Economic Principles
Review Questions
Course Introduction
Economic Principles explores the fundamental concepts and analytical tools used to understand how individuals, firms, and societies allocate scarce resources to satisfy unlimited wants. This course covers key topics such as supply and demand, market equilibrium, elasticity, consumer behavior, production and costs, market structures, and the role of government in the economy. By examining both microeconomic and macroeconomic perspectives, students gain insights into decision-making processes and the impact of economic policies on overall societal welfare.
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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Chapter 1: The Role and Method of Economics
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288 Verified Questions
288 Flashcards
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Sample Questions
Q1) Which area of study is most concerned with measuring the rate of inflation?
A)macroeconomics
B)microeconomics
C)normative economics
D)positive economics
Answer: A
Q2) Economists typically use controlled experiments to learn about how the economy functions.
A)True
B)False
Answer: False
Q3) "If I didn't have class tonight,I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." What is the opportunity cost of attending class tonight?
A)$0
B)$4
C)$40
D)$44
Answer: D
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Page 3
Chapter 2: Scarcity, trade-Offs, and Production Possibilities
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166 Verified Questions
166 Flashcards
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Sample Questions
Q1) Refer to Figure 2-7.What does Point A indicate about the economy?
A)It is not using its resources efficiently.
B)It is using its resources efficiently to produce both food and clothing.
C)It is using its resources efficiently while producing food but no clothing.
D)It is using its resources efficiently while producing clothing but no food.
Answer: A
Q2) Capital-intensive production techniques tend to be utilized most commonly in countries where labour is relatively cheap.
A)True
B)False
Answer: False
Q3) 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
Q4) Refer to Figure 2-14.Moving from Point C to Point D,what is the opportunity cost of producing a mountain bike?
Answer: Six shirts
Page 4
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Chapter 3: Supply and Demand
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122 Flashcards
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Sample Questions
Q1) If the demand for milk is downward sloping,then what will an increase in the price of milk result in?
A)a decrease in the demand for milk
B)an increase in the demand for milk
C)an increase in the quantity of milk demanded
D)a decrease in the quantity of milk demanded
Answer: D
Q2) Assuming that Chinese food and Thai food are substitutes,which of the following will result if P.F.Chang's Chinese Restaurant reduces its prices?
A)The demand for meals at P. F. Chang's will increase.
B)The demand for meals at the Bah Thai restaurant will decrease.
C)The sales of the nearby Bah Thai restaurant will increase.
D)The quantity of food demanded from P. F. Chang's will decrease.
Answer: B
Q3) The law of supply suggests that a decrease in the price of a product will increase the quantity supplied for that product.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Bringing Supply and Demand Together
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150 Flashcards
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Sample Questions
Q1) There is an increase in both consumer income and in the price of jet fuel,an important resource used to produce air travel.If air travel is a normal good,how will these changes influence the price and quantity purchased of air travel?
A)The price will be indeterminate and the quantity purchased will decrease.
B)The price will be indeterminate and the quantity purchased will increase.
C)The price will decrease and the quantity purchased will be indeterminate.
D)The price will increase and the quantity purchased will be indeterminate.
Q2) Explain how both sales and long lines prior to store openings are characteristic of markets in disequilibrium.
Q3) Which of the following could be responsible for an increase in the price of wheat?
A)a simultaneous increase in supply and decrease in demand for wheat
B)a decrease in the demand for wheat
C)an increase in the demand for wheat
D)an increase in the supply of wheat
Q4) Price ceilings cause surpluses.
A)True
B)False
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Chapter 5: Introduction to the Macroeconomy
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170 Flashcards
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Sample Questions
Q1) Given a fixed nominal interest rate on a loan,what is the result of unanticipated deflation?
A)It increases the burden of paying off the loan.
B)It does not alter the burden of paying off the loan.
C)It has an indeterminate effect on the burden of paying off the loan.
D)It decreases the burden of paying off the loan.
Q2) A business cycle reflects changes in economic activity,particularly real GDP.What are the stages of a business cycle,in order?
A)expansion, peak, contraction, trough
B)trough, expansion, contraction, peak
C)contraction, recession, expansion, boom
D)expansion, trough, contraction, peak
Q3) In recent years,where have economists come to believe that full employment in the Canadian economy occurs?
