Economics I Exam Solutions
Course Introduction
Economics I provides an introduction to the fundamental principles of economics, focusing on both microeconomic and macroeconomic concepts. Students learn about the behavior of individuals and firms, supply and demand, market structures, the role of government in the economy, and the basics of national income, inflation, and unemployment. The course emphasizes analytical tools and critical thinking skills necessary for understanding how economic agents make decisions and how these decisions shape resource allocation and economic outcomes in society.
Recommended Textbook
Principles of Macroeconomics 9th Edition by John Sayre
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Chapter 1: The Economic Problem
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Sample Questions
Q1) Allocative efficiency is also referred to as productivity.
A)True
B)False
Answer: False
Q2) If each country specializes in the production of what it does best,what are the gains from trade?
A)There are no gains.
B)20 bread.
C)20 figs.
D)10 bread and 10 figs.
Answer: D
Q3) Refer to the graph above to answer this question.Assume that the economy is facing PPI and that 2,000 tons of tea are produced,how many videos could be produced?
A)600,000.
B)500,000.
C)2,000.
D)0. Answer: D
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3
Chapter 2: Demand and Supply: an Introduction
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Sample Questions
Q1) What is the term for a change in the amounts that a producer is willing and able to make available as a result of a price change?
A)Change in the quantity supplied.
B)Change in the individual supply.
C)Change in the market supply.
D)Change in the market demand.
Answer: A
Q2) Which of the following is explained by the combination of the substitution effect and the income effect?
A)Ceteris paribus.
B)Downward sloping demand curves.
C)Market demand.
D)Equilibrium price.
Answer: B
Q3) Explain the difference between a normal product and an inferior product.
Answer: A normal product is one in which the demand increases as incomes increase (there is a direct relationship between them);an inferior product is one in which the demand decreases when incomes increase (there is an inverse relationship between them).
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Page 4
Chapter 3: Measuring the Economy 1: GDP and Economic Growth
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Sample Questions
Q1) All of the following,except one,are leakages.Which is the exception?
A)Savings.
B)Transfer payments.
C)Imports.
D)Taxes.
Answer: B
Q2) Which of the following best defines disposable income?
A)The after-tax income received by households.
B)The before-tax income received by households.
C)All income earned by resource suppliers from whatever source.
D)The money value of all final goods and services produced minus all sales taxes.
E)Consumption expenditures less personal savings.
Answer: A
Q3) What is that portion of income which is not spent on consumption?
A)A leakage.
B)An injection.
C)Savings.
D)Dissavings.
Answer: C
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Chapter 4: Measuring the Economy 2: Unemployment and Inflation
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Sample Questions
Q1) What is meant by cyclical unemployment?
A)Unemployment that is caused by the fact that it takes time for people to find their first job or to move between jobs.
B)Unemployment which results from structural changes in an economy's industries.
C)Unemployment that occurs as a result of the recessionary phase of the business cycle.
D)Unemployment that occurs because people do not think that there are any jobs available.
Q2) In 2015 the unemployment rate for men was greater than the unemployment rate for women.
A)True
B)False
Q3) If the number of job vacancies in an economy is equal to the number of people unemployed,then cyclical unemployment is zero.
A)True
B)False
Q4) Distinguish between demand-pull and cost-push inflation.
Q5) Explain how the official unemployment rate might be understated?
Q6) Distinguish between the CPI and the GDP deflator
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Chapter 5: Aggregate Demand and Supply
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Sample Questions
Q1) According to Keynes,the aggregate supply curve is vertical.
A)True
B)False
Q2) Assume that the economy is at full employment.Now suppose a decrease in investment spending.At the new equilibrium,
a)will there be an output gap? What type?
b)what is the effect on the price level?
c)what is the effect on the level of Real GDP?
Q3) What are the components of aggregate demand?
Q4) When does macroeconomic equilibrium occur?
A)When exports equal imports.
B)When the aggregate supply equals the long-run Aggregate Supply.
C)When the aggregate quantity demanded is equal to the aggregate quantity supplied.
D)When the aggregate demand equals the long-run Aggregate Supply.
Q5) Assume that the economy is at full employment.Now suppose there is an increase in consumption.At the new equilibrium,
a)will there be an output gap? What type?
b)what is the effect on the price level?
c)what is the effect on the level of Real GDP
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Chapter 6: Aggregate Expenditures
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Sample Questions
Q1) A decrease in the interest rate will cause an increase in investment spending.
A)True
B)False
Q2) If the MPE is 0.9,what will be the value of the multiplier?
A)0.1.
B)0.9.
C)10.
D)1.67.
E)1.
Q3) Refer to the information above to answer this question.What is the value of the MPS?
A)0.15.
B)0.20.
C)0.25.
D)0.40.
E)0.60.
Q4) "If there is expenditure equilibrium for an economy,leakages will be equal to injections,and G = T." Evaluate this statement.
Q5) Explain the uses of an individual's income.
Y = C + S + T
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Chapter 7: Fiscal Policy
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Sample Questions
Q1) What is the effect of a counter-cyclical fiscal policy?
A)It intensifies changes in GDP caused by the business cycle.
B)It dampens changes in GDP caused by the business cycle.
C)It has no effect on changes in GDP caused by the business cycle.
D)It allows the government to balance its budget.
Q2) Which of the following would help eliminate a recessionary gap?
A)An increase in consumer spending.
B)An increase in investment.
C)An increase in exports.
D)An increase in government spending
E)All of the above.
Q3) Which of the following statements is an accurate comment on the payment of interest on the public debt?
