Economic Analysis
Study Guide Questions
Course Introduction
Economic Analysis is a course designed to provide students with a comprehensive understanding of the fundamental principles and tools used in analyzing economic decisions and outcomes. The course covers key topics such as supply and demand, market structures, consumer and producer behavior, the allocation of resources, and the impact of government policies on markets. Through theoretical models and real-world case studies, students learn to apply quantitative and qualitative methods to evaluate economic issues, interpret economic data, and develop informed solutions to complex problems faced by individuals, businesses, and policymakers in a dynamic global environment.
Recommended Textbook
Macroeconomics 3rd Edition Canadian by Paul Krugman Robin Wells
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19 Chapters
5325 Verified Questions
5325 Flashcards
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) The incentives built into the market economy ensure that resources are put to good use and that opportunities to make people better off are not wasted.This means that:
A) people usually are not selfish enough to exploit opportunities to make themselves better off.
B) markets move toward equilibrium.
C) resources should be used as efficiently as possible to achieve society's goals.
D) markets usually lead to efficiency.
Answer: D
Q2) The federal government regulates how much carbon dioxide a factory can emit.Which economic principle does this statement BEST represent?
A) There are gains from trade.
B) "How much" is a decision at the margin.
C) Markets usually lead to efficiency.
D) When markets don't achieve efficiency,government intervention can improve society's welfare.
Answer: D
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Chapter 2: Economic Models: Trade-Offs and Trade
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Sample Questions
Q1) Technological improvements will:
A) leave the production possibility frontier unchanged.
B) shift the production possibility frontier inward.
C) shift the production possibility frontier outward.
D) necessarily lead to increased unemployment.
Answer: C
Q2) (Figure: Production Possibilities and Circular-Flow Diagram)Use Figure: Production Possibilities and Circular-Flow Diagram.Assume the two figures represent the same economy.Suppose that in the circular-flow diagram capital that used to flow to firms producing coconuts now flows to firms producing fish.This adjustment in the economy would be BEST represented in the production possibilities figure by a move from point A toward:
A) point A (no movement).
B) point B (a decrease in coconut production and an increase in fish production).
C) point C (a decrease in coconut production).
D) point D (an outward shift of the entire curve).
Answer: B
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4
Chapter 3: Supply and Demand
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Sample Questions
Q1) Which factor will NOT cause an increase in the supply of good X?
A) an improvement in the technology used to produce good X
B) an increase in the number of firms that sell good X
C) an increase in the price of inputs used to produce good X
D) a decrease in the price of labour used to produce good X
Answer: C
Q2) If the price of mozzarella cheese (an ingredient in pizza)declines,there will be:
A) a decrease in the supply of pizza.
B) an increase in the supply of pizza.
C) a decrease in the quantity of pizza supplied.
D) no change in the supply of pizza.
Answer: B
Q3) According to the law of demand,if the price of steak increases in Alberta,the demand for steak will decrease in Alberta.
A)True
B)False
Answer: False
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5
Chapter 4: Price Controls and Quotas: Meddling With Markets
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Sample Questions
Q1) (Table: Market for Banana Muffins)Use Table: Market for Banana Muffins.Suppose that the government decides to reduce banana muffin consumption as part of a war on obesity.After careful study,the government decides to impose a quota of 5 000 on production of banana muffins this year.What price will producers charge if they obey the quota law?
A) $1.20
B) $1.30
C) $1.50
D) The answer cannot be determined with this information.
Q2) (Figure: Rent Controls)Use Figure: Rent Controls.If rent controls are set at Rent<sub>1</sub>:
A) rental apartments may be of inefficiently low quality.
B) there will be an efficient allocation of rentals.
C) some landlords may break the law by renting below the mandated price.
D) new apartments will be constructed.
Q3) Critics of the pharmaceutical industry often argue that price ceilings should be imposed on drug manufacturers.If this happened,the quality of drugs would improve.
A)True
B)False
Page 6
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Chapter 5: International Trade
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Sample Questions
Q1) (Table: The Production Possibilities for Tractors and Crude Oil)Use Table: The Production Possibilities for Tractors and Crude Oil.In Mexico,the opportunity cost of producing 40 tractors is _____ barrels of crude oil.
A) 30 000
B) 90 000
C) 120 000
D) 270 000
Q2) Taken collectively,people in nations that engage in international trade are NOT likely to:
A) consume more than they were able to consume in the absence of trade.
B) raise their standards of living.
C) gain from lower opportunity costs of production.
D) be made worse off.
Q3) A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.
A) raise;increase
B) raise;decrease
C) lower;increase
D) lower;decrease
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Page 7
Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) A country's real gross domestic product (GDP)undergoes periodic fluctuations called a(n):
A) recession.
