Course Introduction
Economic Policy Analysis
Practice Questions
Economic Policy Analysis explores the tools and methodologies used to assess, design, and implement public policies aimed at addressing economic issues. The course examines microeconomic and macroeconomic frameworks to evaluate the impact of government interventions on efficiency and equity. Students learn to critically analyze policies related to taxation, regulation, labor markets, health care, and trade, considering empirical evidence and real-world case studies. Emphasis is placed on cost-benefit analysis, policy evaluation techniques, and the practical challenges faced by policymakers in balancing competing economic objectives.
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) An economy is efficient if one person can be made better off by reallocating resources without making anyone else worse off.
A)True
B)False
Answer: False
Q2) Handicapped-designated parking spaces are an example of the market economy achieving efficiency.
A)True
B)False
Answer: False
Q3) An economy is efficient when:
A) the problem of scarcity is eliminated.
B) output is distributed equitably.
C) all opportunities to make some people better off without making other people worse off have been taken.
D) all opportunities to make some people worse off without making other people better off have been taken.
Answer: C
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Chapter 2: Economic Models: Trade-Offs and Trade
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Sample Questions
Q1) In constructing a model,economists:
A) might use a computer simulation.
B) avoid making any assumptions.
C) assume that all relevant factors are constantly changing. D) are prohibited from using mathematics.
Answer: A
Q2) (Table: Comparative Advantage I)Use Table: Comparative Advantage I.The opportunity cost of producing one box of herring for Sweden is _____ box(es)of cell phones.
A) 10
B) 0.5
C) 5
D) 0.1
Answer: D
Q3) An apple is a resource sold in the factor market.
A)True
B)False
Answer: False
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Gasoline,a derivative of oil,is a large part of transportation costs for many producers.If the price of oil increases at the same time that incomes fall for many consumers,one would expect the equilibrium price of many normal goods to _____,while their equilibrium quantities would _____.
A) fall;rise
B) fall,rise,or stay the same;decrease
C) decrease;fall,rise,or stay the same
D) fall;fall
Answer: B
Q2) (Table: The Demand for Chocolate-Covered Peanuts)Use Table: The Demand for Chocolate-Covered Peanuts.If George,Barbara,and Dan are the only three buyers in the market and the price of a bag of chocolate-covered peanuts is $0.50,the total market quantity demanded is _____ bags per month.
A) 80
B) 105
C) 210
D) 280
Answer: C
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5
Chapter 4: Price Controls and Quotas: Meddling With Markets
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Sample Questions
Q1) If the demand curve for clams is downward sloping,a quota that is set below the equilibrium quantity will result in a demand price that is lower than the equilibrium price.
A)True
B)False
Q2) The total amount of a good that can be transacted under a quantity control is called the:
A) ceiling price.
B) demand price.
C) quota limit.
D) supply price.
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
Q4) In New York City,there are more than 100 000 licensed taxicabs.
A)True
B)False
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Chapter 5: International Trade
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Sample Questions
Q1) (Scenario: The Production of Wheat and Toys)Use Scenario: Production of Wheat and Toys.If each country specializes in the good for which it has the comparative advantage:
A) country A will produce wheat and country B will produce toys.
B) country A will produce both wheat and toys.
C) country A will produce toys and country B will produce wheat.
D) country B will produce both wheat and toys.
Q2) Canada and the European Union levy heavy import tariffs on agricultural products,which hurt many poor farmers from the very poorest countries in the world.
A)True
B)False
Q3) Comparative advantage in international trade:
A) is used only by large countries.
B) is used to determine whether trade will be beneficial to both countries involved.
C) provides benefits to developed countries only.
D) does not determine what goods countries should produce.
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Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) If workers' nominal wages have risen by 50% over a 10 years and prices have increased by 40% in that same period,then we can safely conclude that the amount of goods and services workers can buy has:
A) fallen.
B) increased.
C) not changed.
D) decreased in quality.
Q2) Price stability occurs when:
A) the overall price level is zero.
B) the economy is at full employment.
C) the overall cost of living is changing very slowly.
D) food prices have remained the same.
Q3) A pattern of expansion,then recession,then expansion again is a(n):
A) annual trend.
B) secular trend.
C) business cycle.
D) consumer cycle.
Q4) Monetary and fiscal policy are tools to reduce the severity of recessions.
A)True
B)False
Page 8
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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.If 2014 is the base year,real GDP in 2014 was:
A) $400.
B) $420.
C) $425.
D) $445.
