Economic Policy Analysis
Exam Bank
Course Introduction
Economic Policy Analysis provides students with the tools and frameworks needed to evaluate and design public policies addressing key economic issues. The course covers methods for assessing the effectiveness and impact of policies such as taxation, subsidies, regulation, monetary policy, and trade interventions. Through theoretical models and real-world case studies, students learn to critically analyze government interventions in the economy, considering efficiency, equity, and political feasibility. Emphasis is placed on empirical techniques and cost-benefit analysis, preparing students to make informed recommendations and understand policy trade-offs in various economic contexts.
Recommended Textbook
Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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18 Chapters
3510 Verified Questions
3510 Flashcards
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) What is market power?
A)the power of a single person or group to influence market prices
B)the ability of a person or group of people to successfully market new products
C)the power of the government to regulate a market
D)the relative importance of a market to the overall economy
Answer: A
Q2) When does a rational decision maker take an action?
A)only if the marginal benefit is less than the marginal cost
B)only if the marginal benefit is greater than the marginal cost
C)only if the average benefit is greater than the average cost
D)only if the marginal benefit is greater than both the average cost and the marginal cost
Answer: B
Q3) What happens if Japan chooses to engage in trade?
A)It will only benefit if it trades with countries that produce goods it cannot produce.
B)It cannot benefit if it trades with less developed countries.
C)It should first attempt to produce the good itself.
D)It can benefit by trading with any other country.
Answer: D
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Chapter 2: Thinking Like an Economist
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235 Flashcards
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Sample Questions
Q1) What do the duties of the economists employed by Human Resources and Skill Development Canada include?
A)advising Parliament
B)designing tax policy
C)writing the annual Economic Report
D)studying the relationship between average wages and gender
Answer: D
Q2) What makes a model compelling?
A)its mathematical structure
B)its simplicity
C)its predictions
D)its assumptions
Answer: C
Q3) When economists are speaking as policy advisors,which statements are they more likely to use?
A)normative statements
B)positive statements
C)objective statements
D)descriptive statements
Answer: A
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Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to Table 3-5.How could England and Spain benefit?
A)by England specializing in bread and Spain specializing in cheese
B)by England specializing in cheese and Spain specializing in bread
C)by England specializing in both goods and Spain specializing in neither good
D)by England specializing in neither good and Spain specializing in both goods
Answer: A
Q2) Refer to Table 3-5.What is the opportunity cost of one car for Canada?
A)4 airplanes
B)3 airplanes
C)1/3 airplane
D)1/4 airplane
Answer: D
Q3) Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.What is the opportunity cost of 1 chair?
A)1/5 table for Mike and 1/3 table for Sandy
B)5 tables for Mike and 3 tables for Sandy
C)1/3 table for Mike and 1/5 table for Sandy
D)3 tables for Mike and 5 tables for Sandy
Answer: A
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Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) Refer to the Figure 4-1.What could cause the movement from S to S1?
A)a decrease in the price of the good
B)an improvement in technology
C)an increase in income
D)an increase in input prices
Q2) Which of the following is NOT a determinant of demand?
A)the price of a resource
B)the price of a complementary good
C)the price of the good next month
D)the price of a substitute good
Q3) Pens are normal goods.What will happen to the equilibrium price of pens if the prices of pencils rises,consumers experience an increase in income,writing in ink becomes fashionable,people expect the price of pens to rise in the near future,the population increases,fewer firms manufacture pens,and the wages of pen-makers increase?
A)price will rise
B)price will fall
C)price will stay exactly the same
D)price change will be ambiguous
Page 6
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) For a seller,which of the following is NOT positively related?
A)the price of the good and the seller's profit
B)the price of the good and quantity supplied
C)the seller's profit and product cost
D)the seller's profit and quantity supplied
Q2) Lead is an important input in the production of crystal.If the price of lead decreases,all else being equal,what would we expect?
A)the supply of crystal to be unaffected
B)the supply of crystal to decrease
C)the supply of crystal to increase
D)the supply of lead to increase
Q3) What is one reason that government taxes on cigarettes reduce smoking?
A)Cigarette companies are successful in passing much of the tax on to consumers.
B)Cigarette companies do not pass much of the tax on to consumers.
C)There are many good substitutes for cigarettes.
D)Higher prices suggest less harmful cigarettes.
Q4) The behaviour of buyers and sellers drives markets toward equilibrium.
A)True
B)False
Page 7
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) In computing GDP,what is investment?
A)spending on stocks, bonds, and other financial assets
B)spending on real estate and financial assets
C)spending on new capital equipment, inventories, and structures, including new housing
D)spending on capital equipment, inventories, and structures, excluding household purchases of new housing
Q2) In a simple circular-flow diagram,why is total income equal to total expenditure?
