Economic Policy
Test Bank
Course Introduction
Economic Policy explores the design, implementation, and impact of policies that influence a nations economy. The course examines foundational concepts such as fiscal policy, monetary policy, taxation, public expenditure, and regulation, analyzing how governments address economic challenges like inflation, unemployment, inequality, and growth. Students will learn to critically evaluate real-world policy decisions, using economic theory and empirical evidence to assess their effectiveness and socio-economic consequences both domestically and internationally.
Recommended Textbook
Economics Today The Macro View 5th Canadian Edition by Roger LeRoy Miller
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17 Chapters
2077 Verified Questions
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Chapter 1: The Nature of Economics
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Sample Questions
Q1) In Figure 1A-2,the slope of the solid line passing through point A is A)3 1/3
B)1/2
C)- 2
D)2
Answer: D
Q2) Positive economic analysis is said to be A)true.
B)value free.
C)false. D)value laden.
Answer: B
Q3) The usefulness of a model is determined by ________. Answer: whether it yields usable predictions about the real world.
Q4) Economists do NOT refer to individual resources (such as oil)as scarce because ________.
Answer: scarcity refers to the inability to satisfy all wants ,not to limits on the amount of any one resource.
Q5) "If A occurs then B will be the result" is a ________ statement.
Answer: positive
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Chapter 2: Production Possibilities and Economic Systems
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Sample Questions
Q1) A production possibilities curve represents
A)combinations of goods and services among which consumers are indifferent.
B)the maximum combination of goods and services that can be produced with fixed resources and technology,given efficient use of the resources.
C)the maximum amount of labour and capital available to society.
D)the maximum rate of growth of capital and labour in a country.
Answer: B
Q2) In Table 2-1,if the economy moves from point F to point E,________ televisions are gained at a cost of ________ given up.
Answer: 5,1
Q3) Suppose a hectare of land yields 100 tonnes of corn and that one tonne of corn provides enough seed for one-quarter of a hectare of land.The opportunity cost of consuming another tonne of corn today is
A)25 tonnes of corn next year.
B)10 tonnes of corn next year.
C)100 tonnes of corn next year.
D)2)5 tonnes of corn next year.
Answer: A
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Chapter 3: Demand and Supply
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Sample Questions
Q1) In Table 3-1,at a price of $8,market quantity demanded would be ________ units.
Answer: 44
Q2) If macaroni and cheese is an inferior good and an increase in consumer income occurs,then which of the following statements is TRUE?
A)At a given price,more will be spent on macaroni and cheese.
B)There will be an increase in demand for macaroni and cheese.
C)The demand curve for macaroni and cheese will shift farther away from the origin. D)There will be a decrease in demand for macaroni and cheese.
Answer: D
Q3) In Table 3-1,if Buyer 2 leaves the market,what market quantity would be demanded at a price of $10?
A)33
B)25
C)22
D)8
Answer: B
Q4) The term ceteris paribus means ________.
Answer: other influences the same.
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Chapter 4: Introduction to Macroeconomics
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Sample Questions
Q1) Hidden unemployment describes individuals who
A)goof-off on the job.
B)are employed by the federal government.
C)would like to work,but are discouraged from looking for a job.
D)do voluntary work.
Q2) The nominal value of a good is
A)the good's value expressed in purchasing power terms.
B)the good's anticipated value one year from now.
C)the price of the good in today's dollars,minus an anticipated inflation premium.
D)the price of the good in today's dollars.
Q3) The duration of unemployment tends to
A)increase when business activity goes into a downturn.
B)increase when employment increases.
C)increase when the labour force shrinks.
D)stay consistently the same over long periods of time.
Q4) What is meant by full employment? Why isn't the full employment rate zero?
Q5) Define monetary and fiscal policy and discuss their primary use.
Q6) What is a price index? How do the CPI,the PPI and the GDP deflator differ?
