Economics I Midterm Exam
Course Introduction
Economics I provides a comprehensive introduction to the fundamental principles of microeconomics. The course explores how individuals and firms make decisions regarding the allocation of scarce resources, how markets function to coordinate these decisions, and how government intervention can affect market outcomes. Key topics include supply and demand, consumer and producer behavior, elasticity, market structures such as perfect competition and monopoly, as well as the basics of welfare economics. By studying these concepts, students gain a foundational understanding of how economic forces shape everyday life and public policy.
Recommended Textbook
Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) How does trade affect the well-being of the nations involved?
A) Trade makes every nation better off.
B) Trade makes exporting nations better off and importing nations worse off.
C) Trade makes a nation better off only if the nation cannot produce that good itself.
D) Trade makes rich nations better off and poor nations worse off.
Answer: A
Q2) What has been one effect of a government-imposed seat belt law?
A) fewer pedestrian deaths
B) safer driving
C) an increase in the number of accidents
D) everyone now wears seat belts
Answer: C
Q3) How do prices direct economic activity in a market economy?
A) by influencing the actions of buyers and sellers
B) by reducing scarcity of the goods and services produced
C) by eliminating the need for government intervention
D) by allocating goods and services produced in the most equitable way
Answer: A
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What do economists from the Department of Finance provide?
A) the annual Economic Report of the Prime Minister
B) the Senate with the annual budget
C) enforcement of the competition laws
D) advice on tax policy to the Prime Minister
Answer: D
Q2) What does it mean if an economy is producing efficiently?
A) There is no way to produce more of one good without producing less of the other.
B) It is possible to produce more of both goods.
C) It is possible to produce more of one good without producing less of the other.
D) It is not possible to produce more of one good at any cost.
Answer: A
Q3) What are the four sectors in a more complex circular-flow diagram?
A) households,government,financial markets,and international trade
B) households,firms,government,and financial markets
C) households,firms,financial markets,and international trade
D) households,firms,government,and international trade
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.Who has a comparative advantage in which product?
A) Mike in chairs,Sandy in tables
B) both Mike and Sandy in tables
C) both Mike and Sandy in chairs
D) Mike in tables,Sandy in chairs
Answer: D
Q2) Refer to Table 3-3.What does each of the two producers have a comparative or absolute advantage in?
A) Kevin has an absolute advantage in blankets,and Amy has a comparative advantage in sweaters.
B) Kevin has an absolute advantage in both goods,and Amy has a comparative advantage in blankets.
C) Kevin has an absolute advantage in sweaters,and Amy has a comparative advantage in sweaters.
D) Kevin has an absolute advantage in neither good,and Amy has a comparative advantage in sweaters.
Answer: D
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) What will happen to the demand curve for ice cream in a very hot summer in Guelph?
A) It will shift to the left.
B) It will shift to the right.
C) It will remain stable but we would move down the curve.
D) It will remain stable but we would move up the curve.
Q2) Other things equal,what happens when the price of a good rises?
A) The quantity demanded of the good increases.
B) The supply increases.
C) The quantity supplied of the good rises.
D) The demand curve shifts to the left.
Q3) Market demand is Qd = 200 - 6P.Market supply is Qs = 4P.In a perfectly competitive equilibrium,what will be the price?
A) $150
B) $120
C) $30
D) $20
Q4) Anyone willing to pay the market price for a resource may have it.
A)True
B)False
Page 6
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Chapter 5: Measuring a Nations Income
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Q1) If GDP in the fourth quarter is announced to be $1.6 trillion,what does this number reflect?
A) the actual amount of final goods and services produced in the fourth quarter
B) about four times the annual GDP rate
C) a somewhat lower amount than the amount actually produced in the fourth quarter,because GDP is seasonally adjusted,and nonseasonally adjusted GDP for the fourth quarter is typical higher
D) about four times the amount actually produced in that quarter,plus what had been removed for seasonal adjustment
Q2) Which statistic is the best single measure of an economy's well-being?
A) unemployment rate
B) inflation rate
C) gross domestic product
D) trade balance
Q3) Which example will increase Canadian net exports?
A) A Canadian resident buys a skateboard manufactured in Canada by a German firm.
B) A U.S.resident buys a Blackberry manufactured in Canada.
C) A Canadian resident buys a souvenir in Paris.
D) A Canadian resident buys Microsoft shares.
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) From October 2014 to October 2015,the CPI in country A rose from 116.5 to 119.8.In country B,it rose from 97.2 to 102.3.What were the inflation rates in the two countries?
