Economics I Mock Exam
Course Introduction
Economics I provides students with an introduction to the fundamental principles of microeconomics and macroeconomics. The course explores key concepts such as supply and demand, market structures, consumer and producer behavior, elasticity, and the role of government in the economy. Students will also examine macroeconomic indicators, including GDP, inflation, and unemployment, and learn how economic policy impacts growth and stability. Through theoretical frameworks and practical examples, this course equips students with analytical tools to understand real-world economic issues and make informed decisions in both personal and professional contexts.
Recommended Textbook
Macroeconomics 6th Canadian Edition by Andrew B. Abel
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15 Chapters
1206 Verified Questions
1206 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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64 Flashcards
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Sample Questions
Q1) The Keynesian approach to macroeconomics assumes that
A) wages, but not prices, adjust quickly to balance quantities supplied and demanded in markets.
B) wages and prices adjust quickly to balance quantities supplied and demanded in markets.
C) prices, but not wages, adjust quickly to balance quantities supplied and demanded in markets.
D) neither wages nor prices adjust quickly to balance quantities supplied and demanded in markets.
Answer: D
Q2) John Maynard Keynes disagreed with the classical economists because he assumed that
A) wages and prices adjusted slowly.
B) international trade played a major role in the macroeconomy.
C) government intervention in the economy could not reduce business cycles.
D) unemployment would be eliminated quickly by the invisible hand of the market.
Answer: A
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Page 3
Chapter 2: The Measurement and Structure of the Canadian Economy
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Sample Questions
Q1) The A company collects bushels of wild berries, which it sells for $2 million to the B company to be made into jam. The B company's wild berry jam is sold for a total of $6 million. What is the total contribution to the country's GDP from companies A and B?
A) $2 million
B) $4 million
C) $6 million
D) $8 million
Answer: C
Q2) The national income accounts
A) are an accounting framework used in measuring households income.
B) are an accounting framework used in measuring firms income.
C) are an accounting framework used in measuring government income.
D) are an accounting framework used in measuring current economic activity.
Answer: D
Q3) Explain why in agricultural countries the official GDP are often underestimated.
Answer: Since in agricultural countries many people grow their own food, make their own clothes, and provide services for each other within a family or village group, these non-market activities are not counted in the official GDP.
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) The more permanent an employee perceives an increase in her real wages to be,
A) the larger the income effect is and the more likely it is that the quantity of labour supplied will be increased.
B) the larger the income effect is and the more likely it is that the quantity of labour supplied will be reduced.
C) the larger the substitution effect is and the more likely it is that the quantity of labour supplied will be increased.
D) the larger the substitution effect is and the more likely it is that the quantity of labour supplied will be reduced.
Answer: B
Q2) Your boss wants to know if you should lay off any workers. You answer that you should lay off workers if the
A) marginal revenue product of labour is greater than the nominal wage rate.
B) marginal product of labour is greater than or equal to the real wage rate.
C) marginal revenue product of labour is equal to the nominal wage rate.
D) marginal product of labour is less than the real wage rate.
Answer: D
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Page 5
Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) The housing price in Canada nearly doubled in the period 1995-2006. This implies that
A) Canadian homeowners income has increased, leading to more consumption.
B) Canadian homeowners wealth has increased, leading to more consumption.
C) Canadian homeowners wealth has decreased, leading to lower consumption.
D) Canadian homeowners income has decreased, leading to less consumption.
Q2) Jane wants to save $1000 of current income. With an RRSP, no taxes are paid on income or interest until the money is withdrawn in five years. Without an RRSP, taxes must be paid whenever income or interest is received. Jane's tax bracket is 35%, and the nominal interest rate is 8%.
a. How much money will Jane have if she puts her money in an RRSP and withdraws the money in five years?
b. How much money will Jane have if she does not put her money in an RRSP, but rather in a regular (taxable) savings account, for five years?
c. How much does Jane gain in five years by using an RRSP rather than a regular savings account?
Q3) What are the economic consequences of reductions in defense spending by the government? What happens to national saving, the interest rate, and investment?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) Assume that an increase in Costa Rica's government budget deficit reduced desired national saving by 10 million colon. Assuming Costa Rica is a small open economy, you would expect the government's action to
A) increase the current account balance by exactly 10 million colon.
B) increase the current account balance by less than 10 million colon.
C) reduce the current account balance by exactly 10 million colon.
D) reduce the current account balance by more than 10 million colon.
Q2) The merchandise trade balance is a country's A) exports of goods.
