Economics for Business
Exam Answer Key
Course Introduction
Economics for Business introduces students to fundamental economic principles and their application within the business environment. The course explores key topics such as supply and demand, market structures, pricing strategies, consumer behavior, and the impact of government policies on business operations. Emphasis is placed on understanding both microeconomic and macroeconomic factors affecting decision-making in organizations. By analyzing real-world case studies and current economic trends, students develop the skills necessary to interpret economic data, forecast business conditions, and make informed managerial decisions.
Recommended Textbook
Macroeconomics 5th Canadian Edition by N Gregory Mankiw
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14 Chapters
1476 Verified Questions
1476 Flashcards
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Page 2
Chapter 1: The Science of Macroeconomics
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) Which of the following statements about economic models is true?
A) There is only one correct economic model.
B) All economic models are based on the same assumptions.
C) The purpose of economic models is to show how endogenous variables affect exogenous variables.
D) Economists use different models to address different questions.
Answer: D
Q2) In a simple model of the supply and demand for pizza,the endogenous variables are:
A) the price of pizza and the price of cheese.
B) aggregate income and the quantity of pizza sold.
C) aggregate income and the price of cheese.
D) the price of pizza and the quantity of pizza sold.
Answer: D
Q3) Macroeconomics does not try to answer the question of:
A) why do some countries experience rapid growth.
B) what is the rate of return on education.
C) why do some countries have high rates of inflation.
D) what causes recessions and depressions.
Answer: B
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Page 3
Chapter 2: The Data of Macroeconomics
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) The investment component of GDP includes all of the following except:
A) purchases of corporate stock.
B) spending on new plants and equipment.
C) purchases of new housing by households.
D) changes in business inventories.
Answer: A
Q2) Assume that apples cost $0.50 in 2002 and $1 in 2009,whereas oranges cost $1 in 2002 and $1.50 in 2009.If 4 apples were produced in 2002 and 5 in 2009,whereas 3 oranges were produced in 2002 and 5 in 2009,then the GDP deflator in 2009,using a base year of 2002,was approximately:
A) 1.5.
B) 1.7.
C) 1.9.
D) 2.0.
Answer: B
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Chapter 5: The Open Economy
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124 Flashcards
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Sample Questions
Q1) If domestic saving exceeds domestic investment,then net exports are ______ and net capital outflows are ______.
A) positive; positive
B) positive; negative
C) negative; negative
D) negative; positive
Q2) The doctrine of purchasing-power parity:
A) is a completely accurate description of the real world.
B) would be entirely accurate if only goods were traded.
C) would be entirely accurate if all consumers had the same preferences.
D) provides a reason to expect that movements in the real exchange rate will typically be small or temporary.
Q3) The value of net exports is also the value of:
A) net investment.
B) net saving.
C) national saving.
D) the excess of national saving over domestic investment.
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Chapter 6: Unemployment
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Unions contribute to structural unemployment when collective bargaining results in wages:
A) above the equilibrium level.
B) below the minimum wage.
C) below the equilibrium level.
D) above the level of employment insurance benefits.
Q2) Suppose that over the course of a year 100 people are unemployed for four weeks each (the short-term unemployed),while 10 people are unemployed for 52 weeks each (the long-term unemployed).Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed?
A) 9 percent
B) 10 percent
C) 43.5 percent
D) 56.5 percent
Q3) Paying efficiency wages helps firms reduce the problem of moral hazard by:
A) generating additional profits that can be used to improve working conditions.
B) keeping labour unions from organizing workers in the firm.
C) encouraging unsupervised workers to maintain a high level of productivity.
D) providing an incentive for the best-qualified workers to remain with the firm.
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Page 6
Chapter 7: Economic Growth I
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) The Solow model shows that a key determinant of the steady-state ratio of capital to labour is the:
A) level of output.
B) labour force.
C) saving rate.
D) capital elasticity in the production function.
Q2) If an economy is in a steady state with no population growth or technological change,and the capital stock is below the Golden Rule:
A) a policymaker should definitely take all possible steps to increase the saving rate.
B) if the saving rate is increased,output and consumption per capita will both rise,both in the short and long runs.
C) if the saving rate is increased,output per capita will at first decline and then rise above its initial level,and consumption per capita will rise both in the short and long runs. D) if the saving rate is increased,output per capita will rise and consumption per capita will first decline and then rise above its initial level.
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Chapter 8: Economic Growth II
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94 Flashcards
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Sample Questions
Q1) In a steady state with population growth and technological progress:
A) the capital share of income increases.
B) the labour share of income increases.
C) in some cases the capital share of income increases and sometimes the labour share increases.
D) the capital and labour shares of income are constant.
Q2) The efficiency of labour:
A) is the marginal product of labour.
B) is the rate of growth of the labour force.
C) includes the knowledge,health,and skills of labour.
D) equals output per worker.
Q3) In comparing two countries with different levels of education but the same saving rate,rate of population growth,and rate of technological progress,one would expect the more highly educated country to have:
A) a higher growth rate of total income and a higher real wage.
B) a higher growth rate of total income and the same real wage.
C) the same growth rate of total income and a higher real wage.
D) the same growth rate of total income and the same real wage.
Q4) Suggest three explanations for the productivity slowdown experienced between 1972 and 1995.
Page 8
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Chapter 9: Introduction to Economic Fluctuations
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) The economic response to the overnight reduction in the French money supply by 20 percent in 1724:
A) confirmed the neutrality of money because no real variables were affected by this nominal change.
B) confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level.
C) confirmed the short-run neutrality of money because prices and wage did not adjust immediately.
