Economic Policy Analysis Exam Review
Course Introduction
Economic Policy Analysis examines the tools and frameworks used to evaluate and formulate public policies affecting the economy. Students will learn to apply microeconomic and macroeconomic principles to analyze policy issues such as taxation, public spending, regulation, trade, and monetary interventions. The course emphasizes both qualitative and quantitative evaluation methods, exploring how policies impact efficiency, equity, and economic growth. Real-world case studies and current events are integrated to provide practical skills in assessing policy effectiveness and advising on policy design.
Recommended Textbook
Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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17 Chapters
3576 Verified Questions
3576 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) How does the government enforce property rights?
A) by requiring property owners to pay property taxes
B) by providing police and courts
C) by allowing people to decide whether or not they wish to own property
D) by providing a system of recording property deeds
Answer: B
Q2) When the government redistributes income from the rich to the poor,what is the result?
A) Efficiency is improved,but equity is not.
B) Both rich people and poor people benefit directly.
C) People work less and produce fewer goods and services.
D) Rich people consume fewer goods,but poor people consume more goods,resulting in no real change.
Answer: C
Q3) What are two causes of market failure?
A) externalities and market power
B) market power and incorrect forecasts of consumer demand
C) externalities and foreign competition
D) government intervention and foreign competition
Answer: A
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) An economic model can accurately explain how the economy is organized because it is designed to include every feature of the real world.
A)True
B)False
Answer: False
Q2) Why are production possibilities frontiers usually bowed outward?
A) constant opportunity cost
B) increasing opportunity cost
C) decreasing opportunity cost
D) increasing productivity
Answer: B
Q3) What do the two loops in the circular-flow diagram represent?
A) the flow of goods and the flow of services
B) the flow of money and the flow of bonds
C) the flow of inputs and outputs and the flow of dollars
D) the flow of capital goods and the flow of consumer goods
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Spain and Germany can both produce fish and cars.Spain has a comparative advantage in cars,but Germany has an absolute advantage in cars.What would Germany import from Spain?
A) Nothing,because Germany has a comparative advantage in fish and an absolute advantage in cars.
B) Cars,because it is relatively cheaper for Spain to produce them.
C) Fish,because Germany can produce cars cheaper than Spain.
D) Both fish and cars,because Germany's absolute advantage in cars creates more income.
Answer: B
Q2) Trade allows a country to consume outside its production possibilities frontier. A)True
B)False
Answer: True
Q3) Refer to Table 3-5.What is the opportunity cost of one car for Canada?
A) 1 / 4 airplane
B) 1 / 3 airplane
C) 3 airplanes
D) 4 airplanes
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Other things equal,what happens when the price of a good rises?
A) The quantity demanded of the good increases.
B) The supply increases.
C) The quantity supplied of the good rises.
D) The demand curve shifts to the left.
Q2) Which of the following are the words most commonly used by economists?
A) surplus and shortage
B) scarcity and human wants
C) supply and demand
D) price and quantity
Q3) If buyers and / or sellers are price takers,what can they do individually?
A) They have no influence on market price.
B) They have ultimate control over market price.
C) Buyers will be able to find prices lower than those determined in the market.
D) They can somewhat influence the market price.
Q4) Refer to the Figure 4-6.What could cause the shift from D to D1?
A) an increase in price
B) a decrease in the price of a complement
C) an increase in technology
D) a decrease in the price of a substitute
Page 6
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) How is gasoline treated in GDP terms?
A) It is counted as an intermediate good.
B) It is counted as a final good if a company uses it to provide transportation services.
C) It is counted as a final good if a consumer uses it to mow her yard.
D) It is counted as an intermediate good if a consumer uses it to mow a friend's yard without pay.
Q2) If the Canadian government pays a retired economist at the Ministry of Finance
$80,000 in retirement benefits in 2015,how is the payment treated?
A) It is included in 2015 GDP as government purchases.
B) It is not included in 2015 GDP because it is a transfer payment.
C) It is included in 2015 GDP as transfer payments.
D) It is not included in 2015 GDP because it is part of government purchases.
Q3) Sean used to volunteer to shovel his elderly neighbour's walk,but now his neighbour pays a company to do it.How does this change affect GDP?
A) It decreases GDP by more than the price of the service.
B) It increases GDP by less than the price of the service..
C) It decreases GDP by the price of the service.
D) It increases GDP by the price of the service.
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Which statement best defines "indexation"?
A) It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
B) It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation.
C) It is the use of a price index to deflate dollar values.
D) It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator.
