Economics for Business Exam Practice Tests
Course Introduction
Economics for Business introduces students to the fundamental principles of microeconomics and macroeconomics within a business context. The course explores how individuals, firms, and governments make decisions regarding the allocation of scarce resources, price determination, market structures, and the overall functioning of economic systems. Students will learn how economic concepts such as supply and demand, elasticity, market competition, and economic cycles relate to business operations and strategic decision-making. Real-world case studies illustrate how economic analysis informs business planning and policy development, equipping students with the analytical tools necessary to interpret economic data and trends for effective management.
Recommended Textbook
Macroeconomics 2nd Canadian Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following statements about positive economic analysis is false?
A)Positive analysis uses an economic model to estimate the costs and benefits of different course of actions.
B)There is much more disagreement among economists over normative economic analysis than over positive economic analysis.
C)There is much more disagreement among economists over positive economic analysis than over normative economic analysis.
D)Unlike normative economic analysis,positive economic analysis can be tested.
Answer: C
Q2) One example of human capital is the amount of skills that you have.
A)True
B)False
Answer: True
Q3) Society faces a trade-off in all of the following situations except
A)when deciding who will receive the goods and services produced.
B)when deciding what goods and services will be produced.
C)when deciding how goods and services will be produced.
D)when some previously unemployed workers find jobs.
Answer: D
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2.8.The linear production possibilities frontier in the figure indicates that
A)Vidalia has a comparative advantage in the production of orchids.
B)Vidalia has a comparative disadvantage in the production of roses.
C)the trade-off between roses and orchids is constant.
D)it is progressively more expensive to produce orchids.
Answer: C
Q2) An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier.
A)True
B)False
Answer: True
Q3) Refer to Table 2.5.What is Serena's opportunity cost of making a bracelet?
A)2 necklaces
B)1/2 of a bracelet
C)1/2 of a necklace
D)3/4 of a bracelet
Answer: A
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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Sample Questions
Q1) If the price of potato chips falls,the substitution effect due to the price change will cause
A)an increase in the demand for potato chips.
B)an increase in the demand for corn chips,a substitute for potato chips.
C)an increase in the quantity of potato chips demanded.
D)a decrease in the quantity of potato chips demanded.
Answer: C
Q2) If you are considering buying an energy drink,and you choose Beaver Buzz Energy only because the price is lower,then you consider
A)Red Bull and Beaver Buzz to be complements.
B)Red Bull and Beaver Buzz to be substitutes.
C)Red Bull to be a normal good and Beaver Buzz to be an inferior good.
D)Red Bull to be an inferior good and Beaver Buzz to be a normal good.
Answer: B
Q3) Lobster is considered a
A)both a normal and inferior good,depending on location
B)inferior good.
C)a normal good.
D)both a substitute and a complement good,depending on location.
Answer: A
Page 5
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Chapter 4: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Net National Income equals Gross National Income minus A)imports.
B)depreciation.
C)inventories.
D)changes in inventories. E)exports.
Q2) In the circular flow model,the value of total production for an economy ________ the value of total expenditures on final goods and services. A)equals
B)is greater than C)is less than D)may be greater than or less than E)is unrelated to
Q3) A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements.This will
A)increase GDP and increase well-being in the economy.
B)increase GDP and decrease well-being in the economy.
C)decrease GDP and increase well-being in the economy.
D)decrease GDP and decrease well-being in the economy.
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Page 6
Chapter 5: Unemployment and Inflation
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Sample Questions
Q1) The formula for calculating the CPI is
A)(expenditures in the current year/expenditures in the base year)× 100.
B)(expenditures in the current year × expenditures in the base year)/100.
C)(expenditures in the base year/expenditures in the current year).
D)(expenditures in the base year × 100)/(expenditures in the current year).
E)(expenditures in the current year)/(average of base year and current year expenditure)× 100.
Q2) By offering training to workers whose firms laid them off because of competition from foreign firms,the federal government is attempting to reduce
A)frictional unemployment.
B)structural unemployment.
C)cyclical unemployment.
D)seasonal unemployment.
E)unnatural unemployment.
Q3) Cashmere socks cost 35 cents a pair in 1915.Cashmere socks now cost about $40 a pair.This means that cashmere socks are much less affordable now than in 1915.
A)True
B)False
Q4) Why would a firm pay efficiency wages?
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Chapter 6: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) Outline the various actions the government sector could take to promote growth.
Q2) Inflation is measured
A)using the level of the consumer price index.
B)as the percentage change in the consumer price index.
C)using the level of real GDP.
D)as the percentage change in real GDP.
E)as the change in the value of the Canadian dollar.
Q3) What is "human capital," and how does human capital affect labour productivity and economic growth?
Q4) Refer to Scenario 6.1.Based on the information above,what is the level of private saving in the economy?
A)90 billion
B)$100 billion
C)$300 billion
D)$400 billion
E)$800 billion
Q5) Nominal interest rate must be positive.
A)True
B)False
Page 8
Q6) How are unemployment,inflation,and the business cycle related?
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Page 9
Chapter 7: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) All of the following are reasons why China is unlikely to maintain high enough rates of productivity growth to catch-up with the standard of living in the Canada except
A)Canada invests more in research and development.than does China.
B)much of China's growth is likely due to the transition from a centrally-planned economy to a market economy.
C)because of the low birth rate in China,the labour force will soon decline.
D)the Chinese migration of rural workers to more productive urban jobs.
Q2) Foreign portfolio investment occurs when an individual or firm buys stock or bonds issued in another country.
A)True
B)False
Q3) The per-worker production function has a ________ slope,indicating that increases in capital per hour worked ________ real GDP.
A)negative; increase
B)positive; increase
C)negative; decrease
D)positive; decrease
Q4) List four types of government policies that can aid economic growth.