A)at an employment rate between 1.0 and 2.0 percent
B)at an employment rate between 2.0 and 3.0 percent
C)at an employment rate between 4.0 and 5.0 percent
D)at an employment rate between 6.0 and 7.0 percent
Q4) What are the three major types of unemployment? What are their causes?
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Chapter 6: Measuring Economic Performance
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Sample Questions
Q1) Which of the following accurately describes GDP?
A)the sum of all currency and coins in circulation
B)the value of all final goods and services produced by a government within a given period
C)the value of all final goods and services produced anywhere in the world by a nation's firms within a given period
D)the value of all final goods and services produced domestically within a given period
Q2) Which of the following is one result of a nation's imports exceeding its exports?
A)National savings will exceed investment.
B)Net exports will be positive.
C)GDP will be less than the sum of consumption, investment, and government purchases.
D)GDP will be greater than the sum of consumption, investment, and government purchases.
Q3) There are two ways to measure Gross Domestic Product.What are they and how are they different?
Q4) How do pollution and crime affect GDP?
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Chapter 7: Economic Growth in the Global Economy
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116 Flashcards
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Sample Questions
Q1) Which of the following is likely to occur as a result of falling incomes?
A)Reduced incomes will lead to reduced savings and, as a result, a reduction in capital formation.
B)Reduced incomes will lead to a decrease in spending on consumption but an increased spending on research and development.
C)Reduced incomes will result in a decrease in the availability of labour inputs for production.
D)Reduced incomes will lead to increased savings and, as a result, an increase in capital formation.
Q2) Which of the following is NOT considered a factor that contributes to economic growth?
A)growth in the quantity and quality of labour resources used
B)growth in physical capital inputs (machines, tools, buildings, and inventories)
C)growth in the money supply that exceeds the growth of final goods and services
D)government protection of property rights
Q3) A nation's prosperity is sometimes measured in terms of real GDP per capita.
A)True
B)False
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Chapter 8: Aggregate Demand
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184 Flashcards
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Sample Questions
Q1) What would be the impact on aggregate demand (AD)if both imports and exports fell?
A)AD would fall if exports fell more than imports.
B)AD would decrease.
C)AD would increase.
D)AD would rise if exports fell more than imports.
Q2) If the country is experiencing rapid economic growth and increasing personal incomes,what is the expected result on consumption and investment?
A)Consumption and investment will both increase.
B)Consumption will decrease and investment will increase.
C)Consumption will increase and investment will decrease.
D)Consumption and investment will both decrease.
Q3) What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?
Q4) What impact will a decrease in the Canadian price level have?
A)It will decrease real GDP demanded in Canada.
B)It will increase Canadian exports.
C)It will increase Canadian imports.
D)It will increase money demand in Canada.
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Chapter 9: Aggregate Supply and Macroeconomic Equilibrium
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172 Flashcards
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Sample Questions
Q1) If wheat prices rose by 12 percent when producers thought other prices were rising by 15 percent,what is the effect on wheat output?
A)We could not predict the likely change in wheat output that would result.
B)It would tend to rise as a result.
C)It would tend to remain unchanged as a result.
D)It would tend to fall as a result.
Q2) How will firms react to rising output price levels? What reactions can they expect from their employees and suppliers over time?
Q3) In the short run,what is the result of an increase in the price level?
A)Output prices will not change relative to input prices.
B)Output prices will rise relative to input prices.
C)Output prices could either rise or fall relative to input prices.
D)Output prices will fall relative to input prices.
Q4) What is the impact when AD shifts permanently to the right?
A)Cyclical unemployment will be lower in the short run than in the long run.
B)LRAS will shift in response to the expansionary gap.
C)Real output will rise in the short run but not in the long run.
D)The price level will rise in the short run but not in the long run.
Q5) How precise is the aggregate supply and demand model?
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Chapter 10: Fiscal Policy
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) If net exports increase by $10 billion and the MPC to 0.6,what will the resulting increase in the consumption component of AD be?
A)$25 billion
B)$15 billion
C)$6 billion
D)$4 billion
Q2) If MPC is 0.8,what size effect would a $200 billion increase in government purchases have on the "first round" of induced added consumption?