Q2) Historically,_____ spending was the LARGEST component of Canadian GDP,at approximately 60% of aggregate spending.
A) government
B) consumer
C) investment
D) net export
Q3) If real GDP falls when nominal GDP increases,then prices have increased.
A)True
B)False
Q4) The industrial producer price index usually responds to price changes more quickly than the consumer price index.
A)True
B)False
Page 9
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) Unemployment rates are usually higher in Europe than they are in Canada because:
A) the minimum wage is higher in Canada than in Europe.
B) Canadian economic policy is much more effective than European economic policy.
C) there are more unskilled,uneducated workers in Europe than in Canada.
D) unemployment benefits are more generous in Europe than in Canada.
Q2) Unit-of-account costs of inflation are the:
A) costs associated with money not being a reliable unit of measurement.
B) costs of transactions associated with avoiding the inflation tax.
C) costs associated with businesses changing prices.
D) transfers the government gets from printing money.
Q3) Since 1960,the price level in Canada has increased in most years.
A)True
B)False
Q4) In general,for the Canadian economy,the relation between unemployment and economic growth is:
A) positive.
B) direct.
C) neutral.
D) negative.
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Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) Before the twentieth century,the MOST important determinant of productivity was:
A) technology.
B) natural resources.
C) physical capital.
D) human capital.
Q2) Which government policy promotes economic growth?
A) building infrastructure and providing public goods
B) implementing a monetary policy that increases inflation
C) implementing a fiscal policy that increases inflation
D) increasing the interest rate charged on student loans
Q3) A negative externality is a good or a service that the government or a private business provides to a foreign country.
A)True
B)False
Q4) A negative externality is:
A) not as costly as a positive externality.
B) a cost that individuals or firms impose on others without having to pay compensation.
C) immune to economic incentives.
D) an unavoidable consequence of budget deficits.
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) You are choosing whether to purchase a bond or stock.If you purchase the bond,you are likely to receive a _____ return in exchange for a _____ level of risk.
A) higher;higher
B) lower;lower
C) lower;higher
D) higher;lower
Q2) Owners of stock may receive income in the form of:
A) interest.
B) dividends and profit from selling the stock for more than its purchase price.
C) transfer payments.
D) rent.
Q3) A mutual fund:
A) always includes a base year.
B) owns a diversified portfolio.
C) always earns a profit.
D) offers a lower rate of return for any given level of risk.
Q4) The government saves when it runs a budget deficit.
A)True
B)False
12
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Chapter 11: Income and Expenditure
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Sample Questions
Q1) A $50 million increase in investment spending will eventually cause equilibrium real GDP to:
A) decrease by $50 million.
B) increase by $50 million.
C) increase by more than $50 million.
D) increase by less than $50 million.
Q2) During the Great Depression:
A) investment fell,but consumption increased.
B) investment increased,but consumption decreased.
C) both consumption and investment decreased.
D) overall GDP rose.
Q3) If planned aggregate expenditure rises by $10 billion and the marginal propensity to consume is 0.8,then the income-expenditure equilibrium increases by $50 billion.
A)True
B)False
Q4) In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 500,the multiplier is -4.
A)True
B)False
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Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) If the labour force becomes healthier and productivity increases,short-run aggregate supply is likely to increase.
A)True
B)False
Q2) An increase in the aggregate price level will increase:
A) short-run aggregate supply.
B) the quantity of aggregate output supplied in the short run.
C) aggregate demand.
D) the quantity of aggregate output demanded.
Q3) Which statement is FALSE?
A) A rise in the price level lowers real wealth and results in a lower level of consumer spending.
B) A rise in the price level increases the demand for money,raises the interest rate,and reduces investment spending.
C) A fall in the price level will generally lead to a rise in the level of aggregate output demanded.
D) A fall in the price level will reduce the demand for money,raise the interest rate,and increase investment spending.
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14
Chapter 13: Fiscal Policy
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Sample Questions
Q1) Social insurance spending is projected to:
A) increase as baby boomers retire.
B) decrease as baby boomers retire.
C) stay the same over the next decade.
D) increase for this decade and then decline.
Q2) The main problem facing the government of Greece in 2010 was that it had a large budget surplus.
A)True
B)False
Q3) Suppose that the economy is in a recessionary gap.To move equilibrium aggregate output closer to the level of potential output,the BEST fiscal policy option is to:
A) decrease government purchases.
B) decrease taxes.
C) decrease government transfers.
D) increase real interest rates.
Q4) An increase in government spending for goods and services is an autonomous increase in aggregate demand.
