Economic Principles Review
Questions
Course Introduction
Economic Principles provides an introduction to the fundamental concepts and tools used in the study of economics. The course covers essential topics such as supply and demand, market equilibrium, elasticity, consumer behavior, production costs, and the role of government in the economy. Students will explore both microeconomic and macroeconomic perspectives, learning how individuals and firms make decisions, how markets function, and how economic policy impacts society. Through real-world examples and practical applications, the course lays a strong foundation for further study in economics and related fields.
Recommended Textbook
Exploring Macroeconomics 3rd canadian Edition by Robert L. Sexton
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15 Chapters
2208 Verified Questions
2208 Flashcards
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Page 2
Chapter 1: The Role and Method of Economics
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288 Verified Questions
288 Flashcards
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Sample Questions
Q1) Your mother tells you,"Watching ten hours of TV per day will make you stupid." Why is this a positive statement?
A)Your mother is concerned with your well being.
B)You should be studying instead of watching TV.
C)It is a proposition that can be tested.
D)It is your mother's opinion.
Answer: C
Q2) What does the opportunity cost of an action include?
A)the highest valued alternative use of the time spent on the action
B)the total benefits received as a result of the action
C)the lowest valued alternative use of the time spent on the action
D)the net benefits received as a result of the action
Answer: A
Q3) You consider purchasing one more cup of coffee before you go to class.What is this an example of?
A)average thinking
B)positive thinking
C)marginal thinking
D)total thinking
Answer: C
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Chapter 2: Scarcity, trade-Offs, and Production Possibilities
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166 Flashcards
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Sample Questions
Q1) How does an economist define efficiency?
A)the creation of a surplus using available resources
B)the maximization of revenue from available resources
C)the maximization of output from available resources
D)the maximization of inputs using available resources
Answer: C
Q2) Market economies are often criticized for how they answer the basic question,"For whom are goods produced?" This criticism usually comes from people who believe that the distribution of income is not "fair." Is there some way to separate production from distribution so that we can make the distribution of income "more fair" without interfering with production?
Answer: Unfortunately,there is no way to totally separate the act of production from the way income is distributed.We know that incentives matter,and tying income to production gives people the incentive to produce.Fairness is a normative concept and reasonable people will disagree over what constitutes a fairer distribution of income.Since incentives matter,any attempt to change the distribution of income is likely to destroy some of the incentives for production.
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Page 4
Chapter 3: Supply and Demand
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122 Flashcards
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Sample Questions
Q1) How is the market demand curve determined?
A)by subtracting the individual demands curves from the supply curve
B)by horizontally summing the individual demand curves
C)by vertically summing the individual demand curves
D)by averaging all the individual demand curves
Answer: B
Q2) What is the difference between a change in quantity supplied and a change in supply?
A)A change in supply and a change in the quantity supplied are the same thing.
B)A change in quantity supplied is a change in the amount people want to sell, while a change in supply is a change in the amount they actually sell.
C)A change in quantity supplied is caused by a change in a good's own price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes.
D)A change in supply is caused by a change in a good's own price, while a change in the quantity supplied is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes.
Answer: C
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Page 5
Chapter 4: Bringing Supply and Demand Together
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Refer to Figure 4-2.Under what circumstances would a movement from S to S occur?
A)an increase in the price of potato chips, a complement to submarine sandwiches
B)an increase in the price of wheat bread used to make submarine sandwiches
C)a reduction in the price of sliced beef used to make submarine sandwiches
D)an increase in the price of submarine sandwiches
Q2) A safety report is released that contends that sport utility vehicles are prone to roll over during crashes.At the same time,the price of steel (used to produce motor vehicles),increases.What is the net effect of these two incidents on the market for sport utility vehicles?
A)an increase in price and a decrease in equilibrium quantity
B)a decrease in price and an increase in equilibrium quantity
C)an indeterminate change in price and a decrease in equilibrium quantity
D)a decrease in price and a decrease in equilibrium quantity
Q3) If in one period the supply curve is located vertically above its position in an earlier period,what is this an example of?
A)a supply increase
B)an increase in demand
C)a decrease in demand
D)a supply decrease
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Page 6
Chapter 5: Introduction to the Macroeconomy
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) When does deflation exist in the economy?
A)whenever the economy experiences a contraction
B)whenever the overall price level rises
C)whenever the price of a good decreases
D)whenever the overall price level falls
Q2) Which of the following is NOT a reason as to why the CPI may be biased?
A)The CPI deals with a fixed market basket and doesn't capture the savings households enjoy when they take advantage of sales.