A)$80 billion
B)$160 billion
C)$200 billion
D)$800 billion
Q3) What type of tax is designed to take a larger percentage from high incomes as compared to lower incomes?
A)Regressive
B)Positive
C)Progressive
D)Negative
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 a person buries his money in his backyard,he is using money as a medium of exchange.
A)True
B)False
Q2) If a bank had demand deposits of $80 million and it desired a 25 percent reserve ratio,what is the maximum amount of dollars' worth of loans it would be able to have?
A)$20 million
B)$40 million
C)$60 million
D)$80 million
Q3) Suppose you found $2000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 25 percent,how much would the deposit directly create in excess reserves?
A)$2500
B)$2000
C)$1500
D)$500
Q4) What limits a bank's ability to extend loans?
Q5) Explain why gold and silver have historically been used as money.
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Chapter 12: The Bank of Canada
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76 Flashcards
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Sample Questions
Q1) What would constitute contractionary monetary policy by the Bank of Canada?
A)open market purchases of government securities and a cut in the bank rate
B)an increase in tariffs on imported goods and a decrease in foreign aid
C)an increase in income tax rates, a cut in government spending, and an elimination of the investment tax credit
D)open market sales of government securities and an increase in the bank rate
Q2) What is the impact on GDP if M is constant and V decreases?
A)real GDP increases
B)nominal GDP decreases
C)real GDP decreases
D)nominal GDP increases
Q3) If nominal GDP is $1200 billion and M2 is $150 billion,what is velocity?
Q4) Explain the difference between the Ministry of Finance and the Bank of Canada.
Q5) Name four of the five primary functions of the Bank of Canada.
Q6) What is the equation of exchange? What are the variables in it,and how do they relate to each other?
Page 14
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Chapter 13: Monetary Policy
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81 Flashcards
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Sample Questions
Q1) If inflation is underestimated by decision makers in the economy when it is rising,what will the shape of the SRAS curve tend to be?
A)downward sloping
B)horizontal
C)upward sloping
D)vertical
Q2) Which of the following statements comparing fiscal policy with monetary policy as a means of attaining macroeconomic goals is the most accurate?
A)The effects of monetary and fiscal policy are both immediate.
B)The effects of monetary policy are certain and predictable, while the effects of fiscal policy are not.
C)The implementation of monetary policy is not slowed down by the same budgetary process as fiscal policy.
D)It takes a long time for fiscal policy to have an effect on the economy, but the effects of monetary policy are immediate.
Q3) The SRAS becomes steeper as the economy approaches the full employment level.
A)True
B)False
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15
Chapter 14: International Trade
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) A country has an absolute advantage over another if it can produce a good with fewer resources.
A)True
B)False
Q2) A Canadian tariff on French wine will likely benefit Canadian wine producers,and the Canadian government harms both Canadian wine drinkers and French wine producers by increasing tax revenue.
A)True
B)False
Q3) Why is protectionist legislation often passed?
A)Employers in the affected industry lobby more effectively than the workers in that industry.
B)Trade restrictions often benefit domestic consumers in the long run, though they must pay more in the short run.
C)Consumers prefer to purchase goods made in Canada even if they are more expensive.
D)Both employers and workers in the affected industry lobby for protectionist policies.
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Chapter 15: International Finance
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114 Flashcards
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Sample Questions
Q1) Under a pure flexible exchange rate system,what does the rate that equates demand and supply in the exchange rate market imply?
A)The capital account balance equals zero.
B)Merchandise exports equals merchandise imports.
C)The current and capital account balances will be equal in magnitude, but opposite in sign.
D)The current account balance equals zero.
Q2) In foreign exchange markets,how is the supply of dollars determined?
A)solely by the level of Canadian merchandise imports
B)by the level of Canadian imports and the demand for foreign assets by Canadian citizens and the Canadian government
C)solely by the level of Canadian merchandise exports
D)by the levels of Canadian merchandise exports and merchandise imports
Q3) Under a flexible exchange rate system,what will a contractionary fiscal policy lead to?
A)a depreciation of the domestic currency
B)an appreciation of the domestic currency
C)an increase in foreign reserves
D)a decrease in foreign reserves
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Page 17