Economic Principles
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Course Introduction
Economic Principles introduces students to the foundational concepts and tools of economics, exploring how individuals, businesses, and governments make choices in a world of limited resources. The course covers both microeconomics focusing on supply and demand, market equilibrium, consumer behavior, and production decisions and macroeconomics, which addresses broader topics such as national income, inflation, unemployment, and fiscal and monetary policy. Through real-world examples and analytical frameworks, students will gain a solid understanding of how economic forces shape everyday life and influence policy decisions.
Recommended Textbook
Principles of Macroeconomics 9th Edition by John Sayre
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Page 2
Chapter 1: The Economic Problem
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Sample Questions
Q1) Refer to the graph above to answer this question.Given the shape of the PP curve,which of the following statements is correct?
A)The law of increasing costs doesn't apply.
B)The resources being used to produce rye and wheat are very similar.
C)The two goods being produced are very similar.
D)Opportunity costs are constant.
E)It is better for the economy to product rye.
Answer: A
Q2) Refer to the graph above to answer this question.What is the total cost of producing 300 units of rye?
A)0 units of wheat.
B)0.5 units of wheat.
C)2 units of wheat.
D)600 units of wheat.
Answer: D
Q3) Define economics.
Answer: Economics is a social science that studies the ways humans and societies organize themselves to make choices about the use of scarce resources,which are used to produce the goods and services necessary to satisfy human wants and needs.
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Page 3
Chapter 2: Demand and Supply: an Introduction
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Sample Questions
Q1) What is the effect on product A of an increase in the price of complementary product B?
A)It will cause an increase in the quantity demanded.
B)It will cause an increase in demand.
C)It will cause a decrease in demand.
D)It will cause an increase in supply.
E)It will cause a decrease in supply.
Answer: C
Q2) 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
Q3) A decrease in supply causes the price to fall and the quantity traded to increase. A)True
B)False
Answer: False
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Chapter 3: Measuring the Economy 1: GDP and Economic Growth
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Sample Questions
Q1) Refer to the graph above to answer this question.What is box (7)?
A)Exports.
B)Financial intermediaries.
C)Investments.
D)Savings.
E)Imports.
Answer: B
Q2) All of the following,except one,lead to the official GDP figures being understated.Which is the exception?
A)Illegal activities of a productive nature.
B)The work of a homemaker.
C)A homeowner remodeling his basement.
D)A lowering of the GST rate.
E)The existence of an underground economy.
Answer: D
Q3) What is net foreign factor income?
Answer: Net foreign factor income is income earned by domestic citizens from foreign sources minus income earned by foreigners from domestic sources.
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Chapter 4: Measuring the Economy 2: Unemployment and Inflation
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Sample Questions
Q1) Refer to the above information to answer this question.What is the annual inflation rate for 2015?
A)2.5%
B)2.7%
C)3%
D)3.7%
E)13.5%
Q2) What has happened to the labour force participation rates in Canada in the last 35 years?
A)The male participation rate has increased while the female participation rate has decreased.
B)The male participation rate has decreased while the female participation rate has increased.
C)Both male and female participation rates have decreased.
D)Both male and female participation rates have increased.
Q3) Full employment exists when the economy is experiencing only the natural rate of unemployment.
A)True
B)False
Q4) Distinguish between the CPI and the GDP deflator
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Chapter 5: Aggregate Demand and Supply
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Sample Questions
Q1) According to Keynesian economists,why are prices and wages often inflexible?
A)Because of the existence of large corporations and unions.
B)Because of high unemployment.
C)Because of government regulation of the market.
D)Because the AS curve is vertical.
E)Because the AD curve is horizontal.
Q2) What can cause an increase in the LAS?
A)An increase in nominal wage rates.
B)A decrease in taxes.
C)Technological improvement.
D)A leftward shift in the AS curve.
Q3) What are the three reasons for the downward slope of the aggregate demand curve?
Q4) Which of the following will lead to an increase in aggregate demand?
A)A decrease in stock prices.
B)An increase in the price level.
C)An increase in interest rates.
D)A decrease in the price of capital goods.
E)A decrease in the price level.
Q5) Explain the three types of macroeconomic equilibrium.
Q6) What factors can cause an increase in aggregate supply?
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Chapter 6: Aggregate Expenditures
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Sample Questions
Q1) Refer to the graph to answer this question.What is the value of the multiplier?
A)0.75.
B)2
C)2.5.
D)4.
E)500.
Q2) Refer to the data above to answer this question.What is the equation for the net export function?
A)X<sub>N</sub> = 300.
B)X<sub>N</sub> = 400 - 300Y.
C)X<sub>N</sub> = 300 - 50Y.
D)X<sub>N</sub> = 300 + 0.1Y.
E)X<sub>N</sub> = 300 - 0.1Y.
Q3) Refer to the table above to answer this question.What is the value of the MPM?
A)0.1
Q4) What four factors will cause a change in net exports?
Page 8
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Chapter 7: Fiscal Policy
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Sample Questions
Q1) Refer to the information above to answer this question.At equilibrium GDP,what is the value of Xn?
A)+2
B)+5
C)-2
D)-5
Q2) 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.