Q7) Inflation can cause a misallocation of resources because
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Chapter 5: Measuring the Economys Performance
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Sample Questions
Q1) The total market value of final goods and services produced in an economy during a one-year period is
A)gross domestic product.
B)net national product.
C)profit.
D)personal income.
Q2) A farmer buys seed for 15 cents that is used to grow wheat.The farmer sells the wheat to the miller for 30 cents,who makes flour.The flour is sold to the baker for 60 cents and the baker makes bread,which is sold to the grocer for 90 cents.The grocer sells the bread for $1.25.What is the value added for the miller?
A)60 cents
B)45 cents
C)30 cents
D)90 cents
Q3) Which of the following is included when measuring GDP?
A)the value of services of durable goods purchased in previous years
B)the value of leisure time
C)the value of services provided by housewives and househusbands
D)the rental income received by a landlord
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Chapter 6: Modelling Real Gdp and the Price Level in the Long Run
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Sample Questions
Q1) In Figure 6-1,a movement from point B to point A can be explained by
A)an increase in spending due to a war.
B)an increase in spending due to increases in education expenditures.
C)an increase in the demand for manufacturing goods due to new technology. D)a drop in the price level.
Q2) Which of the following statements is TRUE?
A)The long-run aggregate supply curve is upward sloping.
B)The long run aggregate demand curve is upward sloping.
C)The short-run aggregate supply curve is vertical.
D)The long-run aggregate supply curve is vertical.
Q3) Compare and contrast the demand and supply side of inflation.Which is preferable?
Q4) Is it possible for economic growth to be zero? If so,what would the sample long run growth path for real GDP look like?
Q5) When the relative prices of American-made goods go down,the result is
A)a decrease in the exports of Canadian-made goods.
B)a decrease in exports of Canadian-made goods.
C)an increase in imports of Canadian-made goods.
D)no net change in imports or exports of Canadian-made goods.
Q6) What is the real-balance effect of an increase in the price level?
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Chapter 7: Economic Growth and Development
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Sample Questions
Q1) A small improvement in a country's growth rate is a benefit to policy makers because
A)a small change can have large effects on per capita GDP over time.
B)inflationary pressures will prove inconsequential.
C)policy makers focus too much on economic growth and not enough on increasing savings rates.
D)the larger GDP is the better the economic welfare will be in the future.
Q2) A lower rate of savings should lead to
A)lower current consumption.
B)more growth.
C)less investment,capital growth,and future consumption.
D)a higher price level and reduced future consumption.
Q3) Suppose two countries have per capita real GDP of $20,000 in 1995.Country A has a growth rate of 4 percent and Country B has a growth rate of 5 percent.By 1998,the per capita real GDPs for the two countries respectively are (rounded up)
A)$21,630 and $22,050.
B)$22,400 and $23,000.
C)$22,500 and $23,150.
D)$22,400 and $25,000.
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Chapter 8: Modelling Real Gdp and the Price Level in the Short Run
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Sample Questions
Q1) Explain in detail,with the aid of diagrams the two types of inflation tat exist in the short-run.
Q2) If our economy is growing at a constant rate of 5 percent per year,then over a period of 10 years we would expect to see which of the following?
A)Nice,steady flat line growth
B)An upward-sloping growth line
C)A downward-sloping growth line
D)It is impossible to say what kind of growth line we would see
Q3) Explain with the aid of diagrams the effect of a policy or action that would result in an inflationary and recessionary gap.Show the result graphically and explain the short-run and long-run adjustments that will take place in each case.
Q4) A decrease in long-run aggregate supply could be caused by
A)fewer regulatory impediments to business.
B)the discovery of new oil reserves in another country.
C)decreased competition.
D)a decrease in taxes.
Q5) How can a country experience economic growth and stable prices?
Q6) What is the affect of a rise in the price level on potential output?
Q7) Explain what is meant by cost-push inflation?
