Economic Policy Analysis
Test Bank
Course Introduction
Economic Policy Analysis examines the tools, frameworks, and methodologies used to evaluate the design, implementation, and outcomes of public policies affecting economic performance. The course covers fundamental economic concepts such as efficiency, equity, market failures, and government intervention, and applies them to real-world policy issues in areas like taxation, healthcare, education, labor markets, and trade. Students will learn to critically assess quantitative and qualitative evidence, utilize cost-benefit analysis, and understand the political and institutional contexts shaping economic decisions. Through case studies and practical exercises, the course equips students with the skills needed to analyze policy proposals and their impacts on society.
Recommended Textbook
Principles of Macroeconomics 9th Edition by John Sayre
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13 Chapters
2035 Verified Questions
2035 Flashcards
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Chapter 1: The Economic Problem
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156 Flashcards
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Sample Questions
Q1) All of the following except one are positive statements.Which is the exception?
A)The government needs to reduce its budget deficit.
B)A decrease in price will lead to a larger quantity bought.
C)Production is subject to the law of increasing costs.
D)The degree of competition in our economy has been increasing in the last ten years.
Answer: A
Q2) All of the following,except one,are factors of production.Which is the exception?
A)Labour.
B)Capital.
C)Land.
D)Enterprise.
E)Competition.
Answer: E
Q3) The three fundamental questions in economics are what,how,and how many.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Demand and Supply: an Introduction
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Sample Questions
Q1) What is the effect of an increase in the price of a product?
A)An increase in supply.
B)A decrease in supply.
C)An increase in the quantity supplied.
D)A decrease in the quantity supplied.
Answer: C
Q2) Briefly explain the six determinants of market supply.
Answer: The first determinant of supply is the prices of resources.Lower prices will cause costs of production to fall leading to an increase in supply.Secondly,a drop in business taxes will also decrease costs and increase supply.The third determinant is technological change.An improved method of production also lowers costs and increases supply.The fourth determinant is the prices of substitutes in production.If the price of a productively related product were to fall it would cause an increase in the supply of the other product.Fifthly,supply will increase if producers believe that future prices of the product will be lower.The final determinant of supply is the number of suppliers;the greater the number of suppliers,the higher will be the supply.
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Chapter 3: Measuring the Economy 1: GDP and Economic Growth
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Sample Questions
Q1) Are all productive activities not included in the measurement of GDP illegal?
Answer: There are many productive activities excluded from measured GDP because they are non-market activities such as the value of housework,do-it-yourself production as well as voluntary work.In addition,unreported activities from which income is received-operating a day-care from your home,for instance-is excluded.In this last case it's not the activity that is illegal;it's the non-reporting that's illegal.
Q2) When can we assume that increases in real GDP per capita from year to year are also increases in the economic welfare of a country?
A)If taxation also decreases.
B)If the quality of products and services,leisure time and environmental conditions all do not change.
C)If environmental conditions improve and leisure time is reduced by an increase in the average work week.
D)If the amount of net exports rises.
Answer: B
Q3) Define GDP.
Answer: GDP is the value of all final goods and services produced in an economy in a certain period.
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Chapter 4: Measuring the Economy 2: Unemployment and Inflation
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184 Flashcards
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Sample Questions
Q1) Which of the following is correct?
A)If nominal income increases,then real income must also increase.
B)If real income increases,then nominal income must also increase.
C)Inflation reduces the purchasing power of the dollar but increases real income.
D)If nominal income increases,then real income may either increase or decrease.
E)Inflation increases the purchasing power of the dollar but reduces real income.
Q2) Suppose that actual GDP is $45 billion,cyclical unemployment is 5%.What is potential GDP?
Q3) What is the natural rate of unemployment? What are the determinants of the natural rate of unemployment?
Q4) Both male and female participation rates in Canada have been steadily rising for the past 20 years.
A)True
B)False
Q5) If a person does not have a job,they are unemployed.
