Economics for Business
Final Test Solutions
Course Introduction
Economics for Business explores the fundamental principles of microeconomics and macroeconomics as they apply to real-world business decision-making. Students will examine topics such as supply and demand, market structures, pricing strategies, and the impact of government policies on business operations. The course also covers economic variables influencing firms, including inflation, interest rates, and international trade, providing a comprehensive understanding of how economic forces shape the business environment. Through practical case studies and problem-solving exercises, students gain the analytical tools needed to interpret economic data and make informed business decisions.
Recommended Textbook
Economics Today The Macro View 5th Canadian Edition by Roger LeRoy Miller
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17 Chapters
2077 Verified Questions
2077 Flashcards
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Chapter 1: The Nature of Economics
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Sample Questions
Q1) An economist who says "assume that the price of pizza rises" means
A)she expects the price of pizza to increase.
B)she wants to consider what would happen if the price of pizza were to increase.
C)she does not believe the price of pizza will fall.
D)she is not using the ceteris paribus assumption.
Answer: B
Q2) Economic models
A)are used only in normative economics.
B)are useful in determining how specific policies affect society's goals.
C)are only useful if their assumptions are realistic.
D)cannot be used for normative purposes.
Answer: B
Q3) Scarcity implies that people must
A)be selfish.
B)make choices.
C)be unhappy.
D)not be selfish.
Answer: B
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3
Chapter 2: Production Possibilities and Economic Systems
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Sample Questions
Q1) A straight-line PPC would indicate that there is
A)no opportunity cost between the two goods.
B)an increasing opportunity cost between the two goods.
C)a constant opportunity cost between the two goods.
D)a decreasing opportunity cost between the two goods.
Answer: C
Q2) People who favour laissez-faire believe that
A)the government should play an active role in the economy.
B)firms should be prevented from charging unfairly high prices.
C)the public sector should be larger than it is.
D)the government should not interfere in the workings of the economy.
Answer: D
Q3) In Figure 2-1,the combination of outputs shown at point E could be obtained if A)resources were used more efficiently.
B)resources were shifted from education to health care.
C)resources were shifted from health care to education.
D)there was an increase in society's resources.
Answer: D
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Chapter 3: Demand and Supply
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Sample Questions
Q1) Use a graph to answer each of the following: How is the equilibrium price in a market determined? What happens if the current price is above the equilibrium price? What happens if the current price is below the equilibrium price?
Answer: The equilibrium price is determined at the point where the demand curve and the supply curve intersect.At this price,quantity demanded and quantity supplied are equal.At a price greater than the equilibrium there is an excess quantity supplied,or surplus,since an increase in price leads to a reduction in the quantity demanded but an increase in quantity supplied.At prices below the equilibrium price,quantity demanded will be greater than quantity supplied,so there is an excess quantity demanded or shortage.
Q2) When demand decreases and supply increases
A)equilibrium price will rise and equilibrium quantity will fall.
B)equilibrium price will fall and equilibrium quantity will fall.
C)equilibrium price will fall but equilibrium quantity may rise or fall.
D)equilibrium price will fall and equilibrium quantity will rise.
Answer: C
Q3) In Table 3-3 if the price is $2 there will be a shortage of ________ units.
Answer: 50
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Chapter 4: Introduction to Macroeconomics
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Sample Questions
Q1) Cutbacks in auto sales due to increased imports from Japan is an example of
A)cyclical unemployment.
B)frictional unemployment.
C)seasonal unemployment.
D)structural unemployment.
Q2) Structural unemployment results
A)when a reduction in consumer income reduces demand for products.
B)when individuals enter the labour market in June following graduation.
C)when workers face layoffs following a decrease in economic activity.
D)when consumers' demand for a product falls so dramatically that workers specializing in the production of that product find themselves out of work.
Q3) When unemployment exists in the economy,then the economy
A)will also have inflation.
B)will be operating inside the production possibilities boundary.
