Economics 101 Review Questions
Course Introduction
Economics 101 introduces students to the foundational principles of microeconomics and macroeconomics, covering essential topics such as supply and demand, market structures, consumer behavior, production costs, and the role of government in the economy. The course also explores broader concepts like inflation, unemployment, fiscal policy, and international trade, providing a comprehensive understanding of how economic systems operate and influence everyday life. Students will develop critical thinking skills and gain the analytical tools needed to evaluate economic issues and policies in a rapidly changing world.
Recommended Textbook
Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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17 Chapters
3576 Verified Questions
3576 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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216 Verified Questions
216 Flashcards
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Sample Questions
Q1) When the government attempts to improve equity in an economy,what is often the result?
A) an increase in overall output in the economy
B) additional government revenue since overall income will increase
C) an actual reduction in equity
D) reduced efficiency in the economy
Answer: D
Q2) Which statement best describes the relationship between inflation and unemployment?
A) In the short run,reducing inflation is associated with falling unemployment.
B) In the short run,reducing inflation is associated with rising unemployment.
C) In the long run,reducing inflation is associated with falling unemployment.
D) In the long run,reducing inflation is associated with rising unemployment.
Answer: B
Q3) What does trade NOT achieve?
A) increased competition
B) equal gains for both countries involved
C) some gains for both countries involved
D) greater production efficiency
Answer: B
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Chapter 2: Thinking Like an Economist
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234 Flashcards
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Sample Questions
Q1) In economics,what does capital refer to?
A) the finances necessary for firms to produce their products
B) buildings and machines used in the production process
C) the money households use to purchase necessities
D) the value of stock market shares issued to investors
Answer: B
Q2) Which statement best describes the way economists study the economy?
A) Economists study the past,but do not try to predict the future.
B) Economists use a probabilistic approach based on correlations between economic events.
C) Economists devise theories,collect data,and then analyze the data to test the theories.
D) Economists use controlled experiments much the same way a biologist or physicist does.
Answer: C
Q3) In the markets for goods and services,as in the markets for the factors of production,households are buyers and firms are sellers.
A)True
B)False
Answer: False
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-2.What does each producer have an absolute or comparative advantage in?
A) The rancher has an absolute advantage in both goods,and the farmer has a comparative advantage in meat.
B) The rancher has an absolute advantage in meat,and the farmer has a comparative advantage in potatoes.
C) The rancher has an absolute advantage in meat,and the farmer has a comparative advantage in neither good.
D) The rancher has an absolute advantage in neither good,and the farmer has a comparative advantage in potatoes.
Answer: B
Q2) Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.What is the opportunity cost of 1 table?
A) 1 / 5 chair for Mike and 1 / 3 chair for Sandy
B) 5 chairs for Mike and 3 chairs for Sandy
C) 1 / 3 chair for Mike and 1 / 5 chair for Sandy
D) 3 chairs for Mike and 5 chairs for Sandy
Answer: D
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Market demand is given as Qd = 200 - 6P.Market supply is given as Qs = 4P.What would result if the market price were $30?
A) a shortage of 100
B) a surplus of 100
C) a surplus of 160
D) a shortage of 160
Q2) New oak tables are normal goods.What will happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises,the price of oak wood rises,more buyers enter the market for oak tables,and the price of wood saws increased?
A) price will fall and the effect on quantity is ambiguous
B) price will rise and the effect on quantity is ambiguous
C) quantity will fall and the effect on price is ambiguous
D) quantity will rise and the effect on price is ambiguous
Q3) Which of the following cause and effect events are in order for a seller?
A) an input price falls,profit falls,the supply curve shifts left
B) an input price falls,profit rises,the supply curve shifts right
C) an input price rises,profit falls,the supply curve shifts right
D) an input price rises,profit rises,the supply curve shifts left
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Page 6
Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Suppose an apartment complex converts to a condominium (i.e.,the renters become owners of their apartments).Suppose the value of the condominium owners' housing services is now the same as their former rent.What happens to GDP?
A) GDP necessarily increases.
B) GDP necessarily decreases.
C) GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP.
D) GDP is unaffected because previously rent was included in GDP,and now it is replaced by the estimate of the value of housing services.
Q2) Which example would be included in Canadian consumption?
A) A Canadian resident buys a car manufactured in Brazil.
B) A French resident buys a new house in Canada
C) Beverly buys a newly issued share in a Canadian corporation
D) Samantha produces some artwork to decorate her house.
Q3) In 2014,what were Canadian net exports?