B) net exports of goods.
C) exports of goods and services.
D) net exports of goods and services.
Q3) You just read that forecasters predict Canada will run a current account deficit in 2004. From this you would infer that Canada will also
A) run a capital account deficit in 2004.
B) decrease its official reserve assets.
C) run a balance of payments surplus.
D) decrease its holding of net foreign assets.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) A country has the per-worker production function y<sub>t</sub> = 3k<sub>t</sub><sup>2/3, </sup>where y<sub>t</sub> is output per worker and k<sub>t</sub> is the capital-labour ratio. The depreciation rate is 0.1 and the population growth rate is 0.05. The saving function is S<sub>t</sub><sub> </sub>= 0.2Y<sub>t</sub>, where St is total national saving and Yt is total output.
a. What is the steady-state value of capital-labour ratio?
b. What is the steady-state value of output per worker?
c. What is the steady-state value of consumption per worker?
Q2) The computerization of police departments throughout the country has greatly reduced the crime rate. What macroeconomic variable is likely to be directly affected by this change?
A) productivity
B) inflation
C) the real interest rate
D) the trade deficit
Q3) Describe the main ideas of the endogenous growth theory. What does it have to say about the role of government in economic growth?
Q4) What is the empirical evidence on whether or not rich and poor countries converge?
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Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) One of money's primary roles in the economy comes from the use of money to transfer purchasing power to the future. This role of money is called
A) store of value.
B) unit of account.
C) medium of exchange.
D) standard of deferred payment.
Q2) The use of money is more efficient than barter because the introduction of money
A) reduces the need for economic specialization.
B) reduces the need to exchange goods.
C) reduces the need for other stores of value.
D) reduces transaction costs.
Q3) Which of the following is not included in M2+?
A) money market mutual funds
B) deposits at trust and mortgage companies
C) non-personal fixed-term deposits
D) small-denomination personal fixed-term deposits
Q4) Describe the Bank of Canada's policy of gradualism in the 1970s. What money aggregate did they attempt to target. What led to great difficulties in their targeting? How long was this policy followed?
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Chapter 8: Business Cycles
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Sample Questions
Q1) According to classical macroeconomists, prices adjust ________ to shocks, so the government should ________.
A) slowly; do little
B) rapidly; do little
C) rapidly; fight recessions
D) slowly; fight recessions
Q2) The technological improvement will lead to a
A) rightward shift in the long-run aggregate supply, lowering price and increasing output.
B) leftward shift in the long-run aggregate supply, lowering price and lowering output.
C) rightward shift in the long-run aggregate supply, increasing price and lowering output.
D) leftward shift in the long-run aggregate supply, increasing price and increasing output.
Q3) The worst recessions after World War II occurred
A) during 1945-1946 and 1973-1975.
B) during 1957-1958 and 1973-1975.
C) during 1953-1954 and 1981-1982.
D) during 1945-1946 and 1981-1982.
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Page 10
Chapter 9: The IS-LMAD-AS Model: A General Framework for
Macroeconomic Analysis
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Sample Questions
Q1) Keynesian economists think general equilibrium is not attained quickly because A) the real interest rate adjusts slowly.
B) the level of output adjusts slowly.
C) the real wage rate adjusts slowly.
D) the price level adjusts slowly.
Q2) Desired consumption is C<sup>d</sup> = 2000 + 0.9Y - 100,000 r - G, and desired investment is I<sup>d</sup> = 1000 - 45,000r. Real money demand is M<sup>d</sup>/P = Y - 6000i. Other variables are <sup>e</sup> = 0.03, G = 500, Y = 1000, and M = 2100.
a. Find the equilibrium values of the real interest rate, consumption, investment, and the price level.
b. Suppose government purchases decline to 400. What happens to the variables listed in part (a)?
c. Suppose government purchases rise to 600. What happens to the variables listed in part (a)?
d. What feature in this example leads to the result that you don't need to know the amount of taxes collected by the government to find the equilibrium?
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Chapter 10: Exchange Rates, Business Cycles, and Macroeconomic Policy in
the Open Economy
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93 Flashcards
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Sample Questions
Q1) According to the "beachhead effect," in order to undo the effects of a strong-dollar period, the real value of the dollar
A) must fall to at least half of its value before appreciation of the dollar began.
B) must fall to the value it had before appreciation of the dollar began.
C) must fall to a much lower level than it had before appreciation of the dollar began.
D) must actually appreciate before it depreciates to undo the effects of a strong-dollar period.