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Chapter 9: Consumption, investment, and the Multiplier
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Sample Questions
Q1) An increase in investment spending causes
A)a movement along the C + I + G + X - M curve and a shift of the aggregate demand curve.
B)a shift of the C + I + G + X - M curve and a movement along the aggregate demand curve.
C)a shift of the C + I + G + X - M curve but has no effect on the aggregate demand curve.
D)a shift of the C + I + G + X - M curve which causes the aggregate demand curve to shift.
Q2) The multiplier effect tends to
A)generate instability.
B)promote stability of the general price level.
C)magnify small changes in spending into much larger changes in output and income.
D)increase the MPC.
Q3) Which of the following statements is FALSE?
A)disposable income - saving = consumption
B)consumption + saving = disposable income
C)saving = disposable income - consumption
D)consumption = saving - disposable income
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Chapter 10: The Public Sector
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Sample Questions
Q1) Suppose the income tax rate schedule is 0% on the first $10,000;is 10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on any income over $70,000.Dennis,who has been earning $28,000 a year,receives a ten percent raise.How much additional tax will he have to pay?
A)$560
B)$540
C)$280
D)$260
Q2) Which of the following is a demerit good?
A)housing
B)education
C)heroin
D)medical care
Q3) Public goods are not likely to be provided by the private sector because A)the production of the good creates negative externalities.
B)the consumption of the good creates negative externalities.
C)no one can be excluded from the consumption of the good.
D)the exclusion principle does not apply to public goods.
Q4) Identify the economic and political functions of government and describe their purposes.
Page 12
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Chapter 11: Fiscal Policy and the Public Debt
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Sample Questions
Q1) Explain,along with an appropriate graphical representation,what a fiscal policy is and how it is implemented through a change in government spending and a change in taxes.
Q2) A recent government proposal to increase marginal taxes on those making over $200,000 a year will generate $100 billion in new tax revenues.A supply-side economist would argue that the actual revenue raised will be
A)less than $100 billion because some people will respond by working less.
B)exactly $100 billion because there are no offsetting factors to a tax increase.
C)more than $100 billion because lower income people will work harder when they perceive the tax system is more fair.
D)more than $100 billion because interest rates will also be affected.
Q3) If the government decreases spending to move the economy closer to full employment,the government is most likely trying to
A)close a contractionary gap by increasing aggregate demand.
B)close a contractionary gap by raising the price level.
C)close an expansionary gap by decreasing aggregate demand.
D)close an expansionary gap by increasing aggregate supply.
Q4) Explain why government deficits are related to current account deficits.
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Page 13
Chapter 12: Money and the Banking System
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Sample Questions
Q1) Which of the following is an example of M1+ money?
A)a credit card
B)savings deposits
C)coins
D)chequing accounts
Q2) Explain the structure of the Canadian Banking system.
Q3) An increase in the interest rate would induce people to
A)buy shares of stock and buy bonds,but would have no effect on their desire to hold money.
B)get rid of all their money and buy stocks with it.
C)sell their least liquid assets and hold more money in case interest rates go up again.
D)hold a smaller fraction of their wealth in the form of money.
Q4) An increase in the ________ would induce people to hold a smaller fraction of their wealth in the form of money.
A)unemployment rate
B)inflation rate
C)money supply
D)interest rate
Q5) In terms of the functions of money,can credit cards be considered money?
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Chapter 13: Money Creation and Deposit Insurance
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Sample Questions
Q1) The larger the desired reserve ratio,
A)the greater the increase in the money supply for an increase in bank deposits.
B)the more apt there will be currency drains.
C)the smaller the maximum money multiplier.
D)the more difficult for the Bank of Canada to control the money supply.
Q2) There are zero excess reserves at all banks and the required reserve ratio is 20 percent.If a check for $100,000 on Bank ABC is deposited in Bank XYZ,then excess reserves at Bank ABC equal ________ and excess reserves at Bank XYZ equal
A)-$20,000;+$80,000
B)-$100,000;+$80,000
C)-$80,000;+$100,000
D)-$80,000;+$80,000
Q3) If a bank holds $20,000 in desired reserves in order to meet a desired reserve ratio of 40 percent,demand deposits must equal
A)$20,000.
