Economic Policy Exam Review
Course Introduction
Economic Policy explores the formulation, implementation, and impact of government policies on national and global economies. The course examines key areas such as fiscal policy, monetary policy, trade policy, regulatory frameworks, and social welfare strategies, emphasizing their roles in promoting economic stability, growth, and equity. Through case studies and contemporary examples, students analyze the effectiveness of various policy tools, assess the trade-offs faced by policymakers, and develop an understanding of how economic theory and empirical evidence inform policy decisions in areas such as public finance, employment, inflation, and development.
Recommended Textbook
Principles of Macroeconomics 1st Edition by N.
Gregory Mankiw
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17 Chapters
3530 Verified Questions
3530 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) If education produces external benefits for society, what might NOT be an appropriate policy for society to establish regarding education?
A) tax incentives for schooling
B) mandatory minimum levels of education
C) programs that promote the hiring of high school dropouts
D) free bussing to local high schools
Answer: C
Q2) How does the invisible hand direct economic activity?
A) through advertising
B) through prices
C) through central planning
D) through government regulations
Answer: B
Q3) Why do taxes adversely affect the allocation of resources in society?
A) because they do not always fall more heavily on the rich
B) because the taxes collected are not enough to finance government spending
C) because not everyone pays taxes
D) because they distort prices and thus the decisions of households and firms
Answer: D
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Page 3
Chapter 2: Thinking Like an Economist
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239 Flashcards
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Sample Questions
Q1) Refer to Figure 2-3. Which point or points are inefficient?
A) points A and C
B) points B and C
C) point C
D) point D
Answer: D
Q2) Refer to Figure 2-6. What is the opportunity cost to society of moving from point B to point D?
A) 100 bananas and 100 baseballs
B) 50 bananas and 50 baseballs
C) 100 bananas and 50 baseballs
D) 50 bananas and 100 baseballs
Answer: C
Q3) Refer to Figure 2-11. The opportunity cost of more doghouses increases as more doghouses are produced.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to the table. What is the opportunity cost of one birdhouse for Manitoba?
A) 3/4 basket
B) 1 basket
C) 4/3 baskets
D) 3 baskets
Answer: A
Q2) Refer to Figure 3-4. What does each of the two producers have a comparative advantage in?
A) Ben has a comparative advantage in beer, and Jerry has a comparative advantage in wine.
B) Ben has a comparative advantage in wine, and Jerry has a comparative advantage in beer.
C) Ben has a comparative advantage in neither good, and Jerry has a comparative advantage in wine.
D) Ben has a comparative advantage in both goods, and Jerry has a comparative advantage in neither.
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Which of the following would cause both the equilibrium price and equilibrium quantity of day-old bread (an inferior good) to increase?
A) an increase in consumer income
B) a decrease in consumer income
C) greater government restrictions on agricultural chemicals
D) fewer government restrictions on agricultural chemicals
Q2) Suppose you make jewellery. If the price of silver increases, what would we expect you to do?
A) be willing and able to produce less jewellery than before at each possible price
B) be willing and able to produce more jewellery than before at each possible price
C) face a greater demand for your jewellery
D) face a weaker demand for your jewellery
Q3) Refer to the Figure 4-3. If price in this market is currently $8, what would happen?
A) Quantity supplied would be 40 and quantity demanded would be 60.
B) Quantity supplied would be 60 and quantity demanded would be 40.
C) Quantity supplied would be 50 and quantity demanded would be 50.
D) Quantity supplied would be 70 and quantity demanded would be 30.
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6
Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Which of the following is included in the consumption component of GDP?
A) CPP/QPP payments
B) purchases of foreign goods and services
C) purchases of newly constructed homes
D) goods produced but not sold during the reference period
Q2) With respect to GDP, how is unemployment compensation treated?
A) It is included as part of GDP because it represents income.
B) It is not included as part of GDP because it is a transfer payment.
C) It is included as part of GDP because the recipients must have worked in the past to qualify.
D) It is not included as part of GDP because the payments reduce business profits.
Q3) A flour mill produces $1000 worth of flour, of which $700 goes to a bakery and $300 to consumers. A water supplier produces $300 worth of water, of which $200 goes to the bakery and $100 to consumers. The bakery produces $1500 worth of bread and sells all of it to consumers. The three companies pay wages as follows: the mill pays $400, the water supplier pays $200, and the bakery pays $200. There are no other costs of production.a. Calculate GDP based on the value of production.b. Calculate profits to the owners of each of the three companies (profit = revenue minus costs).c. Calculate GDP based on income.