A) 3.3 percent in A and 6.7 percent in B
B) 3.3 percent in A and 5.2 percent in B
C) 2.8 percent in A and 6.7 percent in B
D) 2.8 percent in A and 5.2 percent in B
Q2) Refer to the Table 6-5.Using 2013 as the base year,what is the consumer price index?
A) 100 in 2013,135 in 2014,and 155 in 2015
B) 100 in 2013,270 in 2014,and 310 in 2015
C) 200 in 2013,270 in 2014,and 310 in 2015
D) 200 in 2013,540 in 2014,and 620 in 2015
Q3) Refer to the Table 6-3.What was the inflation rate,as measured by the CPI,between 2013 and 2014?
A) 27.9 percent
B) 34.1 percent
C) 47.0 percent
D) 48.5 percent
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Chapter 7: Production and Growth
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Sample Questions
Q1) Which of the following goods does a patent turn a new idea into?
A) a public good,which increases the incentive to engage in research
B) a public good,which decreases the incentive to engage in research
C) a private good,which increases the incentive to engage in research
D) a private good,which decreases the incentive to engage in research
Q2) Which statement best describes the evolution of productivity growth in Canada?
A) From 1974 to 1982,Canadian productivity growth was slower than from 1966 to 1973.This continued a long-term downward trend in productivity growth.
B) From 1974 to 1982,Canadian productivity growth was slower than from 1966 to 1973.It appears that this was the result of a slowdown in technological progress.
C) From 1966 to 1973,Canadian productivity growth was slower than from 1974 to 1982.This continued an upward trend in productivity growth.
D) From 1966 to 1973,Canadian productivity growth was slower than from 1974 to 1982.It appears that this was the result of an upward trend in capital formation.
Q3) Why are property rights important for the growth of a nation's standard of living?
Q4) How do inward-oriented policies affect a nation's growth?
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Page 9
Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) Other things the same,the higher the rate of saving and investment in a country,the higher the standard of living will be.
A)True
B)False
Q2) If the current market interest rate for loanable funds is below the equilibrium level,what is most likely to 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.
Q3) Australia has recently implemented a national sales tax.If that country uses the proceeds from this tax to reduce income tax rates,what happens in the loanable funds market?
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Approximately what percentage of all Canadian workers are union members?
A) 5 percent
B) 30 percent
C) 50 percent
D) 95 percent
Q2) Four employers have justified their actions as follows.Whose logic is consistent with the logic of efficiency wage theory?
A) Jay develops a new assembly line technology that limits the amount shirking workers may do,so he reduces what he pays his employees so as to make it closer to the equilibrium wage.
B) Kay pays her workers less than the equilibrium wage so they won't have the time or money to look for work somewhere else.
C) Ray pays his workers in a developing country more than the going wage,hoping that they will get a better diet and so be more productive.
D) Ms.Fay pays her workers the market wages,but she hires more supervisors to make sure workers do not shirk.
Q3) What is the theory of efficiency wages? Give a couple of explanations for how efficiency wages might work.
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11
Chapter 10: The Monetary System
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Sample Questions
Q1) If the reserve ratio is 10 percent and a bank receives a new deposit of $800,which of the following will this bank most likely do?
A) It will increase its required reserves by $8000.
B) It will make new loans of $8000.
C) It will be able to make new loans of $800.
D) It will initially see its total reserves increase by $800.
Q2) Describe the two things that limit the precision of the Bank of Canada's control of the money supply and explain how each limits that control.
Q3) The money multiplier equals 1 divided by (1 - the reserve ratio).
A)True B)False
Q4) The money supply of Hooba is $10,000 under a 100 percent reserve banking system.If Hooba decreases the reserve requirement to 10 percent,the money supply could increase by no more than $9000.
A)True B)False
Q5) Draw a simple T-account for First National Bank of Me,which has $8000 of deposits,a reserve ratio of 10 percent,and excess reserves of $300.
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) According to the classical dichotomy,what is influenced by monetary factors?
A) real GDP
B) investment
C) nominal interest rates
D) the real wage rate
Q2) What does the principle of monetary neutrality imply?
A) An increase in the money supply will increase real GDP and the price level.
B) An increase in the money supply will increase real GDP,but not the price level.
C) An increase in the money supply will increase the price level,but not real GDP.
D) An increase in the money supply will increase neither the price level nor real GDP.
Q3) Suppose we interpret the quantity theory as a money demand equation.The quantity theory of money equation can be transformed into a growth rate equation: ÄM / M + ÄV / V = ÄP / P + ÄY / Y.If the velocity of money and real GDP are constant,calculate the elasticity of the demand for money with respect to the price level.
