Economics for Business
Chapter Exam Questions
Course Introduction
Economics for Business introduces students to the fundamental economic principles that underpin effective business decision-making. The course covers key concepts such as supply and demand, market structures, pricing strategies, and the impact of government policies on business environments. Students explore both microeconomic and macroeconomic perspectives, analyzing how businesses respond to changes in market conditions, the costs and benefits of production, and the dynamics of competition and consumer behavior. Through case studies and real-world examples, learners gain practical skills to interpret economic data and apply economic reasoning to strategic planning and problem-solving in various business contexts.
Recommended Textbook
Economics Today The Macro View 5th Canadian Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Q1) The income that is earned when land is used to produce goods and services is
Answer: rent
Q2) Economics can usefully be defined as
A)the process by which goods are sold in free markets.
B)the study of how government can most effectively raise funds through taxation.
C)the study of how people allocate limited resources to try and satisfy their many wants.
D)the study of individual self-interests.
Answer: C
Q3) The primary goal of economics is to understand
A)how people make money.
B)how households purchase goods and services.
C)the choices people make.
D)how people earn a comfortable living.
Answer: C
Q4) Scarcity exists because human wants ________.
Answer: are greater than can all be satisfied with the resources available.
Q5) Economists typically assume people act as if they are motivated by ________.
Answer: self-interest.
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Chapter 2: Production Possibilities and Economic Systems
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Q1) What problems does Canada face because of international and inter-provincial trade?
Answer: Specialization and trade expand a country's ability to produce and consume goods and services,making it richer overall.However,that does not mean there are never any losers.If one region or country develops a lower-cost way of producing a product,it takes employment away from workers elsewhere.If Alaska crab fishers develop a cheaper method of harvesting crabs than fishers in British Columbia,BC fishers will lose out and perhaps try to raise trade barriers to protect their jobs.The same effects happen within Canada but firms and workers will more likely to call for subsidies than for barriers to trade.
Q2) The organization of productive activities among persons and regions so that no one individual or area is totally self-sufficient is known as A)comparative value.
B)advantage-taking.
C)specialization.
D)out-sourcing.
Answer: C
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Chapter 3: Demand and Supply
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Q1) In Table 3-1,if the price is increased from $16 to $18,ceteris paribus,market quantity demanded will fall by ________ units.
Answer: 5
Q2) The price of a new car is $20 000 while the price of a five-year old car of the same brand is $8 000.The next year the price of the new car increases to $22 000 and the price of a five-year old car of the same brand is $8 800.The relative price of the used car
A)increased by $800.
B)decreased by 10 percent.
C)increased by 10 percent.
D)remained constant at 0.4.
Answer: D
Q3) The market demand curve for a commodity is found by
A)summing the quantities demanded by each individual at each possible price.
B)studying census data.
C)summing the prices each consumer would pay for each quantity.
D)taking the average of the individual demand curves.
Answer: A
Q4) The term ceteris paribus means ________.
Answer: other influences the same.
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Chapter 4: Introduction to Macroeconomics
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Q1) Which of the following statements is TRUE?
A)Expansions and contractions of the Canadian economy usually last the same length of time.
B)Expansions vary greatly in length,but contractions last the same amount of time.
C)The Canadian economy has neither expanded nor contracted since the end of World War II.
D)Expansions and contractions of the Canadian economy vary greatly in length.
Q2) The inflation rate has been 4 percent for twenty years and the nominal interest rate has been 8 percent during this same time period.Unexpectedly,the actual inflation rate the next year is 8 percent.The real rate of interest this last year is A)zero.
B)2 percent.
C)4 percent.
D)6 percent.
Q3) Describe in detail the types of unemployment,their consequences and provide an example of each as it applies in context.
Q4) With the aid of a diagram,describe the complete business cycle in the short-run and long-run.
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Chapter 5: Measuring the Economys Performance
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Q1) Which of the following is a final good?
A)seed used for corn
B)wheat used for bread
C)electricity used for producing automobiles
D)a lawn mower purchased by a household
Q2) Adjusting nominal GDP for price changes from a base year yields
A)current GDP.
B)real GDP.
C)constant disposable income.
D)GDP net of relative price changes.
Q3) If consumption expenditures are $500 million,spending on fixed investment is $100 million,the increase in inventories equals $5 million,imports are $50 million,exports are $55 million,government spending on goods and services is $200 million,than GDP is
A)$790 million.
B)$800 million.
C)$810 million.
D)$830 million.
Q4) Explain how value added is used to compute GDP.
Q5) How do GDP and NDP differ? What does it mean if net investment is negative?
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Chapter 6: Modelling Real Gdp and the Price Level in the Long Run
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Q1) Higher interest rates
A)reduce the quantity of goods and services demanded because they increase the cost of borrowing money.
B)reduce the quantity of goods and services demanded because they reduce the income of bankers and other creditors.