C)will have excess demand for products.
D)will be at perfect equilibrium.
Q4) Many politicians look at the unemployment rate as the be all and end all of economic indicators.Are they justified in their faith?Duration of employment and discouraged worker effect.
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Chapter 5: Measuring the Economys Performance
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Sample Questions
Q1) If C = consumption,G = government expenditures,and I = investment expenditures,the mathematical representation of GDP using the expenditure approach is
A)GDP = C + I + G + Transfers.
B)GDP = C + I + G + Imports.
C)GDP = C + Imports.
D)GDP = C + I + G + Net exports.
Q2) Disposable personal income is found by taking
A)personal income taxes minus personal income.
B)personal income minus personal income taxes.
C)personal income taxes plus personal income.
D)personal income times personal income taxes.
Q3) Personal income is equal to
A)NDP minus national income.
B)disposable personal income plus personal income taxes.
C)disposable personal income plus personal and corporate income taxes.
D)national income minus corporate income taxes and social security.
Q4) Where does profit enter in the circular flow? Why?
Q5) Explain the two main methods used to measure GDP.
Q6) Describe in detail the "other" components of GDP and National Income Accounting.
Q7) 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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Sample Questions
Q1) The long-run aggregate supply will increase when A)labour supply decreases.
B)increased labour productivity.
C)the price level increases.
D)taxes increase.
Q2) Other things equal,a higher price level is associated with A)a higher real GDP.
B)a lower real GDP.
C)a lower nominal GDP.
D)higher income levels.
Q3) The full-employment and full adjustment level of real output of goods and services in the economy is represented by A)the LRAS curve.
B)the SRAS curve.
C)the AD curve.
D)the distance between the LRAS curve and the SRAS curve.
Q4) What information is provided by the aggregate demand curve?
Q5) How does a recession in Europe affect Canada's aggregate demand and Canada's aggregate demand curve?
Q6) Describe the three possibilities that occur when the price level rises. Page 8
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Chapter 7: Economic Growth and Development
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Sample Questions
Q1) If real per capita GDP growth is greater than the growth of GDP then
A)population growth is greater than growth of real output
B)there can be no economic growth.
C)population growth is less than growth of real output
D)real per capita GDP and GDP will be growing at the same rate.
Q2) Why are economic growth and saving related?
Q3) An example of a cost of economic growth is
A)longer life spans.
B)political instability.
C)environmental disasters.
D)increases in illiteracy.
Q4) Labour productivity is found by
A)the net domestic product.
B)dividing the value of total domestic output (GDP)by the number of workers.
C)the size of the labour force divided by total real GDP.
D)the rate of capital accumulation.
Q5) Explain the relationship between economic growth and labour productivity.
Q6) Why might population growth and immigration stimulate economic growth?
Q7) What is the human Development Index (HDI),and what does it measure?
Q8) What are the benefits and costs of economic growth?
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Chapter 8: Modelling Real Gdp and the Price Level in the
Short Run
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Sample Questions
Q1) As the price level increases,the short-run aggregate supply curve
A)becomes increasingly steep.
B)begins to level out.
C)shifts inward.
D)does not change.
Q2) If there are continual decreases in aggregate supply,the economy will experience A)a slow decrease in price levels.
B)demand-pull inflation.
C)an expansionary gap.
D)cost-push inflation.
Q3) The positive relationship between the short-run aggregate supply function and the price level suggests that,in the short run,
A)firms produce more output as the price level falls.
B)firms produce more output as the price levels rises.
C)wages increase along the aggregate supply function.
D)lower price levels are more profitable for the firm.
Q4) Explain the problem of "sticky wages" and the implications for the long-run equilibrium.Can something be done to eliminate this problem?
Q5) What is the affect of a rise in the price level on potential output?
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Chapter 9: Consumption, investment, and the Multiplier
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Sample Questions
Q1) Which of the following is a TRUE statement?
