the AK growth models; increase
C) the two-sector growth model; decrease
D) the two-sector growth model; increase
Q2) AK growth models argue that which type or types of capital may not be subject to diminishing returns?
A) only physical capital
B) physical capital and human capital
C) human capital and knowledge
D) knowledge and physical capital
Q3) An increase in the level of total factor productivity will lead to
A) an increase in the capital-labour ratio and an increase in real GDP per worker.
B) an increase in investment and a decrease in depreciation.
C) an upward shift of the break-even investment line and an increase in the capital-labour ratio.
D) a higher rate of dilution and lower break-even investment.
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Chapter 9: Business Cycles
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Sample Questions
Q1) If potential GDP for the third quarter of 2013 = $20.4 billion,and the deviation from potential GDP for the third quarter of 2013 = $1.6 billion,then real GDP for the third quarter of 2013 equals
A) $6.5 billion.
B) $18.8 billion.
C) $22 billion.
D) $32.64 billion.
Q2) What is the multiplier effect and when do multiplier effects occur?
Q3) Suppose for every dollar change in household wealth,consumption expenditures change by $0.10.If real household wealth increases by $200 billion and potential GDP is $950 billion,what is the total change in output relative to potential for:
a. the first year,if the multiplier effect for the first year after an expenditure shock is 1.7?
b. the second year,if the multiplier effect for the second year after an expenditure shock is 1.3?
c. the third year,if the multiplier effect for the third year after an expenditure shock is 0.9?
Q4) List three reasons why nominal wages can be sticky in the short run.
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Page 11
Chapter 10: Explaining Aggregate Demand: the Is-Mp
Model
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Sample Questions
Q1) <b>Refer to Table 10.1.</b>Suppose that all of the information given in the table remains the same except that taxes equal $0.5 billion.Equilibrium real GDP for this economy is equal to
A) $6.25 billion.
B) $17.7 billion.
C) $16.1 billion.
D) $47.3 billion.
Q2) Explain how an increase in the real interest rate,with no changes to other factors that affect aggregate expenditure,impacts aggregate expenditure and how this interest rate increase is shown on the IS curve.How would this change if there was a negative demand shock with no change in the real interest rate? Show both situations using graphs for aggregate expenditure and the IS curve.
Q3) Other things equal,if planned investment spending is greater than actual investment spending,then aggregate expenditure will be ________ real GDP and inventories will
A) greater than; rise
B) greater than; fall
C) less than; rise
D) less than; fall
Page 12
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Chapter 11: The Is-Mp Model: Adding Inflation and the Open Economy
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Sample Questions
Q1) Under a fixed exchange rate system,a real interest rate corresponding to the upward-sloping portion of the NCF curve reflects the fact that a central bank ________,and the real interest rate corresponding to the horizontal portion of the NCF curve reflects the fact that a central bank ________.
A) can always supply more domestic currency; can always meet the demand for foreign currency
B) can always supply more domestic currency; is limited in meeting the demand for foreign currency
C) is limited in meeting the demand for domestic currency; can always meet the demand for foreign currency
D) is limited in meeting the demand for domestic currency; is limited in meeting the demand for foreign currency
Q2) The financial market shock that occurred during the Great Recession increased the default-risk premium,causing the
A) IS curve to shift to the right.
B) IS curve to shift to the left.
C) MP curve to shift up.
D) MP curve to shift down.
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Chapter 12: Monetary Policy in the Short Run
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Sample Questions
Q1) <b>Refer to Figure 12.1.</b>.Suppose the economy is initially at full employment with real GDP equal to potential GDP,and the expected inflation rate equal to the actual inflation rate.If an economic shock causes the IS curve to shift from IS to IS ,this will
A) push the economy down the Phillips curve, raising the inflation rate.
B) push the economy up the Phillips curve, raising the inflation rate.
C) push the economy down the Phillips curve, lowering the inflation rate.
D) push the economy up the Phillips curve, lowering the inflation rate.
Q2) The Board of Directors of the Bank of Canada consists of
A) 12 outside directors, the governor, the senior deputy governor, and a deputy minister of finance.
B) the governor, a deputy minister, and several CEOs of large commercial banks.
C) 8 outside directors.
D) CEOs of the largest 5 commercial banks in Canada.
Q3) What are the effects of an expansionary monetary policy on interest rates and output in an open economy with floating exchange rates?
Q4) What is the policy trilemma?
Q5) When and why was the Bank of Canada created?
Q6) Briefly explain the primary goal of the Bank of Canada.
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Chapter 13: Fiscal Policy in the Short Run
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Sample Questions
Q1) If the economy is in a recession,the inflation rate is ________ it would be at potential GDP.Other things equal,if the government implemented an expansionary fiscal policy,the inflation rate would ________.
A) greater than; remain constant
B) greater than; decrease
C) less than; increase
D) less than; remain constant
Q2) Changes in taxes,transfer payments,or government expenditures that naturally occur with the business cycle are known as
A) expansionary fiscal policy.
B) contractionary fiscal policy.
C) discretionary fiscal policy.
D) automatic stabilizers.
Q3) A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
A) increase; rise; falls
B) decrease; rise; falls
C) increase; fall; rises
D) decrease; fall; rises
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Page 15
Chapter 14: Aggregate Demand, aggregate Supply, and Monetary
Policy
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Sample Questions
Q1) Suppose the Bank of Canada has a target inflation rate of 3%,always hits its target,and the inflation rate has been 3% for several years.Furthermore,assume Amazon sets the price of its Kindle Fire at $140 in 2012 and wants to keep the real price of the Kindle constant in order to maximize profits.Now suppose that the Bank of Canada announces on January 1,2013 that it will decrease its target rate for inflation to 1%.The profit-maximizing price for the Kindle in 2013 will be
A) $137.20.
B) $140.00.
C) $141.40.
D) $144.20.
Q2) The Taylor rule is most suitable to study the behaviour of a central bank with the dual mandate of
A) stable exchange rates and price stability.
B) price stability and maximum sustainable employment.
C) financial market stability and stable exchange rates.
D) maximum sustainable employment and financial market stability.
Q3) Explain the relationship between the aggregate supply curve and the Phillips curve.
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Page 16
Chapter 15: Fiscal Policy and the Government Budget in the Long Run
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Sample Questions
Q1) Holding everything else constant,if total factor productivity increases,the debt-to-GDP ratio will ________,and if the labour force growth rate increases,the debt-to-GDP ratio will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q2) The most important source of revenue for the federal government is
A) tax revenue.
B) investment income from the Bank of Canada.
C) seigniorage.
D) import tariffs.
Q3) Of the primary tax sources of revenue for the Canadian federal government,which of the following has displayed no long-term trend as a percentage of GDP since 1981?
A) corporate income taxes
B) social insurance taxes
C) GST (Manufacturer's Sales Tax prior to 1991)
D) individual income taxes
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Chapter 16: Consumption and Investment
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Sample Questions
Q1) Hector's wealth is zero,he expects to work for another 45 years at a constant salary of ?$80 000 and live for another 60 years.If yearly taxes are $20 000 and Hector completely smooths consumption over his lifetime,Hector's average annual saving is ________ less than it would be if yearly taxes were zero.
A) $5000
B) $7500
C) $15 000
D) $20 000
Q2) Economists assume that the objective of households is to maximize ________,and that the objective of firms is to maximize ________.
A) leisure; profits
B) utility; profits
C) utility; utility
D) leisure; utility
Q3) What is meant by the statement that investment projects are irreversible? How does the idea that investment projects are irreversible affect the volatility of investment in capital goods?
Q4) Explain how changes in corporate taxes affect the investment decisions of firms.
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