Q2) Refer to the Scenario 6-1.What is Lisa's income in 1944 dollars?
A) $15,667
B) $17,401
C) $19,322
D) $24,200
Q3) What is by far the largest category of goods and services in the CPI basket?
A) shelter
B) recreation,education,and reading
C) transportation
D) food
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Chapter 7: Production and Growth
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Sample Questions
Q1) What is a valid policy to use for increasing the rate of economic growth?
A) reduce reliance on market forces because they allocate goods and services in an unfair manner
B) encourage trade with neighbouring countries
C) increase the fraction of GDP devoted to consumption
D) restrict investment in domestic industries by foreigners because they take some of the profits out of the country
Q2) Although growth rates across countries vary,rankings of countries by income remain pretty much the same over time.
A)True
B)False
Q3) If the productivity slowdown had not occurred in 1973,the income of the average Canadian today would be about 70 percent higher.
A)True
B)False
Q4) Investment in both human and physical capital has opportunity costs. A)True
B)False
Q5) How do inward-oriented policies affect a nation's growth?
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) Which equation most simply represents GDP in a closed economy?
A) Y = C + I + G
B) S = I - G
C) I = Y - C + G
D) Y = C + I + G + NX
Q2) Generally,if people expect a company to have higher future profits,the price of the stock will be driven down.
A)True
B)False
Q3) When opening a spa,you may need to buy tables,a sound system,and credit card processing equipment.What do economists call these expenditures?
A) capital investment
B) investment in human capital
C) business consumption expenditures
D) inventories
Q4) Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.
Q5) What are the basic differences between bonds and stocks?
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) What is a possible effect of unions?
A) Unions decrease the natural rate of unemployment.
B) Unions decrease the wages of workers in the union.
C) Unions raise the profits of firms they work for.
D) Unions cause wages of nonunionized workers to fall.
Q2) Meredith is looking for work as a computer programmer.Although her prospects are good,she hasn't yet taken a job.Julie is looking for work in a steel mill,but there aren't many job ads for steel workers and every time she shows up for an interview,there are many more people than openings.Which statement best describes the nature of their unemployment?
A) Meredith and Julie are both frictionally unemployed.
B) Meredith and Julie are both structurally unemployed.
C) Meredith is frictionally unemployed,and Julie is structurally unemployed.
D) Meredith is structurally unemployed,and Julie is frictionally unemployed.
Q3) Which statement is characteristic of the natural rate of unemployment?
A) It is a consistent rate,year after year.
B) It is the desirable rate of unemployment.
C) It is a variable that cannot be altered by economic policy.
D) It is the amount of unemployment that the economy normally experiences.
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Page 11
Chapter 10: The Monetary System
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Sample Questions
Q1) Which list contains only actions that increase the money supply?
A) lowering the bank rate; raising the reserve requirement ratio
B) lowering the bank rate; lowing the reserve requirement ratio
C) raising the bank rate; raising the reserve requirement ratio
D) raising the bank rate; lowering the reserve requirement ratio
Q2) Which of the three functions of money are met by each of the following assets in the Canadian economy?
a.paper dollar
b.precious metals
c.collectibles such as baseball cards,stamps,and antiques
Q3) When a bank loans out $1000,what happens to the money supply in the long term?
A) It increases by $1000.
B) It decreases by $1000.
C) It increases by more than $1000.
D) It decreases by more than $1000.
Q4) What characterizes currency?
A) It has intrinsic value.
B) It has no intrinsic value.
C) It may be used as a medium of exchange but is not legal tender.
D) It performs all the functions of money except providing a unit of account.
Page 12
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.
A)True
B)False
Q2) When do most economists believe the principle of monetary neutrality can be relevant?
A) in both the short run and the long run
B) in neither the short run nor the long run
C) mostly in the short run
D) mostly in the long run
Q3) Which statement best defines the velocity of money?
A) It is the rate at which the central bank puts money into the economy.
B) It is the long-term growth rate of the money supply.
C) It is the money supply divided by nominal GDP.
D) It is the average number of times per year a dollar is spent.
Q4) Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.the Bank of Canada increases the money supply.
b.people decide to demand less money at each value of money.
Page 13
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) When the central bank prints large quantities of money,that money loses value both in terms of the goods and services it buys and in terms of the amount of foreign currencies it can buy.
A)True
B)False
Q2) Sue,a Canadian citizen,buys shares of stock in a French chain of boutiques.What is this an example of?