B)$40,000.
C)$50,000.
D)$100,000.
Q4) Explain the process by which the banking system creates money
Page 15
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Chapter 14: The Bank of Canada and Monetary Policy
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Sample Questions
Q1) In the Keynesian view,
A)an increase in money supply will increase interest rates.
B)an increase in money supply will decrease interest rates.
C)a decrease in money supply will decrease interest rates.
D)a decrease in money supply will not change interest rates.
Q2) Assume (other things constant)that the Bank of Canada increases the money supply.The mechanism through which aggregate demand increases is,according to Keynesians,
A)increase in the money supply fall in money balances held increase in interest rates decrease in planned investment spending increase in aggregate demand.
B)increase in money supply increase in money balances held decrease in interest rates decrease in planned investment spending increase in aggregate demand.
C)increase in money supply decrease in money balances held decrease in interest rates increase in planned investment spending increase in aggregate demand.
D)increase in money supply decrease in interest rates increase in planned investment spending increase in aggregate demand.
Q3) What are the functions of the Bank of Canada?
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Chapter 15: Issues in Stabilization Policy
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Sample Questions
Q1) In Figure 15-2,suppose the economy is initially at a short run equilibrium at point C and there is an unanticipated decrease in the money supply.Which point represents the new short run equilibrium?
A)A
B)B
C)C
D)D
Q2) According to the real business cycle theory,an increase in an input price,such as oil,will
A)increase both real income and the price level.
B)increase real income but not change the price level.
C)decrease real income but increase the price level.
D)decrease both real income and the price level.
Q3) The rational expectations model is associated with
A)the view that monopoly is widespread in modern industrial economies. B)monetarists.
C)Keynesian economics.
D)the new classical model.
Q4) What is the main tenet(s)of the Real Business Cycle Theory?
Q5) What is meant by the natural rate of unemployment?
Page 17
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Chapter 16: Comparative Advantage and the Open Economy
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Sample Questions
Q1) Suppose that the opportunity cost of producing goods differs between two nations.We can correctly state that
A)the two nations should not specialize in the production of goods.
B)each nation should produce all goods.
C)one country has a comparative advantage in the production of at least one of the goods.
D)neither country has a comparative advantage in the production of any good.
Q2) If there are two goods and two countries,then one country can have
A)an absolute advantage in both goods but a comparative advantage in only one good.
B)an absolute advantage in both goods and a comparative advantage in both goods.
C)an absolute advantage in one good,an absolute disadvantage in the other good,and a comparative advantage in neither.
D)an absolute advantage in neither good and a comparative advantage in both goods.
Q3) What is the difference between a quota and a tariff in restricting foreign trade?
Q4) List and explain fully the arguments against free trade.
Q5) What are the effects of a tariff on a good?
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Chapter 17: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) If the exchange rate is such that $1 equal 5 euros,then the price of a euro is
A)$5.
B)$1.
C)$0.40.
D)$0.20.
Q2) Every transaction concerning the importation of goods into Canada constitutes a
A)supply of foreign currency with no effect on the market for the dollar.
B)demand for dollars with no effect on markets for foreign currencies.
C)supply of foreign currencies and a demand for dollars.
D)demand for foreign currencies and a supply of dollars.
Q3) During 1998,Brasil reported imports of $1,000 million,exports of $1,100 million,foreign investment into the country of $900 million,investment abroad of $1,200 million.Assuming that net interest and net transfers are zero,what is the country's current account balance?
Q4) Flexible exchange rates occur when
A)no one knows what the true value of a currency is.
B)governments and central banks spend foreign reserves to prop an exchange rate at a certain level.
C)exchange rates are determined by forces of supply and demand.
D)speculators bet that a currency will soon be depreciated.
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