Q2) Describe the effects of contractionary fiscal policy by the domestic government on output, the real interest rate, and net exports in both the domestic and foreign country, using a Keynesian model.
Q3) A fall in the real exchange rate is called
A) a real depreciation.
B) a real appreciation.
C) a real revaluation.
D) a real devaluation.
Q4) Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.
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Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
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Sample Questions
Q1) The reason why some economists believe that attempts by the Central Bank to surprise the public in a systematic way cannot be successful is that
A) information about the Bank's plans will inevitably be leaked to the public.
B) the Bank announces its goals and publishes its policy actions six weeks after they take place.
C) the public would eventually figure out what the Bank's policies were, negating the Bank's surprise.
D) competition in the money markets would neutralize the Bank's intervention.
Q2) Assuming money neutrality in the classical model, a 10% increase in the nominal money supply would cause
A) a 10% increase in the real money supply.
B) a 10% decrease in the real money supply.
C) no change in the real money supply.
D) a less than 10% change in the price level due to a shift in the aggregate supply curve.
Q3) How is the Solow residual measured? What problems arise in its measurement when resource utilization varies over the business cycle? What implications do these measurement issues have for evidence supporting the RBC model?
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Page 13
Chapter 12: Keynesian Business Cycle Analysis:
Non-Market-Clearing Macroeconomics
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Sample Questions
Q1) Using the Keynesian model, the effect of an increase in corporate taxes would be to cause ________ in the real interest rate and ________ in output in the short run.
A) a decrease; a decrease
B) a decrease; no change
C) a decrease; an increase
D) no change; a decrease
Q2) The Keynesian theory of nominal wage rigidity predicts that
A) the real wage is countercyclical.
B) the real wage is procyclical.
C) the real wage is acyclical.
D) the real wage is constant.
Q3) In the Keynesian model, the economy can be off the FE line and the LRAS in the short run, because
A) the interest rate is slow to adjust.
B) the unemployment rate is high during recession.
C) the actual price level differs from what was expected when nominal wage contracts were signed.
D) real wage is sticky in short run.
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Hyperinflation occurs when the inflation rate
A) rises.
B) declines.
C) is extremely high.
D) is extremely low.
Q2) Examining data on cyclical unemployment plotted against unanticipated inflation shows
A) a positive relationship.
B) a negative relationship.
C) no significant relationship.
D) a relationship only during the 1960s.
Q3) Friedman and Phelps argued that the Phillips curve could not be stable because A) it was not consistent with economic theory.
B) it was not supported by the data.
C) they thought the relationship was between the unanticipated inflation and unemployment.
D) they thought the relationship was between the inflation and cyclical unemployment.
Q4) If you were prime minister, what would you do to reduce the natural rate of unemployment? Propose at least three different methods.
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) Suppose the Bank of Canada wanted to increase the money supply without using open-market operations. It could try to get the public to ________ their currency-deposit ratio and ________ banks' reserve requirements, which would in turn change the banks' reserve-deposit ratio.
A) decrease; lower B) decrease; raise C) increase; lower D) increase; raise
Q2) Suppose that in Mysore the reserve-deposit ratio is res = 0.5 - 2i, where i is the nominal interest rate. The currency-deposit ratio is 0.2 and the monetary base equals 100. The real quantity of money demanded is given by the money demand function L(Y, i) = 0.5Y - 10i, where Y is real output. Currently, the real interest rate is 5% and the economy expects an inflation rate of 5%. Assume that the price level P is equal to 1. The value of output Y that clears the asset market is
A) 240.
B) 460.
C) 480.
D) 482.
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Page 16
Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Seignorage is the revenue a government raises by A) taxation.
B) printing money.
C) borrowing money.
D) charging fees for services.
Q2) The marginal tax rate is
A) the fraction of an additional dollar of income that must be paid in taxes.
B) the total amount of taxes paid divided by after-tax income.
C) the total amount of taxes paid divided by before-tax income.
D) the average amount of government spending that is financed by taxes.
Q3) Deficits are a burden on future generations if
A) they cause higher rates of inflation to occur.
B) they are not used for government capital formation.
C) they cause national saving to fall.
D) they are always a primary government deficit.
Q4) The average tax rate is
A) the fraction of an additional dollar of income that must be paid in taxes.
B) the total amount of taxes paid divided by after-tax income.
C) the total amount of taxes paid divided by before-tax income.
D) the average amount of government spending that is financed by taxes.
Page 17
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