A) investment for Sue and Canadian foreign direct investment
B) investment for Sue and Canadian foreign portfolio investment
C) saving for Sue and Canadian foreign direct investment
D) saving for Sue and Canadian foreign portfolio investment
Q3) Suppose the price of a standard pair of sport shoes is 60 in Spain and $85 in Canada,and the current exchange rate is 0.75 euro for one dollar.What is the purchasing-power parity exchange rate of the dollar?
A) 0.40 euro / dollar
B) 0.53 euro / dollar
C) 0.71 euro / dollar
D) 1.53 euro / dollar
Q4) What does purchasing-power parity imply about the real exchange rate?
Page 14
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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 will decrease Canadian net capital outflow?
A) capital flight from Canada
B) a decrease in the tax on investment income
C) the imposition of Canadian government import quotas
D) a decrease in the tax on capital gains
Q2) Suppose that the Albanian government budget deficit increases.What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.
Q3) According to the open-economy macroeconomic model,what would NOT be a consequence of an increase in the Canadian government budget deficit?
A) Canadian trade balance rises.
B) Canadian net capital outflow falls.
C) Canadian investment abroad decreases.
D) The real exchange rate of the Canadian dollar appreciates.
Q4) If a country's exports are greater than its imports,what is the country said to have?
A) a trade surplus
B) a trade deficit
C) a comparative advantage
D) an absolute advantage
Page 15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Refer to the Figure 14-1.If the economy starts at A and there is a fall in aggregate demand,what happens to the economy in the long run?
A) It moves to D and then back to A.
B) It moves to B and then to C.
C) It moves to D and then to C.
D) It moves to B and then back to A.
Q2) Make a list of things that would shift the aggregate-demand curve to the right.
Q3) Suppose the economy was in long-run equilibrium when a sudden decline in the stock market took place.What happens in the short run after the decline in the stock market?
A) Both the price level and real GDP rise.
B) The price level falls and real GDP does not change.
C) The price level does not change and real GDP falls.
D) Both the price level and real GDP fall.
Q4) Use the misperceptions theory to discuss the economic forces that shift the aggregate-supply curve when the expectations about the overall price level change.
Q5) An aggregate-supply curve is described by the equation Y=80 + 0.5P.The expected price level is 100.How much is the long-run level of output?
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) According to liquidity-preference theory,what is the opportunity cost of holding money?
A) the interest rate on bonds
B) the inflation rate
C) the cost of currency exchange
D) the difference between the inflation rate and the interest rate on bonds
Q2) Unemployment insurance and welfare programs work as automatic stabilizers.
A)True
B)False
Q3) If there is excess money demand,what will people do and what happens to the interest rate?
A) People will deposit more into interest-bearing accounts,and the interest rate will fall.
B) People will deposit more into interest-bearing accounts,and the interest rate will rise.
C) People will withdraw money from interest-bearing accounts,and the interest rate will fall.
D) People will withdraw money from interest-bearing accounts,and the interest rate will rise.
Q4) Use the money market to explain why the aggregate demand curve slopes downward.
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Suppose that weather around the world is especially good next year,so farmers have unusually good crops.What might we expect that this will do to the short-run and long-run Phillips curves?
A) This will shift both the short-run and long-run Phillips curves to the right.
B) This will shift both the short-run and long-run Phillips curves to the left.
C) This will shift the short-run Phillips curve to the left,but not affect the long-run Phillips curve.
D) This will shift the long-run Phillips curve to the left,but not affect the short-run Phillips curve.
Q2) How does the short-run Phillips curve model reflect an increase in the expected inflation?
A) as a downward shift in the short-run Phillips curve
B) as an upward shift in the short-run Phillips curve
C) as a downward movement along the short-run Phillips curve
D) as an upward movement along the short-run Phillips curve
Q3) How could we transform the AD-AS model such that,instead of the price level and output it would show the relationship between the inflation rate (ð)and the rate of output growth (g)?
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) Suppose that a country has an inflation rate of about 3 percent per year and a real growth rate of about 3 percent per year.Suppose also that it has nominal GDP of about 100 billion units of currency.What is the highest deficit it can have without raising the debt-to-income ratio?
A) just under 2 billion units
B) just under 3 billion units
C) just under 5 billion units
D) just under 6 billion units
Q2) Suppose that at the start of fiscal year 2013 the government had a debt of $6300 billion.Suppose that during fiscal year 2015,real GDP grew by about 4 percent and inflation was about 3 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A) about $184 billion
B) about $375 billion
C) about $441 billion
D) about $632 billion
Q3) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?
Q4) Explain the time inconsistency of monetary policy.
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