A)True B)False
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) When we put a price on a meal,money is playing the role primarily of:
A) medium of exchange.
B) unit of account.
C) barter token.
D) store of value.
Q2) (Scenario: Money Supply Changes II)Refer to Scenario: Money Supply Changes II.By how much will the money supply contract as a result of the withdrawal?
A) $40000
B) $0
C) $8000
D) $32000
Q3) The Eurozone is
A) another name for Scandinavia.
B) the only countries in Europe that engage in free trade with Canada.
C) the countries that use the euro as their common currency.
D) made up of the communist countries in eastern Europe.
Q4) In Canada,only the Canadian Treasury can create money.
A)True
B)False
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Chapter 15: Monetary Policy
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Sample Questions
Q1) In the short run:
A) only the supply of money determines the interest rate.
B) only the demand for money determines the interest rate.
C) the supply and demand for money determine the interest rate,and the loanable funds market follows the lead of the money market.
D) the supply and demand for money determine the interest rate,and the money market follows the lead of the loanable funds market.
Q2) Now that fast food places such as McDonald's are accepting credit card payments,the:
A) demand for money has increased.
B) demand for money has decreased.
C) demand for money has not been affected.
D) supply of money has increased,as some cash is unused.
Q3) The Bank of Canada can influence financial crises because it:
A) determines tax rates.
B) determines government spending.
C) conducts monetary policy.
D) is responsive to the people who elected its members to office.
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17
Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) During periods of deflation _____ will be hurt and _____ will be helped.
A) firms;borrowers
B) borrowers;lenders
C) consumers;firms
D) home buyers;home sellers
Q2) When a central bank prints money to pay government debts,causing rising prices that erode the purchasing power of money held by the public,it is called a(n)_____ tax.
A) payroll
B) inflation
C) currency
D) budget
Q3) In the classical model of the price level,there is no distinction between the short run and the long run.
A)True
B)False
Q4) Policies that expand output and decrease unemployment are popular with voters but are likely to cause inflation later.
A)True
B)False
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Chapter 17: Macroeconomics: Events and Ideas
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Sample Questions
Q1) The recommendation that the government should avoid deficit spending because of the crowding-out effect on investment spending is consistent with _____ macroeconomics.
A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus
Q2) According to Keynes,changes in "animal spirits" will affect actual output through changes in:
A) business investment spending.
B) government expenditure and taxes.
C) money supply and interest rates.
D) labour productivity and technological progress.
Q3) The Great Moderation consensus is that:
A) fiscal policy should play the main role in stabilization policy.
B) monetary policy should play the main role in stabilization policy.
C) automatic stabilizers should be the only type of policy used.
D) government budgets should always be balanced.
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19
Chapter 18: International Macroeconomics
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Sample Questions
Q1) Foreign exchange reserves are stocks of foreign currencies that a government maintains to buy its currency in foreign exchange markets.
A)True
B)False
Q2) Direct foreign investment means the purchase of:
A) stock in foreign companies.
B) bonds of a foreign country.
C) bank loans in a foreign country.
D) factories in a foreign country.
Q3) All other things being equal,an expansionary monetary policy will cause the domestic currency to appreciate.
A)True
B)False
Q4) When the value of the euro changes from $1.30 to $1.20,it follows that:
A) European Union imports from Canada increase.
B) Canadian exports to the European Union increase.
C) Canadian imports from the European Union increase.
D) European Union exports to Canada decrease.
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Page 20
Chapter 19: Graphs in Economics
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Sample Questions
Q1) (Figure: Demand and Supply of Shirts)Use Figure: Demand and Supply of Shirts.In the graph,if the line labeled D shows how many shirts per week will be demanded at various prices,then it is clear that,as the price of shirts falls:
A) fewer shirts will be demanded.
B) more shirts will be demanded.
C) the same quantity of shirts will be demanded.
D) it is unclear what will happen to the quantity of shirts demanded.
Q2) (Figure: Hot Drinks Sold and Temperature)Use Figure: Hot Drinks Sold and Temperature.If we move from point K to point L in the figure,the outside temperature has _____ degrees and the number of hot drinks sold has _____.
A) decreased by 30;increased by 30
B) increased by 20;decreased by 20
C) increased by 30;decreased by 30
D) increased by 40;decreased by 40
Q3) A pie chart is used to depict information about:
A) the relative shares of categories of data.
B) the changes of a particular variable over time.
C) positive,not negative,relationships among variables.
D) the changes of a particular variable over time and positive relationships.
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Page 21