B) business cycle.
C) expansion.
D) trough.
Q2) Economists use the term long-term growth to indicate:
A) the expansion phase of the business cycle.
B) the growth of the economy over several decades.
C) the growth of the economy over 1-5 years.
D) long-run growth of the value of a company.
Q3) Which is MOST likely a macroeconomic,not microeconomic,question?
A) Is the national unemployment rate rising or falling?
B) Are consumers buying more bottled water and less fruit juice?
C) Are salaries for nurses rising or falling?
D) Should a tax be levied on each tonne of carbon dioxide a factory emits?
Q4) Following a trough,real GDP increases.
A)True
B)False
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Chapter 7: Gdp and the Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) (Table: Lemonade and Cookies)Use Table: Lemonade and Cookies.Assume that an economy produces only lemonade and cookies.The growth rate of nominal GDP from 2013 to 2014 was _____%.
A) 5
B) 10
C) 11.25
D) 45
Q2) The consumer price index is intended to show how the cost of all purchases by a typical urban family has changed over time.
A)True
B)False
Q3) In the product markets:
A) households supply goods and services.
B) households supply resources.
C) firms demand goods and services.
D) firms supply goods and services.
Q4) Spending on housing is the largest portion of the consumer price index.
A)True
B)False
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) In 2017,10 million people did not have a job but were actively looking for employment,and 85 million people had either a full-time or a part-time job.The unemployment rate in 2017 was _____%.
A) 10
B) 9.5
C) 10.5
D) 8.5
Q2) During periods of high inflation,stores that publish catalogs find it necessary to revise prices and publish new catalogs more frequently than they did before.This is an example of menu costs.
A)True
B)False
Q3) The percentage of the labour force that is unemployed is the:
A) labour force participation rate.
B) employment ratio.
C) unemployment rate.
D) natural employment rate.
Q4) If the labour force becomes younger,the natural rate of unemployment will fall.
A)True
B)False
Page 10
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Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) The economy has grown by 4% per year over the past 30 years.During the same period,the labour force has grown by 1% per year and the quantity of physical capital has grown by 5% per year.Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%.Assume that human capital has not changed during the past 30 years.How much has growing physical capital per worker contributed as a percentage of total productivity growth?
A) 80%
B) 53%
C) 30%
D) 9%
Q2) Among the factors that are important for economic growth are:
A) property rights.
B) growth accounting.
C) natural resources.
D) convergence.
Q3) Which change will NOT increase the productivity of labour?
A) technological improvements
B) an increase in the capital stock
C) improvements in education
D) an increase in the size of the labour force
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) Loans are more liquid than bonds because they are more standardized than bonds.
A)True
B)False
Q2) If an economy is closed and wishes to increase its investment spending:
A) its only source of funding is domestic saving.
B) its sources of funding are domestic and foreign saving.
C) the government will have to increase its spending to provide for this.
D) the government will increase taxes to provide for this.
Q3) Which index includes smaller companies,many in the technology sector?
A) the Dow Jones Industrial Average
B) the producer price index
C) S&P/TSX Composite Index
D) the NASDAQ
Q4) A bond is a financial asset that pays a fixed amount of interest each year and then repays the principal on a given date.
A)True
B)False
Q5) Most human capital is provided by private spending for private education.
A)True
B)False
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Chapter 11: Income and Expenditure
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Sample Questions
Q1) (Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.Suppose that the consumption function in this economy rises by $200.Equilibrium real GDP would rise by:
A) $100.
B) $200.
C) $250.
D) $500.
Q2) A $200 million increase in investment spending will increase real GDP by more than $200 million.
A)True
B)False
Q3) (Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.Suppose that the consumption function rises by $100.The equilibrium level of real GDP would rise by:
A) $100.
B) $200.
C) $250.
D) $50.
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Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) If Nike sells basketball shoes for $150 per pair and the cost of producing and selling a pair of basketball shoes is $15,Nike's profit per unit on a pair of basketball shoes is:
A) $135.
B) $160.
C) $165.
D) $10.
Q2) (Figure: An Increase in Aggregate Demand)Refer to Figure: An Increase in Aggregate Demand.At the Y<sub>2</sub> level of real GDP:
A) an inflationary gap equal to the sum of Y<sub>2</sub> and Y<sub>P</sub><sub> </sub>occurs.
B) an inflationary gap equal to the difference between Y<sub>2</sub> and Y<sub>P</sub> occurs.
C) the solution at Y<sub>2</sub> is a long-run equilibrium.
D) a recessionary gap equal to the difference between Y<sub>2</sub> and Y<sub>P</sub> occurs.