A)because firms re-invest their revenue
B)because savings are small
C)because income from interest is not part of GDP
D)because every transaction has a buyer and a seller
Q3) Which of the following is included in GDP?
A)the sale of stocks and bonds
B)the estimated rental value of owner-occupied housing
C)unpaid production of goods and services at home
D)the sale of an old piece of jewellery
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) If the price index in the first year was 90,in the second year was 100,and in the third year was 95,what did the economy experience?
A)10 percent inflation between the first and second years and 5 percent inflation between the second and third years
B)10 percent inflation between the first and second years and 5 percent deflation between the second and third years
C)11 percent inflation between the first and second years and 5 percent inflation between the second and third years
D)11 percent inflation between the first and second years and 5 percent deflation between the second and third years
Q2) If the consumer price index was 100 in the base year and 107 the following year,what was the inflation rate?
A)107 percent
B)10.7 percent
C)7.0 percent
D)0.7 percent
Q3) List the three major problems in using the CPI as a measure of the cost of living.
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Chapter 7: Production and Growth
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Sample Questions
Q1) The productivity slowdown in 1973 appears to be primarily the result of a decrease in the capital to labour ratio.
A)True
B)False
Q2) Using the production function and notation in the text,what does K/L measure?
A)natural resources per worker
B)human capital per worker
C)output per worker
D)physical capital per worker
Q3) Which of the following is an example of a nonrenewable resource?
A)coal
B)honey
C)livestock
D)lumber
Q4) What type of investment has foreigners buying shares in domestic companies?
A)foreign direct investment
B)foreign portfolio investment
C)foreign capital investment
D)foreign indirect investment
Q5) Compare and contrast the population theories of Malthus and Kremer.
Page 10
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) Suppose that in a closed economy GDP is equal to 10 000,taxes are equal to 2500,consumption is equal to 6500,and government expenditures are equal to 2000.What is private saving?
A)1500
B)1000
C)500
D)0
Q2) When a corporation experiences financial problems,bondholders are paid before shareholders.
A)True
B)False
Q3) Which of the following best describes the evolution of Canadian national debt between 1996 and 2009?
A)It fell by 10 percent of GDP.
B)It fell, and then it rose.
C)It fell by $60 billion.
D)It fell to 33 percent of GDP.
Q4) National saving is equal to Y - T - C.
A)True
B)False
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) How is the labour-force participation rate defined?
A)(Employed ÷ Adult population) × 100
B)(Employed ÷ Labour force) × 100
C)(Labour force ÷ Adult population) × 100
D)(Adult population ÷ Labour force) × 100
Q2) Refer to the Figure 9-1.If there was no minimum wage and then the government instituted a minimum wage of $6,what would happen to employment in this market?
A)Employment would rise by 10.
B)Employment would fall by 20.
C)Unemployment would increase by 10.
D)Unemployment would increase by 20.
Q3) How is Latoya,a homemaker who works as a volunteer at the local Red Cross and is currently not looking for a job,counted?
A)as employed and in the labour force
B)as unemployed and in the labour force
C)as unemployed and not in the labour force
D)as not in the labour force
Q4) What is the theory of efficiency wages? Give a couple of explanations for how efficiency wages might work.
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Chapter 10: The Monetary System
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Sample Questions
Q1) Which of the following agencies is responsible for regulating the money supply in Canada?
A)the Comptroller of the Currency
B)the Bank of Canada
C)the TD Bank
D)the Canadian Payments Association
Q2) Suppose that the reserve ratio is 7 percent and that a bank has $2000 in deposits.What are its required reserves?
A)$100
B)$120
C)$140
D)$160
Q3) If the reserve ratio is 20 percent,how much is the money multiplier?
A)2
B)4
C)5
D)8
Q4) If the reserve ratio is 20 percent,how much money can be created from $100 of reserves? Show your work.
Q5) What is the difference between money and wealth?
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) If inflation is more than expected,how are creditors or debtors affected?
A)Creditors receive a lower real interest rate than they had anticipated.
B)Creditors pay a lower real interest rate than they had anticipated.
C)Debtors receive a higher real interest rate than they had anticipated.
D)Debtors pay a higher real interest rate than they had anticipated.
Q2) When prices are falling,what term do economists use?
A)disinflation
B)deflation
C)contraction
D)inflation
Q3) You put money in an account and earn a real interest rate of 8 percent.Inflation is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real interest rate?