C)increase the quantity of goods and services demanded because they increase the incomes of all people in the economy.
D)increase the quantity of goods and services demanded because they lower the costs of building new plants and equipment.
Q2) When the Harper government decreases the level of taxes in the economy,this has the effect of
A)increasing AD.
B)decreasing AD.
C)increasing AS in the long run.
D)decreasing AS in the long run.
Q3) Explain with the aid of diagrams and explanations how price level changes effect the long run equilibrium
Q4) What is the shape of the long-run aggregate supply curve? Why?
Page 8
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Chapter 7: Economic Growth and Development
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Q1) The faster economic growth is,the
A)steeper the slope of the production possibilities curve.
B)farther the production possibilities curve shifts out.
C)closer to the origin the production possibilities curve becomes.
D)more bowed the production possibilities curve becomes.
Q2) Labour productivity decreases when
A)the population increases.
B)output remains constant while the labour force increases.
C)output decreases at the same rate as the labour force increases.
D)output decreases faster than population increases.
Q3) To consume more in the future,a society must
A)maintain low inflation.
B)plan carefully.
C)consume less today.
D)have low tax rates on consumption.
Q4) Productivity relates to
A)working harder over time.
B)working longer over time.
C)producing the same output with fewer labour hours.
D)producing the same output with more labour hours.
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Chapter 8: Modelling Real Gdp and the Price Level in the
Short Run
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Q1) The ________ represents the relationship between the price level and the real output of goods and services in the economy without full adjustment or full information.
A)short-run aggregate supply curve
B)long-run aggregate supply curve
C)aggregate demand curve
D)labour supply curve
Q2) If the Canadian dollar becomes stronger in international markets,consequences include
A)a decrease in net exports,a decrease in equilibrium real GDP,and a decrease in the price level.
B)an increase in net exports,an increase in equilibrium real GDP,and an increase in the price level.
C)an increase in equilibrium real GDP,an increase in the price level,and no change in net exports.
D)a decrease in the price level but an increase in equilibrium real GDP and net exports.
Q3) Explain what is meant by cost-push inflation?
Q4) What is the affect of a rise in the price level on potential output?
Q5) Distinguish between the short-run and long-run aggregate supply curves.
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Chapter 9: Consumption, investment, and the Multiplier
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Q1) If the consumption function is above the 45-degree line drawn from the origin,then the saving function will
A)be positive.
B)be negative.
C)equal zero.
D)intersect the consumption function.
Q2) If consumption spending exceeds income,we have A)dissaving.
B)hoarding.
C)savings.
D)investment.
Q3) A permanent reduction in investment spending leads to
A)a more than proportional increase in real national income.
B)a more than proportional decrease in real national income.
C)a less than proportional decrease in real national income.
D)a proportional decrease in real national income.
Q4) When disposal income is $50 million,consumption expenditure is $45 million.When disposal income is $60 million,consumption expenditure is $50 million.What is the MPC?
Q5) What are the simplifying assumptions that are made in the Keynesian Model?
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Chapter 10: The Public Sector
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Q1) Suppose you purchased 100 shares of stock in 1990 for $25 a share,and you sell them today for $50 a share.If the capital gains tax is 28 percent,your tax liability is
A)$70.
B)$2,500.
C)$700.
D)indeterminate without the inflation rate.
Q2) Income is taxed twice with respect to
A)corporate profits only.
B)shareholder dividends only.
C)both corporate profits and shareholder dividends.
D)neither profits nor dividends since the 1986 Tax Reform Act eliminated double taxation.
Q3) The marginal tax rate is equal to
A)the average tax payment divided by the total tax payment.
B)the percent of total income that goes to taxes.
C)the change in the tax payment divided by the change in taxable income.
D)the total tax payment divided by total income.
Q4) A family making $30,000 pays $4,500 in taxes and a family making $40,000 pays $6,500 in taxes.The tax system is ________.
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Chapter 11: Fiscal Policy and the Public Debt
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Q1) List and describe in detail the 5 possible offsets to fiscal policy.
Q2) Suppose the economy is experiencing a inflationary gap and the government increases spending to close the gap.In the short run one would expect
A)output and the price level to remain constant.
B)output to increase and the price level to remain constant.
C)output and the price level to rise even further .
D)output to remain constant and the price level to rise.
Q3) The amount by which the equilibrium level of real GDP exceeds the long-run equilibrium level as given by LRAS is referred to as
A)a contractionary gap.
B)economic growth.
C)the amount by which taxes should be increased in order to put the brakes on run-away inflation.
D)an inflationary gap.
Q4) The crowding out effect is usually associated with A)a temporary change in taxes.
B)an increase in the rate of interest following government borrowing.
C)the reinforcing impact of provincial tax changes on federal tax changes.
D)the impact of a tax cut when the aggregate supply function is horizontal.
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Chapter 12: Money and the Banking System
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Q1) The opportunity cost of holding money is measured by A)a dollar.
