Economics for Business Exam Review
Course Introduction
Economics for Business introduces students to fundamental economic principles and their application in business decision-making. The course explores key microeconomic concepts such as supply and demand, market structures, pricing strategies, and consumer behavior, alongside macroeconomic topics including inflation, unemployment, and fiscal policy. Emphasis is placed on understanding how economic theories inform managerial choices, optimize resources, and respond to market changes. Through case studies and real-world examples, students learn to interpret economic indicators and utilize economic reasoning to solve business problems and assess the broader economic environment affecting firms.
Recommended Textbook Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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210 Flashcards
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Sample Questions
Q1) The cost of an action is measured in terms of foregone opportunities.
A)True
B)False
Answer: True
Q2) What do we know about college-age athletes who drop out of college to play professional sports?
A)They are not rational decision makers.
B)They are well aware that their opportunity cost of attending college is very high.
C)They are concerned more about present circumstances than their future.
D)They underestimate the value of a college education.
Answer: B
Q3) Equity means everyone in the economy should receive an equal share of the goods and services produced.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Thinking Like an Economist
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235 Flashcards
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Sample Questions
Q1) What does The Bank of Canada do?
A)designs tax policy
B)enforces the country's antitrust laws
C)sets the country's monetary policy
D)analyzes the data on workers
Answer: C
Q2) Refer to Figure 2-10.How are the price of roses and the quantity of roses related?
A)directly related, and therefore moving in the same direction
B)directly related, and therefore moving in opposite directions
C)inversely related, and therefore moving in opposite directions
D)independent of each other
Answer: C
Q3) What is the single most important purpose of your textbook?
A)to teach you about the effects of the government's economic policies
B)to teach you the language of economics
C)to teach you the economist's way of thinking
D)to teach you how to make money
Answer: C
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4
Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to Table 3-5.If Canada and Japan trade based on the principle of comparative advantage,what could Canada gain from importing an airplane?
A)a maximum of 1 car
B)a maximum of 3 cars
C)a maximum of 4 cars
D)a maximum of 12 cars
Answer: A
Q2) Refer to Figure 3-3.For Ben,what is the opportunity cost of 1 kg of ice cream?
A)1/4 kg of cones
B)1/2 kg of cones
C)2 kg of cones
D)4 kg of cones
Answer: D
Q3) Refer to Figure 3-2.What is the opportunity cost of 1 bushel of wheat for Cliff?
A)1/4 bushel of corn
B)1/2 bushel of corn
C)1 bushel of corn
D)4 bushels of corn
Answer: A
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Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) Which of the following is NOT a characteristic of a perfectly competitive market?
A)similar products
B)numerous sellers
C)market power
D)numerous buyers
Q2) If the supply of a product increases,what would we expect?
A)equilibrium price to increase and equilibrium quantity to decrease
B)equilibrium price to decrease and equilibrium quantity to increase
C)equilibrium price and equilibrium quantity to both increase
D)equilibrium price and equilibrium quantity to both decrease
Q3) What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers rose and the price of tea rose?
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
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) What is the side of the market that deals with the willingness and ability to produce and sell?
A)demand
B)competition
C)supply
D)a monopoly
Q2) Lead is an important input in the production of crystal.If the price of lead decreases,all else being equal,what would we expect?
A)the supply of crystal to be unaffected
B)the supply of crystal to decrease
C)the supply of crystal to increase
D)the supply of lead to increase
Q3) A movement along a supply curve is called a change in supply while a shift of the curve is called a change in quantity supplied.
A)True
B)False
Q4) Baseballs and baseball bats are substitute goods.
A)True
B)False
7
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) GDP is used as the basic measure of a society's economic well-being.What is a better measure of the economic well-being of individuals in society?
A)GDP per person
B)the consumption component of GDP
C)government expenditures per person
D)the level of business investment
Q2) If a small country has current nominal GDP of $25 billion and the GDP deflator is 125,what is its real GDP?
A)$312.50 billion
B)$207.50 billion
C)$31.25 billion
D)$20.00 billion
Q3) Refer to the Table 5-4.What is the nominal GDP for 2011?