A)It leads to an increase in our standard of living.
B)It has no effect on the distribution of income.
C)It probably decreases income inequality.
D)It probably increases income inequality.
E)It decreases the value of a country's assets.
Q4) What has been happening to the Canadian National debt since WW II? To the debt/GDP ratio?
Page 9
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Chapter 8: Money and Banking
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Sample Questions
Q1) Refer to the information above to answer this question.Assume the target reserve ratio is 8 percent.If the bank lends out its excess reserves,and a cheque clears against the bank for this amount,what will be the amount of the bank's excess reserves?
A)$0.
B)$4,800.
C)$24,000.
D)$19,200.
E)$7,000.
Q2) All of the following statements,except one,are correct.Which is the exception?
A)A commercial bank's total reserves are equal to its excess reserves plus its target reserves.
B)A bank's assets plus its net worth equal its liabilities.
C)When a commercial bank gives a loan it creates demand deposits.
D)A single commercial bank can safely lend only an amount up to the value of its excess reserves.
E)If a bank transaction were to decrease the value of one of its assets,then either some other asset would increase in value or one of its liabilities would decrease in value.
Q3) Explain why a bank would not like to hold excess reserves.
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Page 10
Chapter 9: The Money Market and Monetary Policy
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Sample Questions
Q1) According to monetarists,how does a change in the money supply affect the economy?
A)By changing the velocity of the money which in turn changes the nominal GDP.
B)By changing the rate of interest which in turn changes nominal GDP.
C)By changing investment which in turn changes nominal GDP.
D)By changing aggregate expenditures which in turn changes nominal GDP.
Q2) Refer to the graph above to answer this question.What is the equilibrium interest rate?
A)r<sub>1</sub>.
B)r<sub>2</sub>.
C)r<sub>3</sub>.
D)It cannot be determined from the information.
Q3) In the equation MV = PQ,what does Q stand for?
A)The quantity of goods and services sold.
B)The quantity of investment.
C)The quantity of money in circulation.
D)The quantity of domestic demand.
E)The quantity of consumption and investment.
Q4) What is the Keynesian transmission process?
Q5) Using the interest rate effect,explain why the AD is downward sloping.
Page 11
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Chapter 10: International Trade
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Sample Questions
Q1) Refer to the data above to answer this question.If each country is self-sufficient in the two products and each employs half of its working population in each industry,what is the total combined output that they are capable of producing?
A)128 wheat and 0 beans.
B)0 wheat and 128 beans.
C)128 wheat and 128 beans.
D)64 wheat and 64 beans.
Q2) If a country wishes to specialize its production,it will also want to engage in trade.
A)True
B)False
Q3) Define tariffs and Quotas,and explain the similarities and differences between them.
Q4) Refer to above table to answer this question.What is the cost of producing one broomstick in Potter?
A)2 swords.
B)0.5 swords.
C)0.33 swords.
D)3 swords.
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Chapter 11: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) Refer to the information above to answer this question.What is the equilibrium exchange rate?
A)1 utop for one dollar.
B)2 utops for one dollar.
C)0.50 Canadian dollars for one utop.
D)2 Canadian dollars for one utop.
Q2) If a Panamanian balboa is worth 0.20 Canadian dollars,then a Canadian dollar is worth 4 balboas.
A)True
B)False
Q3) Refer to Table 11.6 to answer this question.What is Canada's balance of trade?
A)A surplus of $150 billion.
B)A surplus of $5 billion.
C)A deficit of $15 billion.
D)A deficit of $10 billion.
Q4) What effect will an increase in the demand for the Canadian dollar have?
A)The exchange rate will fall and the quantity of dollars traded will fall.
B)The exchange rate will fall and the quantity of dollars traded will rise.
C)The exchange rate will rise and the quantity of dollars traded will fall.
D)The exchange rate will rise and the quantity of dollars traded will rise.
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Chapter 12: Macroeconomic Policy Revisited
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Sample Questions
Q1) Stagflation is the simultaneous occurrence of both:
A)A recession and deflation.
B)A recession and inflation.
C)Inflation and rapid growth in GDP.
D)Recession and rapid growth in GDP.
Q2) All of the following,except one,would cause the aggregate demand curve to shift to the right.Which is the exception?
A)An increase in taxes
B)An increase in government spending on goods and services
C)An increase in the money supply
D)A decrease in the exchange rate
Q3) Graphically,what is necessary for an economy to escape the grips of stagflation?
A)Shift the AD curve to the right
B)Shift the AD curve to the left
C)Shift the AS curve to the right
D)Shift the AS curve to the left
Q4) Monetary policy cannot be used effectively when a country has a fixed exchange rate.
A)True
B)False
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Chapter 13: A Walk Through the Twentieth Century and Beyond
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Sample Questions
Q1) Explain the development of innovations in the financial securities market that greatly increased investor interest in the housing market.
Q2) According to the neoclassical economists,what would happen if production exceeded total spending in an economy?
Q3) A major shift in perceptions about the role of government occurred during which of the following periods in history?
A)Immediately following WW II
B)In the middle of the Great Depression
C)Just prior to World War I
D)In the 1990s
Q4) Identify which of the following policy actions would be advocated by Keynesians and which would be advocated by Supply-siders.
a)Privatizing the telecommunication industry.
b)Constructing a national highway.
c)Deregulating the financial industry.
d)Increasing health spending.
Q5) Define 'hedge fund'
Q6) Explain the development of sub-prime mortgages into bundled financial security.
Page 15
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