A) negative and about 10 percent of GDP
B) positive and about 3 percent of GDP
C) negative and about 1 percent of GDP
D) positive and about 10 percent of GDP
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn 200 times as much as Babe Ruth in 1931.Are the best baseball players better off than Babe Ruth?
A) Yes,the best baseball players today are better off than Babe Ruth was in 1931 because they earn much more.
B) No,because prices have also risen.
C) It cannot be determined because one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
D) It cannot be determined without additional information regarding increases in prices since 1931.
Q2) In recent years,there have been increases in the size of golf club drivers and the methods and materials used for making them have improved.Which problem in the construction of the CPI is this change in drivers most relevant to?
A) substitution bias
B) introduction of new goods
C) unmeasured quality change
D) income bias
Q3) Why does the GDP deflator give a different rate of inflation than the CPI does?
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8
Chapter 7: Production and Growth
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Sample Questions
Q1) In ten years,when you are the owner of a major Canadian corporation,if your corporation opens and operates a branch in a foreign country you will be engaging in foreign direct investment.
A)True
B)False
Q2) In addition to investment in physical and human capital,what other public policies might a country adopt to increase productivity?
Q3) Why are property rights important for the growth of a nation's standard of living?
Q4) What type of investment has foreigners buying shares in domestic companies?
A) foreign direct investment
B) foreign portfolio investment
C) foreign capital investment
D) foreign indirect investment
Q5) Economists generally believe that outward-oriented policies are more likely to foster growth than inward-oriented policies.
A)True
B)False
Q6) How do inward-oriented policies affect a nation's growth?
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) Mutual funds are a type of financial intermediary.
A)True
B)False
Q2) Refer to Table 8-2.Which company had the lowest dollar dividend?
A) P
B) Q
C) R
D) S
Q3) If the inflation rate is 3 percent and the real interest rate is 4 percent,what is the nominal interest rate?
A) 1 percent
B) 3 percent
C) 5 percent
D) 7 percent
Q4) What would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?
A) Interest rates would rise and savings would fall.
B) Both interest rates and savings would rise.
C) Both interest rates and savings would fall.
D) Interest rates would fall and savings would rise.
Page 10
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Chapter 9: Unemployment and Its Natural Rate
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Sample
Questions
Q1) 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.
Q2) How does Statistics Canada define the unemployment rate?
A) as the percentage of those unemployed relative to the percentage employed
B) as the percentage of the labour force that is unemployed
C) as the percentage of the adult population that is unemployed
D) as the percentage of the labour force without full-time employment
Q3) What is most likely to cause frictional unemployment?
A) the minimum wage
B) a worker leaving a job to find one with better benefits
C) labour unions
D) an increase in income tax
Q4) What is the theory of efficiency wages? Give a couple of explanations for how efficiency wages might work.
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Page 11
Chapter 10: The Monetary System
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Sample Questions
Q1) When Arnold uses dollars to record his income and expenses,how is he using money?
A) as a unit of account
B) as a means of payment
C) as a store of value
D) as a medium of exchange
Q2) Which of the following is included in the M2 definition of the money supply?
A) credit cards
B) term deposits
C) corporate bonds
D) foreign currency accounts
Q3) The bank of Hinton has $100 reserves,$10,000 long-term loans,$500 securities,$8800 deposits,and $1400 debt.Due to a macroeconomic slowdown,many people lose their jobs and need to live off their savings for a while.Discuss the possible effects of this situation on the bank of Hinton's assets,liabilities,and capital.Is the bank insolvent? Use numerical examples to illustrate your points.
Q4) Monetary policy is determined by the Bank of Canada's governor.
A)True
B)False
Q5) What is the difference between money and wealth?
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) When the money market is depicted in a graph with the value of money on the vertical axis,as the price level increases,how does the quantity of money demanded or supplied change?
A) The quantity of money demanded increases.
B) The quantity of money demanded decreases.
C) The quantity of money supplied increases.
D) The quantity of money supplied decreases.
Q2) When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.
A)True
B)False
Q3) If the Bank of Canada increases the money supply,the equilibrium value of money decreases and the equilibrium price level must increase.
A)True
B)False
Q4) Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis,draw a money demand curve and explain its shape.Do the same for the money supply curve.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.
A)True
B)False
Q2) What would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?
A) fewer domestic goods and foreign goods
B) more domestic goods,but fewer foreign goods
C) fewer domestic goods,but more foreign goods
D) more domestic goods and foreign goods
Q3) Roger lives in Iceland and purchases a snowmobile manufactured in Canada.What is this purchase?