A)$900
B)$1000
C)$1100
D)$1250
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Imagine a small town with only two unrelated inhabitants,David and Dixie,both living complex and fulfilling lives.Let us simplify their lives,to better understand the implications of using the CPI as a measure of the cost of living.Suppose David and Dixie consume only potatoes and fish: David consumes 4 potatoes and 6 fish a day,while Dixie consumes 6 potatoes and 4 fish a day.(David has a few more cats to feed,but Dixie likes to feed a couple of birds that nest in a nearby tree.)Initially,prices are $1 a potato and $2 a fish.
a)Calculate David and Dixie's costs of living and their total expenditure.
b)Now,suppose the price of potatoes increases to $2.Calculate the new costs of living and total expenditure.Calculate the CPI inflation rate.What would be the increase in David and Dixie's costs of living,in dollars,according to the inflation rate you have just calculated? What are the actual increases in their costs of living? What have we learned from this exercise?
c)To deal with the harsher economic conditions,Dixie takes in a stray cat to scare away the birds from the tree.Now she consumes 4 potatoes and 5 fish.Recalculate Dixie's actual increase in the cost of living and discuss your result.
Q2) Which is likely to have the larger effect on the CPI,a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.
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Chapter 7: Production and Growth
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Sample Questions
Q1) Constant returns to scale is the point on a production function where increasing inputs will no longer increase output.
A)True
B)False
Q2) An increase in the saving rate does not permanently increase the growth rate of real GDP per person.
A)True B)False
Q3) The purpose of this problem is to make you acquainted with Statistics Canada's website.Open http://www.statcan.gc.ca/start-debut-eng.html and look for Economic Accounts,then open the link "Gross domestic product" page.Open "Summary tables," then open the table "Real gross domestic product,expenditure-based,by province and territory." Answer the following questions based on this table.
a)Which three provinces had the greatest real GDP per capita in 2011?
b)Calculate the shares of each of these provinces in Canada's real GDP in 2011.
c)Now,look for another table (you can use the "Search" function),"Consumer price index,historical summary,by province or territory." In which province was the consumer price index the highest in each of the years 2008 to 2012? Can you think of an explanation for that?
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Page 10
Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) Which of the following terms refers to the length of time until a bond matures?
A)duration
B)term
C)maturity
D)intermediation
Q2) Public saving is equal to national saving minus private saving.
A)True
B)False
Q3) If the current market interest rate for loanable funds is above the equilibrium level,which of the following will most likely happen?
A)The quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will rise.
B)The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will rise.
C)The quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will fall.
D)The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will fall.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Prime Minister Bigego is running for re-election against Finance Minister Pander.Bigego proclaims that more people are working now than when he took office.Pander says that the unemployment rate is higher now than when Bigego took office.Which of the following can you conclude?
A)Both of them could be telling the truth if the labour-force participation rate and the labour force both grew.
B)Both of them could be telling the truth if the labour-force participation rate and the labour force both fell.
C)Both of them could be telling the truth if the labour force grew slower than employment.
D)Both of them could be telling the truth if the labour force grew faster than employment.
Q2) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
Q3) Which of the following is most likely to cause frictional unemployment?
A)workers leaving the labour force
B)an economy in recession
C)an increase in population
D)changes in the composition of demand among industries or regions
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Page 12
Chapter 10: The Monetary System
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Sample Questions
Q1) 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.
Q2) What is the interest rate the Bank of Canada charges on loans it makes to banks?
A)the prime rate
B)the federal funds rate
C)the bank rate
D)the operating band
Q3) Which of the following is a generally accepted medium of exchange?
A)a plane ticket
B)federal government bonds
C)fine art
D)currency
Q4) How can the Bank of Canada directly protect a bank during a bank run?
A)by increasing reserve requirements
B)by selling government bonds to the bank
C)by lending reserves to the bank
D)by penalizing the bank in trouble
Page 13
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Which of the following best describes the effect of printing money to finance government expenditures on the economy?
A)Printing money causes the value of money to rise.
B)Printing money imposes a tax on everyone who holds money.
C)Printing money imposes a tax on net borrowers.
D)Printing money causes the nominal interest rate to decrease.
Q2) What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?
Q3) When the money market is depicted in a diagram with the value of money on the vertical axis,in which of the following situations does the value of money increase?
A)if either money demand or money supply shifts right
B)if either money demand or money supply shifts left
C)if money demand shifts right or money supply shifts left
D)if money demand shifts left or money supply shifts right
Q4) Canada has never experienced deflation.
A)True
B)False
Q5) Define each of the symbols and explain the meaning of M × V = P × Y.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Which of the following is the most likely effect of an appreciation of the Canadian real exchange rate on the quantity of Alberta beef demanded by French citizens?
A)French citizens will buy less of Alberta beef.
B)French citizens will buy more of Alberta beef.