A)The C + I + G + X - M curve has no relationship to the aggregate demand curve other than some of the variables that affect one curve also affect the other.
B)The C + I + G + X - M curve is used to derive the aggregate demand curve,but the C + I + G + X - M curve is drawn for one price level while price levels vary along the aggregate demand curve.
C)The C + I + G + X - M curve is used to derive the aggregate demand curve,but the aggregate demand curve is drawn for one price level.
D)Both the C + I + G + X - M curve and the aggregate demand curve are drawn for one price level.
Q2) A higher price level causes
A)the aggregate demand curve to shift to the left.
B)the aggregate demand curve to shift to the right.
C)the C + I + G + X - M curve to shift down.
D)the C + I + G + X - M curve to shift up.
Q3) What effect does a higher aggregate price level have on TPE and aggregate demand in regards to the open economy effect?
Q4) 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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Sample Questions
Q1) One characteristic of a public good is that it
A)can be easily subdivided into small units.
B)can be consumed by many individuals at the same time.
C)always eliminates the free-rider problem.
D)is available for consumption by only a few individuals at any particular time.
Q2) The largest source of receipts for the Canadian federal government is
A)corporate income taxes.
B)personal income taxes.
C)capital gains taxes.
D)import duties.
Q3) A capital gain
A)is the negative difference between the purchase price and the sale price of an asset.
B)is the positive difference between the purchase price and the sale price of an asset.
C)is the increase in income that is not subject to personal income taxation.
D)is the income received from stocks and bonds.
Q4) How do public goods differ from a merit goods?
Q5) 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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Sample Questions
Q1) If the government increases spending but doesn't raise taxes, A)aggregate demand will increase without any effect on the price level.
B)borrowing by the government will take place.
C)the government will have to sell some assets,such as oil and national parks.
D)the government will have to either lower expenditures or raise taxes the next year.
Q2) Lower marginal tax rates can increase total tax revenues is a tenet of A)deficit financing.
B)the supply-side economics argument.
C)the flat -tax proposition.
D)mercantilism.
Q3) If other factors are held constant and the federal government increases its borrowing from the private sector in order to pay for an increased budget deficit,the result will be
A)an overall increase in the interest rate.
B)an overall decrease in the interest rate.
C)a cancelling of the crowding out effect.
D)an increase in net exports.
Q4) List and describe in detail the 5 possible offsets to fiscal policy.
Q5) Explain why government deficits are related to current account deficits.
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Chapter 12: Money and the Banking System
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Sample Questions
Q1) The purchasing power or value of money
A)is determined by law.
B)varies inversely with the price level.
C)depends on the value of gold.
D)varies inversely with the interest rate.
Q2) When a person deposits a check into her checking account,
A)she owes the bank money.
B)the bank owes her money.
C)no one owes anybody anything.The deposit is an asset to both the bank and the person.
D)no one owes anybody anything.The deposit is an asset to the person,but is neither an asset nor a liability to the bank.
Q3) A savings deposit is distinguishable from a time deposit in that,with a savings deposit,
A)funds may be withdrawn before the due date only if you pay a penalty.
B)funds may be withdrawn at any time without payment of a penalty.
C)funds are not protected against a loss in their nominal value.
D)funds are not counted in the calculated of M2+.
Q4) In terms of the functions of money,can credit cards be considered money?
Q5) Explain the structure of the Canadian Banking system.
Page 15
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Chapter 13: Money Creation and Deposit Insurance
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Sample Questions
Q1) Lenders generally want borrowers to agree to invest prudently,yet once a loan is made borrowers may use the money in a highly risky fashion.This leads to the problem of
A)critical mass.
B)deposit insurance.
C)investor selection.
D)moral hazard.
Q2) Goldsmiths were able to practice an early form of fractional reserve banking because they knew that A)people were relatively unsophisticated in their financial transactions. B)gold was the major form of money.