Q3) Refer to the information above to answer this question.If government decreased both its spending and taxes by $45,how would equilibrium GDP change?
A)It would increase by $60.
B)It would decrease by $60.
C)It would increase by $30.
D)It would decrease by $30.
Q4) Explain how the Government of Canada finances its budget deficits.
Q5) To whom does the federal government owe most of its debt?
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Chapter 8: Money and Banking
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Sample Questions
Q1) If the target reserve ratio were 100 percent,what would be the value of the money multiplier?
A)100.
B)1.
C)0.
D)10.
E)Infinite.
Q2) 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.
Q3) Suppose Highland Bank has deposits of $50,000 and target reserves are equal to actual reserves of $10,000.
a)What is Highland Bank's target reserve ratio?
b)Now suppose Highlands target reserve ratio is 25%.Will the bank be over- or under-reserved?
Q4) List some of the potential problems of using gold coins as money.
Q5) What are the three functions of money?
10
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Chapter 9: The Money Market and Monetary Policy
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Sample Questions
Q1) An increase in real GDP will cause an increase in interest rates.
A)True
B)False
Q2) Assume that the demand for money equals the supply of money of $80 billion and that the nominal GDP is $400 billion.According to the monetarist view,by how much will an increase in the money supply of $5 billion increase the nominal GDP?
A)By $30 billion.
B)By $25 billion.
C)By $20 billion.
D)By $10 billion.
E)By zero.
Q3) The transactions demand for money is determined by how much money people need.
A)True
B)False
Q4) The interest rate can be thought of as which of the following?
A)As a reflection of the demand for money.
B)As a reflection of the supply of money.
C)As the price of money.
D)As a result of the level of investment.
E)As a result of the level of saving.
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Chapter 10: International Trade
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Sample Questions
Q1) Refer to the information above to answer this question.What is the opportunity cost of one unit of rice cakes in Mental?
A)0.25 units of soya milk.
B)0.5 units of soya milk.
C)2 units of soya milk.
D)10 units of soya milk.
E)20 units of soya milk.
Q2) Refer to the information above to answer this question.Assuming no trade,what are the equilibrium price and quantity of wine in Germany?
A)$6 and 10.
B)$7 and 5.
C)$8 and 7.
D)$9 and 7.
Q3) David Ricardo first introduced the theory of comparative advantage.
A)True
B)False
Q4) Define tariffs and Quotas,and explain the similarities and differences between them.
Q5) Explain why Canada imports banana.
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Chapter 11: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) Explain who and why demands Canadian dollar in the foreign exchange market?
Q2) What effect will an increase in the demand for the Canadian dollar have?
A)The exchange rate will fall and the quantity of dollars traded will fall.
B)The exchange rate will fall and the quantity of dollars traded will rise.
C)The exchange rate will rise and the quantity of dollars traded will fall.
D)The exchange rate will rise and the quantity of dollars traded will rise.
Q3) By what method may a government be able to increase the value of its country's currency?
A)By buying its own currency.
B)By buying foreign currencies.
C)By selling its own currencies.
D)By decreasing its rate of interest.
E)By imposing an export tax.
Q4) Distinguish between portfolio investment and direct investment.
Q5) Which of the following is true if the Canadian dollar becomes overvalued?
A)There will be a surplus of Canadian dollars.
B)There will be a shortage of Canadian dollars.
C)The Canadian dollar will appreciate.
D)The money supply will increase.
E)Exports and imports will increase.
Page 13
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Chapter 12: Macroeconomic Policy Revisited
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Sample Questions
Q1) All of the following,except one,were policies supported by the supply-siders.Which is the exception?
A)Privatization of Canada's crown corporations
B)Contracting out of government services
C)Government closing down labour retraining centres
D)Deregulation of government involvement in the economy
E)Reducing taxes
Q2) Which of the following is an element of supply side policies?
A)The privatization of crown corporations.
B)The deregulation of industry.
C)The contracting-out of government services.
D)The reduction of tax rates.
E)The privatization of crown corporations,the deregulation of industry,the contracting-out of government services,and the reduction of tax rates.
Q3) Deflation means that the rate of inflation is falling.
A)True
B)False
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Chapter 13: A Walk Through the Twentieth Century and Beyond
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Sample Questions
Q1) Explain why Canada had mainly budget deficits between 1970s and 1990s.
Q2) Identify which of the following policy actions would be advocated by Keynesians and which would be advocated by Supply-siders.
a)Privatizing the telecommunication industry.
b)Constructing a national highway.
c)Deregulating the financial industry.
d)Increasing health spending.
Q3) Define 'hedge fund'
Q4) What policy approaches were used during post World War II to stabilize the economy?
Q5) What is the difference between demand side policies and supply side policies?
Q6) An inevitable result of recession is a budget deficit.Explain the reason a deficit occurs.
Q7) Create a graph illustrating labour unemployment.Explain how unemployment occurs.
Unemployment is a result of the prevailing wage rate being above equilibrium.
Q8) There were two distinctive approaches with respect to priorities for meeting economic goals while in the recovery phase of the financial crisis.What were these priorities? Provide examples of countries which adopted each approach. Page 15
Q9) Why are wages and prices sticky,according to Keynes?
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Page 16