A)True
B)False
Q6) Give two examples of the redistributive costs of inflation.
Page 6
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Chapter 5: Aggregate Demand and Supply
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Sample Questions
Q1) Which of the following is true of the concept of economic capacity?
A)It is equal to actual GDP.
B)It is very expensive for an economy to produce at a higher level of output.
C)It is impossible for an economy to produce at a higher level of output.
D)It is the amount firms prefer to produce at any price level.
E)It will always increase over time.
Q2) Which component of aggregate demand is most likely to change as a result of the interest-rate effect?
A)Consumption.
B)Investment.
C)Government spending.
D)Exports.
E)Imports.
Q3) What is the domestic effect of an increase in the incomes of a country's major international trading partners?
A)The aggregate demand curve will shift to the right.
B)The aggregate demand curve will shift to the left.
C)The aggregate supply curve will shift to the right.
D)The aggregate supply curve will shift to the left.
Q4) Explain the three types of macroeconomic equilibrium.
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Chapter 6: Aggregate Expenditures
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Sample Questions
Q1) All of the following except one are correct statements of the multiplier.Which is the exception?
A)1/MPE.
B) income/ autonomous expenditures.
C)1/(1 - MPE).
D)1/MLR
Q2) Refer to the above information to answer this question.What is the value of the MPE?
A)0.053
B)0.53
C)0.73
D)0.83
Q3) Assume the MPE has a value of 0.8 and investment spending increases by $5 billion,what will the level of GDP increase by?
A)$1 billion.
B)$4 billion.
C)$25 billion.
D)$40 billion.
E)$20 billion.
Q4) What five factors will cause a change in autonomous investment?
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Chapter 7: Fiscal Policy
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Sample Questions
Q1) Which of the following would close an inflationary gap?
A)An increase in government spending.
B)A decrease in government spending.
C)A decrease in taxes.
D)An increase in exports.
Q2) What is meant by cyclically balanced budget fiscal policy?
Q3) Assume that the economy is at full employment.
a)Explain the effect to the economy if there is an increase in foreign income.
b)Explain how countercyclical fiscal policy will adjust the economy back to full employment.
Q4) What is fiscal policy?
A)It is the government's policy on spending.
B)It is the government's policy on taxation.
C)It is the government's policy on both spending and taxation.
D)It is the central bank's policy on interest rates.
Q5) What are the major expenses for the Government of Canada?
Q6) A decrease in government spending on goods and services will shift the budget line up.
A)True
B)False
Page 9
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Chapter 8: Money and Banking
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159 Flashcards
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Sample Questions
Q1) The money multiplier can be defined as the reciprocal of what?
A)The bank's actual reserves.
B)The MPC.
C)The bank's excess reserves.
D)The target reserve ratio.
E)The bank's demand deposits.
Q2) Refer to the information above to answer this question.Assume that a cash deposit of $20 is made into a chequing account in the banking system.As a result,what will be the amount of excess reserves?
A)$0.
B)$20.
C)$16.
D)$80.
E)$100.
Q3) Individuals in a society that had no medium of exchange would be forced to barter all goods and services directly.
A)True
B)False
Q4) What are bank reserves? What is the reserve ratio?
Q5) How does a banking system create money?
Page 10
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Chapter 9: The Money Market and Monetary Policy
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Sample Questions
Q1) Suppose that the rate of return for a particular bond is 8%.If $50 is the coupon interest and $975 is the price paid for the bond.What is the change in the bond price?
A)0.
B)+$8.
C)+$28.
D)+$50.
E)+$80
Q2) All of the following statements,except one,are correct.Which is the exception?
A)A decline in the demand for money will tend to reduce the equilibrium GDP.
B)The equilibrium interest rate varies directly with money demand.
C)The equilibrium interest rate varies inversely with money supply.
D)The equilibrium interest rate varies directly with the level of prices.
E)A decline in the supply of money tends to reduce equilibrium GDP.