C)not all depositors would claim their gold at the same time.
D)gold did not serve as a unit of account.
Q3) If depository insurance exists,bank managers may make riskier loans than they would have otherwise,which is an example of A)regulatory lag.
B)irrational behaviour.
C)moral hazard.
D)adverse selection.
Q4) Explain the process by which the banking system creates money
Page 16
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Chapter 14: The Bank of Canada and Monetary Policy
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Sample Questions
Q1) In Figure 14-2,suppose the economy is at an equilibrium at point D and you are considering policy options to eliminate unemployment.What is the opportunity cost of any aggregate demand based policy option?
A)higher output
B)higher prices
C)lower interest rates
D)lower levels of consumption and investment
Q2) In Figure 14-3,assume the economy is in equilibrium at point d.If the Bank of Canada decreases the money supply so that the new aggregate demand curve is A D ,then,in the short run,the new price level will be
A)100.
B)120.
C)130.
D)110.
Q3) Expansionary monetary policy during periods of underutilized resources can cause
A)real national income to increase without an increase in the price level.
B)real national income to increase with a decrease in the price level.
C)real national income to increase with an increase in the price level.
D)nominal national income to increase but cannot affect real national income.
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Page 17
Chapter 15: Issues in Stabilization Policy
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Sample Questions
Q1) An increase in employment insurance and other transfer payments may
A)increase the natural rate of unemployment.
B)increase the number of discouraged workers.
C)reduce the rate of inflation at every level of unemployment.
D)lead to less unanticipated inflation.
Q2) Supply-side economics is
A)policy irrelevance proposition.
B)creating incentives to increase productivity which causes the aggregate supply curve to shift outward.
C)expansionary policy.
D)contractionary policy.
Q3) The natural rate of unemployment is defined as the rate of unemployment that
A)prevails in long-run macroeconomic equilibrium,when all workers and employers have fully adjusted to any changes in the economy.
B)prevails in the short-run macroeconomic equilibrium,before workers and employers have had a chance to adjust to an economic shock.
C)exists due to welfare and employment benefits that reduce potential workers' incentives to find work.
D)exists only during periods of recession or depression in the economy.
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Chapter 16: Comparative Advantage and the Open Economy
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Sample Questions
Q1) When the principle of comparative advantage is used to guide trade,then a country will
A)specialize only in that good with the highest opportunity cost.
B)specialize only in goods with the lowest opportunity costs.
C)specialize only in that good where production is less per worker-hour than another country.
D)specialize only in that good where production costs are more than average total costs.
Q2) Given two economic systems,A and B,if economy A must give up less of all other goods to produce widgets than economy B,then
A)economy A has an absolute advantage in the production of widgets.
B)economy A has a comparative advantage in the production of widgets.
C)economy A is less efficient in the production of some goods than economy B.
D)economy A would not benefit from the specialization of production.
Q3) When one country "dumps" some of its products in another country,it
A)creates an environmental hazard in the receiving country.
B)sells its products abroad at a price lower than it costs to produce the goods.
C)increases the aggregate level of employment in the receiving country.
D)indirectly reduces its national income.
Q4) List and explain fully the arguments against free trade.
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Chapter 17: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) Many economists doubt that G-7 nations cannot "manage" exchange rates because
A)the central banks do not know how to intervene in the exchange rate markets.
B)the world economy is inherently unstable.
C)Japan does not abide by the rules of the IMF.
D)exchange rate interventions are trivial relative to the size of the foreign exchange market.
Q2) Any transaction that leads to a receipt by a resident of a country or its government is a(n)
A)asset.
B)minus item.
C)deficit item.
D)surplus item.
Q3) Which of the following would contribute to a negative trade balance for a country?
A)visiting another country as a tourist
B)exporting textiles
C)having foreigners sell government bonds of the country
D)exporting financial services
Q4) How did the International Monetary Fund operate? What brought about the end of the Bretton Woods Agreement?
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