B)The CPI does not pick up the increase in economic welfare caused by new products entering the marketplace.
C)The CPI does not adequately deal with changes in the quantity of products purchased over time.
D)The CPI does not adequately reflect that different consumers have different tastes.
Q3) In the 1970s,lending institutions earned a large portion of their income from extending fixed-rate mortgages and loans.They extended many of these loans in the early 1970s when inflation was low.Were the lending institutions winners or losers as inflation skyrocketed in the late 1970s?
Q4) What are the three major types of unemployment? What are their causes?
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Page 7
Chapter 6: Measuring Economic Performance
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) What does disposable income measure?
A)the income households have from investment income such as dividends and capital gains
B)the market value of total output
C)the income households have to spend after paying taxes
D)the income households have to spend before paying taxes
Q2) Under what conditions will nominal GDP always equal real GDP?
A)if prices are declining
B)if the economy's total production does not change
C)if prices are increasing
D)in the base year
Q3) Which of the following statements about the Consumer Price Index is the most accurate?
A)When it increases, the average family has to spend less to maintain their standard of living.
B)When it increases, the average family has to spend more to maintain their standard of living.
C)It is a broader measure of inflation than is the GDP deflator.
D)When it increases, the standard of living of the average family does not change.
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Page 8
Chapter 7: Economic Growth in the Global Economy
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Sergei has developed a new fat substitute that has no calories and produces no side effects.What kind of support from the government is he most likely to want,in order to bring this innovation to the marketplace?
A)a trademark
B)a patent
C)an education subsidy
D)a marketing subsidy
Q2) Country A and Country B initially have the same real GDP per capita.Country A experiences no economic growth,while Country B grows at a sustained rate of 7 percent.In 12 years,how will Country B's GDP compare to that of Country A's?
A)It will be approximately one-fourth of Country A's.
B)It will be approximately one-half of Country A's.
C)It will be approximately double of Country A's.
D)It will be approximately triple of Country A's.
Q3) Which of the following can help a nation achieve higher economic growth?
A)more resources allocated to consumption goods
B)taxes imposed on investment in capital
C)increased wages in the service sector
D)more resources devoted to research and development
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Page 9
Chapter 8: Aggregate Demand
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184 Flashcards
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Sample Questions
Q1) What does aggregate demand include?
A)the demand for intermediate goods and final goods
B)the demand for final goods and services
C)the demand for investment, including stocks, bonds, and gold
D)the demand for all monetary and nonmonetary transactions
Q2) What effect would an increase in investment,combined with an increase in imports,have on aggregate demand (AD)?
A)AD would increase.
B)AD would stay the same.
C)AD could either increase or decrease, depending on which change was of a greater magnitude.
D)AD would decrease.
Q3) What would be the impact on aggregate demand (AD)if both imports and exports rose?
A)AD would rise if exports rose more than imports.
B)AD would decrease.
C)AD would increase.
D)AD would be unaffected.
Q4) Describe the difference between a microeconomic demand curve and an aggregate demand curve.
10
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Chapter 9: Aggregate Supply and Macroeconomic Equilibrium
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172 Flashcards
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Sample Questions
Q1) When referring to the aggregate supply curve,what is the short run?
A)a time period in which output prices can change in response to supply and demand, but in which all input prices have not yet been able to completely adjust
B)a time period in which neither the prices of output nor the prices of inputs are able to change
C)any time period of less than a year
D)a time period in which the prices of output cannot change, but in which the prices of inputs have time to adjust
Q2) Which of the following statements about short-run aggregate supply is the most accurate?
A)It is not affected in any manner by the price level.
B)It reflects how much real GDP suppliers are willing and able to produce at different price levels.
C)It shifts only when the LRAS shifts.
D)It is a fixed volume of output.
Q3) Explain why the short-run supply curve is not vertical,but the long-run aggregate supply curve is vertical.
Q4) How precise is the aggregate supply and demand model?
Page 11
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Chapter 10: Fiscal Policy
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) When do budget surpluses exist?
A)when government spending equals its tax revenues
B)when expansionary fiscal policies increase real GDP and the price level
C)when government tax revenues exceed its spending
D)when government spending exceeds its tax revenues
Q2) A cut in corporate profit taxes can lead to an increase in investment spending,aggregate demand and future economic growth.
A)True
B)False
Q3) Which of the following statements about automatic stabilizers in Canada is the most accurate?
A)They are the responsibility of the provinces since they, unlike the federal government, do not face lag problems.