D) contradicted Okun's law because decreases in output were not associated with increases in unemployment.
Q2) A 5 percent reduction in the money supply will,according to most economists,reduce prices 5 percent:
A) in both the short and long runs.
B) in neither the short nor long run.
C) in the short run but lead to unemployment in the long run.
D) in the long run but lead to unemployment in the short run.
Q3) Monetary policy can be either a stabilizing influence on the economy or a source of instability.Give an explanation for both possibilities.
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Chapter 10: Aggregate Demand I
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142 Flashcards
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Sample Questions
Q1) All of the following items shrink the expenditure multiplier in the Keynesian-cross model except:
A) savings.
B) imports.
C) transfers,such as Canada Pension Plan receipts.
D) taxes.
Q2) The variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:
A) consumption function.
B) interest rate.
C) price level.
D) nominal money supply.
Q3) When planned expenditure is drawn on a graph as a function of income,the slope of the line is:
A) zero.
B) between zero and one.
C) one.
D) greater than one.
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Chapter 13: Aggregate Supply and the Short-Run
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112 Flashcards
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Sample Questions
Q1) Starting from the natural level of output,an unexpected monetary contraction will cause output and the price level to ______ in the short run,and in the long run the expected price level will ______,causing the level of output to return to the natural level.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Q2) Along any aggregate supply curve,there is only one:
A) unemployment level.
B) expected price level.
C) inflation level.
D) output level.
Q3) Based on the sticky-price model,the short-run aggregate supply curve will be steeper,the greater the:
A) target nominal-wage rate.
B) target real-wage rate.
C) proportion of firms with flexible prices.
D) proportion of firms with sticky prices.
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Chapter 15: Stabilization Policy
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Sample Questions
Q1) If the Bank of Canada has discretion to choose its own policy and announces a policy of low inflation,then:
A) the policymaker is required to make the money supply grow at a low rate.
B) private economic agents are sure to believe the announcement because it is credible.
C) private economic actors are likely to discount the policy because the Bank of Canada has an incentive to renege on its policy once expectations are formed.
D) the Bank of Canada is certain to renege on its policy once expectations are formed because then it can lower unemployment with minimum inflation.
Q2) Economists who view the economy as naturally stable often argue that:
A) monetary and fiscal policies should not be used to "fine tune" the economy.
B) the economy should be stimulated when it is depressed and slowed when it is overheated.
C) the economy should be slowed when it is depressed and stimulated when it is overheated.
D) economists should act to stimulate or slow the economy on the basis of forecasts in order to assure that the policy actions are timely.
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Chapter 16: Government Debt and Budget Deficits
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) The real value of government debt is reduced by:
A) expected inflation.
B) expected deflation.
C) unexpected inflation.
D) unexpected deflation.
Q2) The logic of Ricardian equivalence implies that:
A) tax cuts do not influence consumer spending but changes in government spending do.
B) neither tax cuts nor changes in government spending affect consumer spending.
C) tax cuts combined with future decreases in government spending will decrease consumer spending.
D) if the government cuts taxes and increases current government spending,consumer spending will increase.
Q3) The debt of the Canadian government is underreported in the view of many economists because all of the following liabilities are excluded except:
A) future pensions of government employees.
B) debt owed to foreigners.
C) future CPP-QPP benefits.
D) government guarantees of student loans.
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Page 13
Chapter 18: Investment
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) The corporate income tax ______ business fixed investment,and the personal income tax ______ residential investment.
A) encourages; encourages
B) encourages; discourages
C) discourages; encourages D) discourages; discourages
Q2) In the accelerator model of inventory investment,it is assumed that the stock of inventories firms want to hold is:
A) constant.
B) a constant proportion of output.
C) a proportion of output that decreases as output increases.
D) a proportion of output that increases as output increases.
Q3) If real interest rates increase,what will happen to:
a.business fixed investment?
b.residential investment?
c.inventory investment?
Q4) Explain how tight credit markets (credit crunches)affect:
a.business fixed investment
b.residential investment
c.inventory investment.
Page 14
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Chapter 19: Money Supply and Money Demand
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The currency-deposit ratio is determined by:
A) the Bank of Canada.
B) business policies of chartered banks and the laws regulating banks.
C) preferences of households about the form of money they wish to hold.
D) the Canadian Deposit Insurance Corporation (CDIC).
Q2) The money supply will decrease if the:
A) monetary base increases.
B) currency-deposit ratio increases.
C) discount rate decreases.
D) reserve-deposit ratio decreases.
Q3) The instability of the money-demand function led central banks in the 1980s to:
A) take actions to reduce the instability of money demand.
B) increase the instability of the money supply.
C) prohibit the further development of near money.
D) abandon the money supply as a target for monetary policy.
Q4) The banking system creates:
A) liquidity.
B) wealth.
C) reserves.
D) currency.
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Chapter 20: The Financial System
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Funds flow directly between savers and investors in financial _____ and flow indirectly between savers and investors through financial _____.
A) stocks; bonds
B) intermediaries; markets
C) bonds; stocks
D) markets; intermediaries
Q2) In the credit crunch during the 2008-2009 recession in the United States,banks tightened lending standards:
A) only for mortgages.
B) only for small business loans.
C) only for consumer loans.
D) for mortgages,small business loans,and consumer loans.
Q3) All of the following are examples of financial intermediaries except:
A) chartered banks.
B) stock exchanges.
C) pension funds.
D) insurance companies.
Q4) What are the benefits of a well-functioning financial system? What are the costs of a financial crisis?
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