A) both a Canadian and an Icelandic export
B) both a Canadian and an Icelandic import
C) a Canadian import and an Icelandic export
D) a Canadian export and an Icelandic import
Q4) How can one derive the identity that saving equals the sum of domestic investment and net capital outflow from the national income accounting identity?
Q5) How do we find the real exchange rate from the nominal exchange rate?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) What are the main elements of our open-economy macroeconomic model?
A) the market for loanable funds,the foreign-currency market,and the price level
B) the market for goods and services,the price level,and GDP
C) the market for goods and services,net exports,and GDP
D) the market for loanable funds,net capital outflow,and the foreign-currency market
Q2) Refer to the Figure13-2.Suppose that these diagrams refer to Canada.If the interest rate was initially at r0 and Japan voluntarily restricted its exports to Canada,what would happen to the interest rate?
A) It would stay at r0.
B) It would decrease because supply would shift right.
C) It would increase because supply would shift left.
D) It would decrease because demand would shift left.
Q3) If a government increases its budget deficit,which statement would best predict the effects?
A) Interest rates rise,and the trade balance moves toward surplus.
B) Interest rates rise,and the trade balance moves toward deficit.
C) Interest rates fall,and the trade balance moves toward surplus.
D) Interest rates fall,and the trade balance moves toward deficit.
Q4) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) 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
Q2) Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will happen in the short run?
A) Real GDP will rise,and the price level might rise,fall,or stay the same.
B) Real GDP will fall,and the price level might rise,fall,or stay the same.
C) The price level will rise,and real GDP might rise,fall,or stay the same.
D) The price level will fall,and real GDP might rise,fall,or stay the same.
Q3) Because not all prices adjust instantly to changing conditions,an unexpected fall in the price level leaves some firms with higher-than-desired prices,and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.
A)True
B)False
Q4) Make a list of things that would shift the aggregate-demand curve to the right.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) This question considers how an economy changes over time and how the aggregate demand and supply model treats the time dimension of an economy.
a)How do the aggregate-demand and aggregate-supply curves shift over time?
b)Related to point a,identify and discuss the limitations to the simple,"static" aggregate-demand and aggregate-supply model.What are the consequences of predicting phenomena that have a time dimension (remember the 'short-run' and 'long-run' distinction)using an essentially static model?
c)How could the static model be changed to better incorporate the time dimension of the economic variables it tries to explain?
Q2) If the Bank of Canada conducts open-market purchases,how do the money supply and the aggregate demand change?
A) The money supply increases,and aggregate demand shifts right.
B) The money supply increases,and aggregate demand shifts left.
C) The money supply decreases,and aggregate demand shifts right.
D) The money supply decreases,and aggregate demand shifts left.
Q3) Suppose that there are no crowding-out effects and the MPC is 0.8.By how much must the government increase expenditures to shift the aggregate-demand curve right by $10 billion?
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Q2) How will a favourable supply shock shift the short-run Phillips curve and how does it change inflation?
A) It will shift the short-run Phillips curve right and raise inflation.
B) It will shift the short-run Phillips curve right and lower inflation.
C) It will shift the short-run Phillips curve left and raise inflation.
D) It will shift the short-run Phillips curve left and lower inflation.
Q3) According to Phelps and Friedman,in the short run,what effect does an increase in the money supply have on prices and unemployment?
A) It raises prices and unemployment.
B) It raises prices and reduces unemployment.
C) It reduces prices and raises unemployment.
D) It reduces prices and leaves unemployment unchanged.
Q4) Refer to the Figure 16-3.Starting from c and 3,where does an increase in aggregate demand move the economy to,in the short run and the long run?
A) a and 1 in the short run,b and 2 in the long run
B) b and 2 in the short run,a and 1 in the long run
C) d and 4 in the short run,e and 5 in the long run
D) d and 2 in the short run,a and 5 in the long run
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) What is the main reason that monetary policy has lags?
A) It takes a long time for changes in the interest rate to change aggregate demand.
B) It takes a long time for changes in the money supply to change interest rates.
C) It takes a long time for the Bank of Canada to make changes in policy.
D) It takes a long time for the government to pass the necessary laws.
Q2) What is a significant cost of inflation?
A) printing more money
B) lower nominal interest rates
C) unintended changes in tax liabilities
D) higher unemployment
Q3) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?
Q4) Advocates of stabilization policy argue that when there is a recession,the government should increase the money supply and increase government expenditures.
A)True
B)False
Q5) Identify three government policies that discourage saving.
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Page 19