Page 10
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Chapter 8: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) If the consumption function is defined as C = 7,250 + 0.8Y,what is the value of the multiplier?
A)0.2
B)0.8
C)1.25
D)5
E)10
Q2) The equations for C,I,G,and Nx are all given below.What is the equilibrium level of GDP? C = 1252 + 0.7*Y
I = 870
G = 927
NX = 388
A)5232
B)4910
C)2022
D)8870
E)7283
Q3) What is the formula for the multiplier? Explain why this formula is considered to be too simple.
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Q4) What is the difference between aggregate expenditure and consumption spending?
Chapter 9: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level.
A)short-term
B)long-term
C)both short-term and long-term
D)unrelated
E)government caused
Q2) Which of the following is one reason for the decline in aggregate demand that led to the recession of 2008-2009?
A)high oil prices
B)an increase in investment
C)a drop in net exports
D)a decline in government spending
E)a decline consumer spending
Q3) An increase in exports decreases aggregate demand.
A)True
B)False
Q4) What is the relationship among the AD,SRAS,and LRAS curves when the economy is in macroeconomic equilibrium?
Page 12
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Chapter 10: Money, Banks, and the Bank of Canada
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Sample Questions
Q1) A cash withdrawal from the banking system
A)decreases reserves.
B)decreases deposits.
C)decreases excess reserves.
D)All of the above are correct.
Q2) The bank rate is
A)the rate at which banks are taxed on their profits.
B)the interest the Bank of Canada charges to lend to financial institutions.
C)the interest rates at which banks lend to each other.
D)the interest rate consumers pay when they borrow from the bank.
E)the rate of profit made by commercial banks.
Q3) In an economy with money,as opposed to barter,people are more likely to specialize in the production of goods and services.
A)True
B)False
Q4) Economies cannot function without money.
A)True
B)False
Q5) Using the five criteria in the text,explain how Canadian currency is suitable to use as a medium of exchange.
Page 13
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Chapter 11: Monetary Policy
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Sample Questions
Q1) Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.
A)higher; higher
B)higher; lower
C)lower; higher
D)lower; lower
Q2) Explain the two inflation targets specified by the Bank of Canada and their rationale.
Q3) Firms that participate in regular open market transactions with ________ are called primary dealers.
A)commercial banks
B)U.S.Treasury banks
C)the U.S.Federal Reserve
D)mortgage lenders
E)consumers and private borrowers
Q4) Why is the Bank of Canada limited to targeting the money supply or the interest rate,but not both simultaneously?
Q5) What problems can high inflation rates cause for the economy?
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) The federal government debt equals
A)tax revenues minus government spending.
B)government spending minus tax revenues.
C)the accumulation of past budget deficits.
D)the total value of Canadian bonds outstanding.
E)the total value of Canadian assets held by foreigners.
Q2) The cyclically adjusted budget is calculated at potential GDP.
A)True
B)False
Q3) The larger the marginal propensity to import,the larger the government purchases multiplier.
A)True
B)False
Q4) Crowding out will be greater
A)the less sensitive consumption spending is to changes in the interest rate.
B)the further equilibrium GDP is below potential GDP.
C)the more sensitive investment spending is to changes in the interest rate.
D)if the economy is in recession,rather than at full employment.
E)the more sensitive consumers are to changes in the tax rate.
Q5) List the major categories of federal government expenditures.
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Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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Sample Questions
Q1) The current approach to monetary policy is based on the new Keynesian model and is expressed in terms of the short-term nominal interest rate,such as the overnight interest rate in Canada and the federal funds rate in the United States.
A)True
B)False
Q2) If wages and prices adjust rapidly,we would expect expansionary monetary policy to be
A)more likely to reduce the natural rate of unemployment.
B)more likely to affect the unemployment rate.
C)less likely to affect the unemployment rate.
D)less likely to result in a vertical short-run Phillips curve.
E)less likely to affect the exchange rate.
Q3) Matt's real wage in 2017 is $26.80.If the price level is 104,what is Matt's nominal wage?
A)$30.80
B)$27.87
C)$26.80
D)$25.77
Q4) What does it mean to say that workers and firms have rational expectations?
Page 16
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) Ceteris paribus,an increase in the government's budget deficit will increase the current account deficit.
A)True
B)False
Q2) Expansionary monetary policy will have what effect on the components of aggregate demand?
A)Consumption,investment,and net exports will rise.
B)Consumption and investment will rise,but net exports will fall.
C)Consumption will rise,but investment and net exports will fall.
D)Consumption will fall,but investment and net exports will rise.
E)Consumption and investment will rise,but government spending and net exports will fall.
Q3) Explain why the budget deficit and the trade deficit are sometimes referred to as the "twin deficits."
Q4) If net exports are negative,
A)net foreign investment is also negative.
B)capital inflows must be less than capital outflows.
C)net foreign investment must be greater than public saving.
D)net foreign investment is positive.
E)Both A and B are correct.
Page 17
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Chapter 15: The International Financial System
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Sample Questions
Q1) Fluctuating exchange rates can alter a multinational firm's profits and losses.The Canadian corporation WestJet provides flight services domestically and in the United States.If the Canadian dollar appreciates against the U.S.dollar,then WestJet's revenues from these operations should ________ and its costs from these operations should
A)rise; fall
B)rise; rise
C)fall; fall
D)fall; rise
Q2) The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.
A)True
B)False
Q3) According to the theory of purchasing power parity,if the inflation rate in the United States is greater than the inflation rate in Canada,what should happen to the exchange rate between the U.S.dollar and the Canadian dollar?
Q4) Why are foreign investors more likely to invest in Canadian government bonds than in Canadian corporate bonds?
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