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) If the real interest rate is 9 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?
A) 7 percent more dollars, which will purchase 7 percent more goods
B) 7 percent more dollars, which will purchase 9 percent more goods
C) 11 percent more dollars, which will purchase 7 percent more goods
D) 11 percent more dollars, which will purchase 9 percent more goods
Q2) What are the categories of Canadian consumer spending, ranked from largest to smallest?
A) food, alcoholic beverages and tobacco products, shelter, transportation, and health and personal care
B) food, health and personal care, shelter, alcoholic beverages and tobacco products, and transportation
C) shelter, food, alcoholic beverages and tobacco products, transportation, and health and personal care
D) shelter, transportation, food, health and personal care, and alcoholic beverages and tobacco products
Q3) The Canadian income tax system is indexed to the CPI.
A)True
B)False
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Page 8
Chapter 7: Production and Growth
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Sample Questions
Q1) What is a characteristic of inward-oriented policies?
A) They are generally supported by economists.
B) They are primarily concerned with the development of human capital.
C) They are in some ways like prohibiting the use of certain technologies.
D) They are generally rejected by domestic producers in import-competing industries.
Q2) Why is productivity related to the standard of living. In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labour productivity.
Q3) Which has been happening to the market prices of most natural resources (adjusted for inflation)?
A) They have been rising.
B) They have been stable or rising.
C) They have been stable or falling.
D) They have been falling.
Q4) From 1974 to 1982, what was the growth in Canadian productivity?
A) 0.5 percent
B) 1.3 percent
C) 1.8 percent
D) 2.5 percent
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Chapter 8: Saving, Investment, and the Financial System
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214 Flashcards
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Sample Questions
Q1) What is a secondary advantage of mutual funds?
A) They allow an investor to avoid investment charges and fees.
B) They give ordinary people access to loanable funds for investing.
C) They usually outperform stock market indexes.
D) They give ordinary people access to the skills of professional money managers.
Q2) When a corporation experiences financial problems, bondholders are paid before shareholders.
A)True
B)False
Q3) Country B has private savings of $60 billion and investment expenditures of $50 billion. How much is Country B's deficit?
A) -$20 billion
B) -$10 billion
C) $10 billion
D) $20 billion
Q4) The sale of stocks or bonds to raise money is known as equity finance.
A)True
B)False
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 was the labour-force participation rate of men just after World War II?
A) about 68%
B) about 75%
C) about 80%
D) about 84%
Q2) How are discouraged workers counted in unemployment statistics?
A) They are not counted either as part of the adult population or as part of the labour force.
B) They are counted as part of the adult population, but not as part of the labour force.
C) They are counted as part of the adult population and as unemployed.
D) They are counted as unemployed, but not part of labour force.
Q3) What is the effect of anything that makes the efficiency wage rise relative to the market-clearing wage?
A) It increases both the quantity demanded and the quantity supplied of labour.
B) It decreases both the quantity demanded and the quantity supplied of labour.
C) It increases the quantity demanded and decreases the quantity supplied of labour.
D) It decreases the quantity demanded and increases the quantity supplied of labour.
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Chapter 10: The Monetary System
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Sample Questions
Q1) Which statement best defines reserve requirements?
A) They are regulations concerning the amount banks are allowed to borrow from the central bank.
B) They are regulations concerning the amount of reserves banks must hold against deposits.
C) They are regulations concerning reserves banks must hold based on the number and type of loans they make.
D) They are regulations concerning the interest rate at which banks can borrow from the central bank.
Q2) If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.
Q3) As banks create money, they create wealth.
A)True
B)False
Q4) Which of the following ranks assets from most to least liquid?
A) currency, diamonds, stocks
B) currency, stocks, diamonds
C) diamonds, currency, stocks
D) diamonds, stocks, currency
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?
A) The real interest rate would decrease by 1 percentage point.
B) The real interest rate would increase by 1 percentage point.
C) The real interest rate would decrease by 3 percentage points.
D) The real interest rate would increase by 3 percentage points.
Q2) When deciding how much to save, what interest rates do people usually care most about?
A) after-tax nominal interest rates
B) after-tax real interest rates
C) before-tax real interest rates
D) before-tax nominal interest rates
Q3) In the 1990s, Canadian prices rose at about the same rate as in the 1970s.
A)True
B)False
Q4) In order to maintain stable prices, what must the central bank do?