Q3) Assume the money market for the economy of San Pedro is in equilibrium.
a)Using a diagram,graphically illustrate equilibrium in the money market.
b)Now suppose there is an increase in the money supply.Explain and illustrate in the same diagram (in part a),the effect on an increase in the money supply.
Q4) Using the interest rate effect,explain why the AD is downward sloping.
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11
Chapter 10: International Trade
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Sample Questions
Q1) Refer to the data above to answer this question.Suppose that each country allocates 5 million of its population to the rice industry,the rest being employed in the beer industry.What is their (joint)total production?
A)20 rice and 10 beer.
B)48 rice and 24 beer.
C)35 rice and 35 beer.
D)21 rice and 21 beer.
Q2) Refer to above table to answer this question.Supposing that there are 200 workers each in Rings and Potter.If,originally,half the workers were employed in each industry,what would be the gains from trade if the countries completely specialized in the products in which they have a comparative advantage?
A)+200 broomsticks;-100 swords.
B)+200 broomsticks;+100 swords.
C)+500 broomsticks;+100 swords.
D)+700 broomsticks;+700 swords.
Q3) Explain why Canada imports banana.
Q4) "According to the theory of comparative advantage,trade is always mutually beneficially." Evaluate this statement.
Q5) List four arguments against free trade.
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Chapter 11: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) What is the effect of an appreciation of the Canadian dollar?
A)It increases the effective prices of both Canadian imports and exports.
B)It decreases the effective prices of both Canadian imports and exports.
C)It decreases the effective prices of Canadian goods to foreigners,but increases the prices of foreign goods to Canadians.
D)It increases the effective prices of Canadians goods to foreigners,but decreases the prices of foreign goods to Canadians.
Q2) Which of the following would result from an increase in Canada's GDP?
A)Canadian exports would rise and the Canadian dollar would depreciate.
B)Both Canadian exports and imports would rise and there would be no change in the value of the Canadian dollar.
C)Canadian exports would rise,but imports would decrease and there would be no change in the value of the Canadian dollar.
D)Canadian imports would rise and the Canadian dollar would depreciate.
Q3) If a Panamanian balboa is worth 0.20 Canadian dollars,then a Canadian dollar is worth 4 balboas.
A)True
B)False
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Page 13
Chapter 12: Macroeconomic Policy Revisited
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Sample Questions
Q1) Aggregate demand policies are effective in curing the problems of stagflation.
A)True
B)False
Q2) During the last two decades,Canada has experienced all of the following,except one.Which is the exception?
A)Robust economic growth
B)A steady predictable exchange rate
C)Low inflation rates
D)Low interest rates
Q3) The problem portrayed by the short-run Phillips curve is that:
A)unemployment tends to increase when prices are rising.
B)changes in the composition of the labor force tend to increase the natural rate of unemployment.
C)inflation tends to increase when unemployment falls.
D)stagflation is unavoidable.
Q4) Which of the following would neutralize the crowding-out effect?
A)An increase in tax rates
B)An increase in the money supply
C)An increase in money demand
D)A decrease in the money supply
14
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Chapter 13: A Walk Through the Twentieth Century and Beyond
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Sample Questions
Q1) All of the following,except one,are pillars on which neoclassical theory is built.Which is the exception?
A)The flexibility of production
B)The validity of Say's Law
C)The flexibility of prices
D)The flexibility of interest rates
E)The flexibility of wages
Q2) What do Keynesians believe?
A)Saving depends on the level of the interest rate.
B)Saving depends on the level of income.
C)Investment is stable.
D)Government policies should be neutral.
Q3) An inevitable result of recession is a budget deficit.Explain the reason a deficit occurs.
Q4) When did the Great Depression occur?
A)At the beginning of the twentieth century
B)In the seven years following World War I
C)During the decade of the 1930s
D)In the five years following World War II
Page 15
Q5) Why are wages and prices sticky,according to Keynes?
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