Q3) The nominal wage is the dollar amount of the wage paid.
A)True
B)False
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Over the past few decades in the United States,large federal budget deficits most often have been caused by:
A) decreased spending on welfare payments.
B) excessive spending by the state governments.
C) a depressed economy.
D) excessive tax increases.
Q2) If overall spending declines and thus the economy contracts,the government could counter this by:
A) raising tax rates.
B) decreasing government transfers.
C) increasing government spending.
D) decreasing government spending.
Q3) Spending promises made by the government that are effectively a debt,although they are not included in the usual debt statistics,are known as:
A) burden of debt.
B) structural deficit.
C) implicit liabilities.
D) constructive debt.
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) When the Canadian government issues Treasury bills,it sells them directly to the Bank of Canada.
A)True
B)False
Q2) Which factor would be classified as a tool of monetary policy used by the Bank of Canada?
I.open-market operations
II.government purchases of goods and services
A) I only
B) II only
C) I and II
D) neither I nor II
Q3) What type of bank accepts deposits and is covered by deposit insurance?
A) commercial bank
B) investment bank
C) the Bank of Canada
D) private bank
Q4) A gift certificate that can be used to buy goods at Walmart is money.
A)True
B)False
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Chapter 15: Monetary Policy
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Sample
Questions
Q1) (Figure: A Money Market)Refer to Figure: A Money Market.Holding the money supply constant,which reason might cause the equilibrium interest rate to decrease to i<sub>1</sub>?
A) The inflation rate rises to historically high levels.
B) Higher payroll taxes cause employers to pay workers cash under the table.
C) A recession decreases real GDP.
D) There is a significant increase in the stock market.
Q2) Contractionary monetary policy will,holding everything else constant,_____ the interest rate and shift the AD curve to the _____.
A) increase;right
B) increase;left
C) decrease;left
D) decrease;right
Q3) Expansionary monetary policy may decrease investment spending.
A)True
B)False
Q4) The higher the short-term interest rate,the lower the opportunity cost of holding money.
A)True
B)False
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) Debt deflation is the _____ in aggregate _____ caused by deflation.
A) increase;supply
B) reduction;supply
C) increase;demand
D) reduction;demand
Q2) In the classical model of the price level,there is no distinction between the short run and the long run.
A)True
B)False
Q3) The long-run Phillips curve shows the relationship between:
A) potential aggregate output and the natural rate of unemployment at a given rate of expected inflation.
B) expected inflation and actual inflation after the expectation becomes embedded in people's minds.
C) the aggregate output and the aggregate price level at a given rate of expected inflation.
D) unemployment and inflation after expectations of inflation have had time to adjust to experience.
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18
Chapter 17: Macroeconomics: Events and Ideas
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Sample Questions
Q1) Which school of thought believes that fiscal policy should have the central role in fighting recessions?
I.classical macroeconomics
II.Keynesian macroeconomics
III.monetarism
A) I only
B) II only
C) III only
D) I,II,and III
Q2) The classical macroeconomists believed that fiscal policy was even less effective than monetary policy.
A)True
B)False
Q3) The belief that fluctuations in the rate of growth of factor productivity cause the business cycle is:
A) new classicalism.
B) monetarism.
C) Keynesianism.
D) the real business cycle theory.
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Page 19
Chapter 18: International Macroeconomics
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Sample Questions
Q1) If the price levels in two countries are equal,then the real exchange rate between their currencies equals the nominal exchange rate.
A)True
B)False
Q2) If Canada exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers,the balance on the current account is:
A) $250 billion.
B) -$250 billion.
C) $50 billion.
D) -$50 billion.
Q3) Foreign exchange reserves are gold and silver that a government maintains to buy its currency in foreign exchange markets.
A)True
B)False
Q4) A devaluation can help reduce an inflationary gap.
A)True
B)False
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Page 20
Chapter 19: Graphs in Economics
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Sample Questions
Q1) (Figure: Good X and Good Y)Use Figure: Good X and Good Y.If we move from point B to point C in the figure,the x-variable has _____ units and the y-variable has _____ units.
A) decreased by 2;increased by 15
B) increased by 2;decreased by 15
C) decreased by 15;increased by 2
D) increased by 15;decreased by 2
Q2) (Figure: Illustrating Slope)Use Figure: Illustrating Slope.In the graph,line 1 depicts X and Y to be:
A) positively related.
B) non-linearly related.
C) unrelated.
D) negatively related.
Q3) Taylor sees a bar graph showing the average weight of adult males over the past 200 years and concludes that men get more obese over time.Taylor's conclusion may be wrong since she did not consider:
A) the features of construction.
B) omitted variables.
C) reverse causality.
D) tangent lines.
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