A) maintain low interest rates
B) keep unemployment low
C) tightly control the money supply
D) sell indexed bonds
Page 13
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) How did the real interest rates paid on long-term government debt in Canada and the United States compare with each other over the period from 1984 to 2015?
A) The average real interest rate was 3.4 percent in Canada and 4.4 percent in the United States.
B) The average real interest rate was 3.7 percent in Canada and 3.0 percent in the United States.
C) The average real interest rate was 5.7 percent in Canada and 6.7 percent in the United States.
D) The average real interest rate was 6.7 percent in Canada and 5.7 percent in the United States.
Q2) A country has $80 million of domestic investment and net capital outflow of -$20 million. What is saving?
A) -$80 million
B) -$60 million
C) $60 million
D) $80 million
Q3) How do we find the real exchange rate from the nominal exchange rate?
Q4) What is the logic behind the theory of purchasing-power parity?
Page 14
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?
Q2) If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.
A)True
B)False
Q3) If a country's imports are greater than its exports, what is the country said to have?
A) a trade surplus
B) a trade deficit
C) a comparative advantage
D) an absolute advantage
Q4) In the open-economy macroeconomic model, what would make Panama's net capital outflow decrease?
A) a decrease in Canadian interest rates
B) a decrease in Panamanian interest rates
C) an appreciation of the Panamanian balboa
D) an increase in Panama's net exports
Q5) Why do higher real interest rates lead to lower net capital outflow?
Page 15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) In which situation would the long-run aggregate-supply curve shift right?
A) if immigration from abroad decreases
B) if the capital stock decreases
C) if the money supply increases
D) if technology advances
Q2) Like real GDP, investment fluctuates, but investment fluctuates by a larger percentage.
A)True
B)False
Q3) Which part of real GDP fluctuate most over the course of the business cycle?
A) consumption
B) government expenditures
C) investment
D) net exports
Q4) Which of the following best defines business cycles?
A) long-term trends in economic activity
B) regular, predictable fluctuations in GDP
C) the rise and fall of multinational companies
D) fluctuations in the economy
Q5) Discuss what economists believe is different about the long and short run.
Page 16
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) If there are automatic stabilizers but no deliberate action by policymakers, how would government expenditures and taxes change as output falls?
A) Both government expenditures and taxes fall.
B) Both government expenditures and taxes rise.
C) Government expenditures rise and taxes fall.
D) Government expenditures fall and taxes rise.
Q2) If the multiplier is 5, what is the MPC?
A) 0.20
B) 0.50
C) 0.80
D) 1.00
Q3) The most important lag for monetary policy is the time it takes to formulate policy, while the most important lag for fiscal policy is the time it takes for the economy to respond to changes in government spending.
A)True
B)False
Q4) How does an automatic stabilizer interfere with fiscal policy? Discuss possible positive and negative effects.
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Q5) Why and in what way are fiscal policy lags different from monetary policy lags?
Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) What did Phillips discover?
A) a positive relation between unemployment and inflation in the United Kingdom
B) a positive relation between unemployment and inflation in Canada
C) a negative relation between unemployment and inflation in Canada
D) a negative relation between unemployment and inflation in the United Kingdom
Q2) Use the AD/AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.
Q3) In the late 1960s and early 1970s, how did the short-run Phillips curve shift?
A) It shifted right as inflation expectations rose.
B) It shifted right as inflation expectations fell.
C) It shifted left as inflation expectations rose.
D) It shifted left as inflation expectations fell.
Q4) Suppose that a central bank increases the money supply. According to the Phillips curve, what should happen to prices, output, and employment?
A) Prices, output, and employment all rise.
B) Prices and output rise, and employment falls.
C) Prices rise, and output and employment fall.
D) Prices fall, and output and employment rise.
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) Which statement is consistent with the political business cycle theory?
A) The economy expands after the elections.
B) The economy contracts after the elections.
C) The economy expands before the elections.
D) The economy contracts before the elections.
Q2) Why should the central bank aim for a moderate rate, instead of a zero rate, of inflation?
A) to keep the natural rate of unemployment low
B) because the social costs of moderate inflation are high
C) because it is very difficult to maintain a zero rate of inflation in the long run
D) the benefits of zero inflation are small but the costs of reaching zero inflation are large.
Q3) Would economists say that, in general, the Canadian tax system encourages saving?
A) Yes, because the taxes on capital gains are low.
B) No, because consumption taxes are generally high.
C) Yes, because some forms of capital gains are not taxed.
D) No, because the taxes on capital gains are high.
Q4) Why do many economists advocate a consumption tax rather than an income tax?
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