C)The quantity of Alberta beef demanded by French citizens will not change because the nominal exchange rate has not changed.
D)The quantity of Alberta beef demanded by French citizens will not change because it is the French real interest rate that matters for French citizens.
Q2) Which of the following would be a Canadian foreign portfolio investment?
A)CAE, a Canadian company, builds a new factory near Rome, Italy.
B)Your economics professor, a Canadian citizen, buys shares of stock in companies located in Eastern European countries.
C)A Dutch hotel chain opens a new hotel in Canada.
D)A citizen of Singapore buys a bond issued by a Canadian corporation.
Q3) Suppose a bottle of wine costs 25 euros in France and $20 in Canada.If the exchange rate is 1.25 euros per dollar,what is the real exchange rate?
Q4) 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) Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?
A)A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing.
B)Canadian firms decide, since interest rates are higher, to do more investment spending.
C)Brad, a Canadian resident, decides to put less money in his savings account than he had planned to.
D)Canadian net capital outflow increases.
Q2) If there is capital flight from Canada,how does the open-economy macroeconomic model change?
A)Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift right.
B)Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift left.
C)The supply of loanable funds shifts left, while the supply of dollars shifts right.
D)The supply of loanable funds shifts right, while the supply of dollars shifts left.
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Page 16
Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) When the government spends more,what is the initial effect?
A)Aggregate demand shifts right.
B)Aggregate demand shifts left.
C)Aggregate supply shifts right.
D)Aggregate supply shifts left.
Q2) All else equal,which of the following happens as the price level falls?
A)The money supply falls.
B)Interest rates rise.
C)Dollars become more valuable.
D)Dollars become less valuable.
Q3) Which of the following government actions will shift the aggregate demand right?
A)a rise in personal income taxes
B)an increase in the money supply
C)a repeal of an investment tax credit
D)closing up a military facility to reduce costs
Q4) By how much did the real GDP per person increase during World War II?
A)25 percent
B)50 percent
C)60 percent
D)80 percent
17
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Which of the following is characteristic of aggregate demand in Canada?
A)The real exchange-rate effect is nonexistent.
B)The interest-rate effect is relatively small.
C)The wealth effect is the most important.
D)The interest-rate effect is relatively large.
Q2) What are the effects of a change in taxes on consumption and aggregate demand?
A)If taxes increase, consumption increases and aggregate demand shifts right.
B)If taxes increase, consumption decreases and aggregate demand shifts left.
C)If taxes decrease, consumption increases and aggregate demand shifts left.
D)If taxes decrease, consumption decreases and aggregate demand shifts right.
Q3) What do open-market sales do to the price level and real GDP?
A)They increase the price level and real GDP.
B)They decrease the price level and real GDP.
C)They increase the price level and decrease real GDP.
D)They decrease the price level and increase real GDP.
Q4) Let us derive an aggregate-demand curve starting from some money demand and money supply equations.Assume the money-demand curve is MD=150 - 15r + Y,the price level depends on r according to the equation P = 100 - 10r,and the money supply is MS = 100.Find a relationship between the price level P and output Y and show that the relation that you have found is an aggregate demand function.
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Sample Questions
Q1) Refer to the Figure 16-2.Suppose the economy is initially at point c. If the money supply growth rate decreases, where does the economy move to in the short-run?
A)b
B)d
C)e
D) a
Q2) Refer to the Figure 16-4e.If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy,then the economy will move to which of the following points in the short run?
A)point a
B)point b
C)point c
D)point m
Q3) The logic behind the tradeoff between inflation and unemployment is that high aggregate demand puts upward pressure on wages and prices while raising output.
A)True
B)False
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) In the aggregate demand and aggregate supply model,which of the following pairs of simultaneous events causes a decrease in output and employment?
A)lower demand and lower supply
B)lower demand and higher supply
C)higher demand and higher supply
D)higher demand and lower supply
Q2) The rate of growth in the Debt to nominal GDP ratio depends on the growth rate in Debt,real GDP,and the price level.Why would one say that inflation is similar to a tax when the government runs a positive public debt?
Q3) Why do many economists advocate a consumption tax rather than an income tax?
Q4) Consider a 25-year-old worker who saves $1000 for retirement.She plans to retire at the age of 70.If the interest rate is 10 percent,how much will she accumulate by the retirement age?
Q5) The cost of inflation reduction is a small but permanent increase in unemployment. A)True B)False
Q6) Deficits do not necessarily burden future generations.Discuss and provide some examples.
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