A)1.8 percent
B)2.8 percent
C)3.8 percent
D)5.8 percent
Q4) Prices are many times higher today than they were 30 years ago,yet people do not work a lot harder nor spend a lot less.How can this be?
Q5) What are the costs of inflation?
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) A German company sells cameras to a retailer in Canada.Which of the following correctly identifies the effects of these transactions?
A)They have no effect on Canadian net exports, and they increase German net exports.
B)They decrease Canadian net exports and increase German net exports.
C)They increase Canadian and German net exports.
D)They increase Canadian net exports and decrease German net exports.
Q2) Between 1981 and 1988,what caused most of the change in Canadian net capital outflow as a percent of GDP?
A)decrease in Canadian investment
B)decrease in Canadian national saving
C)increase in Canadian investment
D)increase in Canadian national saving
Q3) Can purchasing-power parity be used to explain the fact that the Canadian dollar depreciated by more than 50 percent against the German mark from 1970 to 2001,but appreciated by more than 100 percent against the Italian lira during the same period? Defend your answer.
Q4) Why are net exports and net capital outflow always equal?
Q5) How do the nominal exchange rate and the real exchange rate differ?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) Which of the following is consistent with an above-the-equilibrium exchange rate of the dollar?
A)The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate.
B)The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate.
C)The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate.
D)The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.
Q2) Which of the following does the open-economy macroeconomic model take as given?
A)GDP, but not the price level
B)the price level, but not GDP
C)both the price level and GDP
D)the exchange rate
Q3) Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?
Page 16
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.
A)True
B)False
Q2) Which of the following does NOT determine the long-run level of real GDP?
A)the price level
B)the supply of labour
C)available natural resources
D)available technology
Q3) All else equal,which of the following happens as the price level falls?
A)The money supply falls.
B)Interest rates rise.
C)Dollars become more valuable.
D)Dollars become less valuable.
Q4) Which of the following is consistent with an increase in the price level?
A)Dollars become more valuable, and interest rates rise.
B)Dollars become more valuable, and interest rates fall.
C)Dollars become less valuable, and interest rates rise.
D)Dollars become less valuable, and interest rates fall.
Q5) Make a list of things that would shift the aggregate-demand curve to the right.
Page 17
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Suppose that consumers become pessimistic about the future health of the economy,and so cut back on their consumption spending.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?
Q2) Assume that the MPC is 0.75.Assuming only the multiplier effect matters,how will an increase in government purchases of $400 billion shift the aggregate demand curve?
A)It will shift the aggregate demand curve left by $150 billion.
B)It will shift the aggregate demand curve left by $250 billion.
C)It will shift the aggregate demand curve right by $750 billion.
D)It will shift the aggregate demand curve right by $1600 billion.
Q3) Refer to the Figure 15-2.In a closed economy,which of the following could have caused the economy to move from a to b?
A)a wave of optimism
B)a decrease in price
C)either fiscal or monetary contraction
D)an increase in the price of oil
Q4) How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.
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Q5) Use the money market to explain why the aggregate demand curve slopes downward.
Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Sample Questions
Q1) When aggregate demand increases,what happens to prices and employment?
A)Prices will fall and unemployment will rise.
B)Prices and unemployment fall.
C)Prices and unemployment rise.
D)Prices will rise and unemployment will fall.
Q2) Suppose the minimum wage decreased.At any given rate of inflation,what would happen to output and employment?
A)Both output and employment would be higher.
B)Both output and employment would be lower.
C)Output would be higher and unemployment would be lower.
D)Unemployment would be lower and output would be higher.
Q3) According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?
A)It raises prices and unemployment.
B)It raises prices and reduces unemployment.
C)It reduces prices and raises unemployment.
D)It reduces prices and unemployment.
Q4) Suppose the government passes legislation that decreases the natural rate of unemployment.How does this change the long- and short-run Phillips curves?
Page 19
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) Suppose that at the start of fiscal year 2013 the government had a debt of $6126.5 billion.Suppose that during the same fiscal year,real GDP grew by about 3 percent and inflation was about 1 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A)about $122 billion
B)about $184 billion
C)about $245 billion
D)about $375 billion
Q2) Why should the tax laws to encourage saving be reformed?
A)because saving is a key determinant of long-run prosperity
B)to increase taxes on capital gain
C)because higher-income households are taxed too much
D)because economic theory clearly predicts that a higher rate of return encourages saving
Q3) Identify three government policies that discourage saving.
Q4) Explain how a higher rate of return on saving could,at least in theory,lead to lower saving.
Q5) Suppose a country has had a high and relatively stable inflation rate for a long time.How might this affect the costs and benefits of inflation reduction?
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