B)They are controlled by the Bank of Canada to help manage the business cycle.
C)They are able to completely eliminate all the lag problems associated with fiscal policy.
D)They are changes in government transfer payments and tax revenues that vary automatically and inversely to business cycle changes.
Q4) Why doesn't the government print money in order to solve its debt problems?
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Chapter 11: Money and the Banking System
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164 Flashcards
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Sample Questions
Q1) If individuals will no longer take a currency as a method of payment,is it still considered to be money?
A)Yes, because the government identifies it as legal tender.
B)Yes, because one of the characteristics of money is that it can be also used as a measure of value.
C)No, because one of the main characteristics necessary for something to serve as money is that it must be generally acceptable.
D)No, because it becomes just a commodity.
Q2) Refer to Scenario 11-1.If the desired reserve ratio is 20 percent,what is the level of the bank's excess reserves and how much could it loan out as a result?
A)Excess reserves are $100 000, and it could loan out $400 000.
B)Excess reserves are $400 000, and it could loan out $2 000 000.
C)Excess reserves are $100 000, and it could loan out $100 000.
D)Excess reserves are $400 000, and it could loan out $500 000.
Q3) Money is the standard object used in exchanging goods and services.It can,therefore,be called the medium of exchange.
A)True
B)False
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13
Chapter 12: The Bank of Canada
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76 Flashcards
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Sample Questions
Q1) What action by the Bank of Canada is likely to lead to a decrease in the money supply?
A)selling government securities in the open market
B)switching government accounts from the chartered banks back to the Bank of Canada
C)decreasing mortgage rates
D)lowering the bank rate
Q2) When the Bank of Canada purchases government securities from a chartered bank,what is the impact on that bank?
A)It loses equity.
B)It automatically becomes poorer.
C)It receives reserves that can be used to make additional loans.
D)It loses its ability to make loans.
Q3) In Canada,monetary policy is the responsibility of the Bank of Canada.
A)True
B)False
Q4) The Bank of Canada was established in 1935 and is owned by the federal government.
A)True
B)False
Page 14
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Chapter 13: Monetary Policy
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Why is the money supply curve almost perfectly inelastic?
A)As interest rates rise, people will want to be supplied with more loans.
B)The Bank of Canada makes more money available in response to higher interest rates.
C)The Bank of Canada lowers the bank rate as interest rates rise so that more money is injected in the banking system.
D)Banks generally find loans more profitable than keeping their assets as cash in their vaults or reserve deposits at the Bank of Canada
Q2) Which of the following statements does NOT describe a real limitation to monetary policy?
A)The world has become global in all markets, including financial markets, and the Bank of Canada does not have control over international banks.
B)It is essentially very difficult to get a policy decision enacted because the Bank of Canada is controlled by Parliament.
C)Monetary policy has to be carried out through the chartered banking system.
D)Fiscal policy is sometimes at odds with monetary policy.
Q3) What affects the demand for money?
Q4) To what extent should monetary policy be used to fine-tune the economy?
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Page 15
Chapter 14: International Trade
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) Refer to Table 14-3.Which of the following statements about trade is the most accurate?
A)Karl has an absolute advantage and a comparative advantage in apples.
B)Karl has an absolute advantage in oranges and a comparative advantage in oranges.
C)Karl has an absolute advantage in both apples and oranges.
D)Adam has an absolute advantage in oranges and a comparative advantage in apples.
Q2) Which of the following results from a subsidy?
A)exports increase
B)domestic production costs increase
C)world output is increased
D)imports increase
Q3) Why does trade make all parties better off?
A)It encourages consumption rather than saving.
B)It always expands the amount of domestic production of each good and service, and more is preferred to less.
C)It guarantees everyone gets a job.
D)It permits all parties to acquire some items better suited to their tastes.
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16
Chapter 15: International Finance
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Which of the following would increase the demand for Canadian dollars in the foreign exchange market?
A)the sale of Canadian computer software to an American buyer
B)the spending of Canadian tourists in France
C)the purchase of Japanese automobiles by Canadian consumers
D)the purchase of a Mexican shoe factory by a Canadian investor
Q2) What is the difference between the value of a country's merchandise exports and merchandise imports known as?
A)the balance on current account
B)the balance of payments
C)the balance on capital account
D)the balance of trade
Q3) Under a fixed exchange rate system,what will an expansionary monetary policy lead to?
A)an increase in foreign reserves
B)a depreciation of the domestic currency
C)a decrease in foreign reserves
D)an appreciation of the domestic currency
Q4) What factors will shift the supply and demand for currency?
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