Q4) What is the inflation tax,and how might it explain the creation of inflation by a central bank?
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Page 13
Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) As an open economy,Canadian national saving can be less than Canadian investment.
A)True
B)False
Q2) If the Canadian real exchange rate appreciates,what will most likely happen?
A) Net exports increase,and net capital outflow decreases.
B) Net exports decrease,and net capital outflow increases.
C) Net exports and net capital outflow both increase.
D) Net exports and net capital outflow both decrease.
Q3) A country has $120 million of net exports and $150 million of saving.What is net capital outflow?
A) -$30 million
B) $30 million
C) $120 million
D) $150 million
Q4) Why does purchasing-power parity theory NOT hold at all times?
A) because countries use different currencies
B) because wages are higher in some countries and lower in others
C) because some goods and services cannot be traded
D) because prices are different across countries
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) If a government increases its budget deficit,which statement would best predict the effects?
A) The real exchange rate appreciates,and the trade balance moves toward surplus.
B) The real exchange rate appreciates,and the trade balance moves toward deficit.
C) The real exchange rate depreciates,and the trade balance moves toward surplus.
D) The real exchange rate depreciates,and the trade balance moves toward deficit.
Q2) In the open-economy macroeconomic model,what does the quantity of dollars demanded in the foreign-currency exchange market depend on?
A) the real exchange rate and import quotas
B) the real exchange rate and government deficit
C) the real interest rate and import quotas
D) the real interest rate and government deficit
Q3) In an open economy,the supply of loanable funds comes from national saving.
A)True
B)False
Q4) Why do higher real interest rates lead to lower net capital outflow?
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Page 15
Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Suppose the economy was in long-run equilibrium when a sudden decline in the stock market took place.What happens in the short run after the decline in the stock market?
A) Both the price level and real GDP rise.
B) The price level falls and real GDP does not change.
C) The price level does not change and real GDP falls.
D) Both the price level and real GDP fall.
Q2) According to misperceptions theory,if a firm thought that inflation was going to be 5 percent and actual inflation was 4 percent,how may the firm be affected?
A) It may believe that the relative price has increased,so it would increase production.
B) It may believe that the relative price has increased,so it would decrease production.
C) It may believe that the relative price has decreased,so it would increase production.
D) It may believe that the relative price has decreased,so it would decrease production.
Q3) Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.
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16
Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Which statement is consistent with the supply-side theories?
A) The Bank of Canada should use monetary policy only to control the rate of inflation.
B) The government should promote full employment and production.
C) The government should periodically increase the minimum wage and unemployment insurance benefits.
D) Tax cuts influence the aggregate supply significantly.
Q2) If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases,what is most likely to happen?
A) crowding-out effects
B) no crowding-out effects
C) no increase in the demand for goods and services
D) a decrease in aggregate demand
Q3) When the Bank of Canada increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand so the aggregate-demand curve shifts to the right.
A)True
B)False
Q4) Use the money market to explain why the aggregate demand curve slopes downward.
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Q1) Fiscal policy cannot be used to move the economy along the short-run Phillips curve. A)True
B)False
Q2) What do the data for the period of 1968 through 1973 demonstrate?
A) that there is a short-run tradeoff between inflation and unemployment
B) that a supply shock can disrupt the short-run tradeoff between inflation and unemployment
C) that there is a long-run tradeoff between inflation and unemployment
D) that a demand shock can disrupt the short-run tradeoff between inflation and unemployment
Q3) How could we transform the AD-AS model such that,instead of the price level and output it would show the relationship between the inflation rate (ð)and the rate of output growth (g)?
Q4) 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
Q5) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Q1) Suppose people in countries that have had persistently high inflation are sceptical about efforts to reduce inflation.What will happen to the short-run Phillips curve and the sacrifice ratio?
A) The short-run Phillips curve remains to the left,and the sacrifice ratio will be low.
B) The short-run Phillips curve remains to the left,and the sacrifice ratio will be high.
C) The short-run Phillips curve remains to the right,and the sacrifice ratio will be low.
D) The short-run Phillips curve remains to the right,and the sacrifice ratio will be high.
Q2) Proponents of zero inflation argue that reducing inflation implies which of the following?
A) that reducing inflation eventually reduces inflation expectations
B) that reducing inflation eventually raises real interest rates
C) that reducing inflation permanently decreases output
D) that reducing inflation permanently raises unemployment
Q3) Explain why a government deficit is likely to lead to lower living standards in the future.
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