B)the price of government bonds.
C)the interest yield that could have been earned by holding some other asset.
D)the liquidity of interest-bearing assets.
Q2) The M2+ definition of the money supply includes
A)savings deposits and non-personal notice deposits.
B)M1+ plus coins.
C)M1 plus personal savings and non-personal notice deposits.
D)savings deposits.
Q3) Savings deposits are
A)a liability to a commercial bank.
B)an asset to a commercial bank.
C)a liability to the household or firm that has the account.
D)an asset for the Bank of Canada.
Q4) Describe the functions of money and provide an example of how each can be applied to money as we use it,as well as a non-money item such as a bank card or debit card (that makes it not money).
Q5) What are the functions of money?
Q6) Describe monetary standards and how they relate in the Canadian context.
Page 14
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Chapter 13: Money Creation and Deposit Insurance
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Q1) Explain how a currency drain affects the size of the money multiplier.In your explanation,suppose that a bank gains $1 million in new deposits and reserves.Further suppose that the desired reserve ratio is 10 percent and the currency drain is 33.33 percent.
Q2) Excess reserves are defined as
A)actual reserves plus vault cash.
B)actual reserves minus desired reserves.
C)actual reserves minus vault cash.
D)actual reserves plus desired reserves.
Q3) Describe how desired reserves are used in the banking structure in Canada.More specifically,who sets the desired reserves and how are they used to expand the money supply.
Q4) Fractional reserve banking refers to a banking system in which
A)bank deposits are less than bank reserves.
B)bank reserves are only a fraction of total deposits.
C)bank reserves are only a fraction of desired reserves.
D)bank loans are less than bank reserves.
Q5) As far as reserves and deposits are concerned,describe the assets and liabilities of a bank.
Q6) Why did the federal government set up CDIC?
Page 15
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Chapter 14: The Bank of Canada and Monetary Policy
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Q1) Describe with the aid of diagrams the effect of an increase in the money supply on interest rates and in turn aggregate demand and the price level.
Q2) An assumption used in the quantity theory of money is that
A)the price level is constant.
B)velocity is constant.
C)nominal income is constant.
D)the money supply is constant.
Q3) If the Bank of Canada wishes to increase the money supply by $500 when the desired reserve ratio is 10 percent,it should
A)sell $50 of government bonds.
B)buy $50 of government bonds.
C)sell $5,000 of government bonds.
D)buy $5,000 of government bonds.
Q4) The equation of exchange is
A)MsV = PQ.
B)MsQ = PV.
C)Ms = PV/Q.
D)MsP = QV.
Q5) Two advantages of monetary policy are:
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Chapter 15: Issues in Stabilization Policy
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Q1) The notion that tax revenues initially increase with a higher tax rate but eventually decline as the tax rate increases is called
A)Laffer curve.
B)real business cycle theory.
C)policy irrelevance proposition.
D)small-menu cost theory.
Q2) In the short run,an anticipated increase in the rate of inflation would
A)increase the unemployment rate.
B)decrease the unemployment rate.
C)have no effect on employment.
D)lower the natural rate of unemployment.
Q3) According to the new classical model,the impact of an anticipated expansionary monetary policy will be
A)to increase the price level in the long run.
B)to increase the real national income in the long run.
C)to decrease the natural rate of unemployment.
D)to decrease the price level and the unemployment rate.
Q4) Describe new Keynesian economics and the arguments used to support the ideas.
Q5) Describe the Rational Expectations Hypothesis and how it can affect aggregate output.
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Chapter 16: Comparative Advantage and the Open Economy
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Q1) An import quota specifies
A)the amount of money that can be charged to any imported good.
B)the amount of taxes that must be paid on any imported good.
C)the maximum amount of a commodity that may be imported during a specified period.
D)the minimum amount of a commodity that may be imported during a specified period.
Q2) A difference between a quota and a tariff is that
A)a tariff generates a higher price than a quota does.
B)a tariff generates a greater reduction in exports.
C)a quota increases profits of domestic producers more than a tariff does.
D)the government collects revenues from a tariff,which does not happen with a quota.
Q3) One economic truism is that any nation's restriction of imports ultimately leads to
A)a increase in exports.
B)a reduction in exports.
C)an economic upswing.
D)an increase in GDP.
Q4) Construct a descriptive example of your demonstrating the gains from trade.
Page 18
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Chapter 17: Exchange Rates and the Balance of Payments
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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) 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?
Q3) The exchange rate system in use since the early 1970s is best described as a A)dollar standard.
B)adjustable peg system.
C)fixed exchange system.
D)freely floating or managed "dirty" floating exchange rate system.
Q4) How are deficit and surplus items determined in the balance of payments?
Q5) The demand for euros is
A)determined by how well the euro maintains its value.
B)a function of the European banking system.
C)derived from the supply of Canadian dollars.
D)derived from the demand for European goods.
Page 19
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