Economics II
Exam Materials
Course Introduction
Economics II delves deeper into the foundational concepts introduced in an introductory economics course, with an emphasis on macroeconomic principles and analytical tools. Students will explore topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, and open economy macroeconomics. Through theoretical frameworks and real-world applications, the course equips students with the skills to analyze economic data, understand government policy decisions, and evaluate the impact of economic factors on society at large. This course is designed to develop a critical understanding of the functioning of modern economies and the roles played by various macroeconomic agents.
Recommended Textbook
Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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3510 Verified Questions
3510 Flashcards
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Chapter 1: Ten Principles of Economics
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) How do people make decisions at the margin?
A)by following tradition
B)by experience
C)by calculating dollar costs
D)by comparing costs and benefits
Answer: D
Q2) What happens if Japan chooses to engage in trade?
A)It will only benefit if it trades with countries that produce goods it cannot produce.
B)It cannot benefit if it trades with less developed countries.
C)It should first attempt to produce the good itself.
D)It can benefit by trading with any other country.
Answer: D
Q3) In economics,what is the cost of something?
A)the dollar amount of obtaining it
B)what it takes to produce it
C)what you give up to obtain it
D)the amount of labour to produce it
Answer: C
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3
Chapter 2: Thinking Like an Economist
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235 Flashcards
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Sample Questions
Q1) Where do the most common data for testing economic theories come from?
A)carefully controlled and conducted laboratory experiments
B)traditional economies
C)historical episodes of economic change
D)centrally planned economies
Answer: C
Q2) Refer to Figure 2-2.What does the outer loop represent?
A)the flow of goods
B)the flow of spending
C)the flow of factors of production
D)the flow of services
Answer: B
Q3) What is another term for factors of production?
A)inputs
B)outputs
C)goods
D)services
Answer: A
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Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to the table.Who has a comparative advantage in the production of each good?
A)Alberta has a comparative advantage in baskets, and Manitoba has a comparative advantage in birdhouses.
B)Alberta has a comparative advantage in birdhouses, and Manitoba has a comparative advantage in baskets.
C)Alberta has a comparative advantage in neither good, and Manitoba has a comparative advantage in both goods.
D)Alberta has a comparative advantage in both goods, and Manitoba has a comparative advantage in neither good.
Answer: B
Q2) Trade is based on absolute advantage.
A)True
B)False
Answer: False
Q3) Trade allows a country to consume outside its production possibilities frontier. A)True
B)False
Answer: True
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Page 5
Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) What is a market?
A)a group of demanders and suppliers of a particular good or service
B)a group of people with common desires
C)a place where only sellers meet
D)a place where only buyers come together
Q2) Refer to the Figure 4-5.Which of the four graphs represents the market for winter boots in June?
A)graph A
B)graph B
C)graph C
D)graph D
Q3) Which of the following would NOT shift the demand curve for a good or service?
A)a change in income
B)a change in the price of the good or service
C)a change in expectations about the price of the good or service
D)a change in the price of a related good
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) Refer to the Figure 4-10.What would cause the movement from point B to point A on the graph?
A)a decrease in the price of the good
B)an increase in the price of the good
C)an increase in technology
D)a decrease in input prices
Q2) A local cable TV company might be a monopolist.
A)True
B)False
Q3) A.What is the difference between a "change in demand" and a "change in quantity demanded"? Graph your answer.
B.For each of the following changes, determine whether there will be a movement along the demand curve or a shift in the demand curve.
a.a change in the price of a related good
b.a change in tastes
c.a change in the number of buyers
d.a change in price
e.a change in expectations
f.a change in income
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) The basic tools of supply and demand analysis are as central to macroeconomic analysis as they are to microeconomic analysis.
A)True
B)False
Q2) With respect to GDP,how are transfer payments treated?
A)They are included in GDP because they represent income to individuals.
B)They are not included in GDP because they are not payments for currently produced goods or services.
C)They are included in GDP because the income will be spent for consumption.
D)They are not included in GDP because taxes will have to be raised to pay for them.
Q3) Which of the following supports the idea of using GDP as a measure of well-being?
A)Countries with higher GDP tend to have more luxury cars.
B)Countries with higher GDP tend to have more schools.
C)Countries with higher GDP tend to have more fast food restaurants.
D)Countries with higher GDP tend to have more food.
Q4) Income exceeds production.
A)True
B)False
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Page 8
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) A Brazilian company produces soccer balls in Canada and exports all of them.If the price of the soccer balls increases,what happens to the GDP deflator and the CPI?
A)The GDP deflator and the CPI both increase.
B)The GDP deflator is unchanged, but the CPI increases.
C)The GDP deflator increases, but the CPI is unchanged.
D)The GDP deflator and the CPI are both unchanged.
Q2) In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.What was the real interest rate?
A)-2 percent
B)-1 percent
C)1 percent
D)2 percent
Q3) What is by far the largest category of goods and services in the CPI basket?
A)shelter
B)recreation, education, and reading
C)transportation
D)food
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Page 9
Chapter 7: Production and Growth
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Sample Questions
Q1) Read the article "What Makes a Nation Rich?" by Daron Acemoglu in your textbook,and write a one-page summary of the article (Times New Roman,size 12,double spaced).(You can find some guidelines on how to write a summary here: http://goo.gl/CncBb.)
Q2) According to Malthus's view,which of the following is a consequence of increased population?
A)increased GDP per person
B)more people imply more ideas and more labour force, which promotes growth
C)depletion of productive resources and lower standards of living
D)increase in productivity in the food sector, which is necessary to support the increase in population
Q3) What is a valid policy to use for increasing the rate of economic growth?
A)reduce reliance on market forces because they allocate goods and services in an unfair manner
B)encourage trade with neighbouring countries
C)increase the fraction of GDP devoted to consumption
D)restrict investment in domestic industries by foreigners because they take some of the profits out of the country
Q4) Compare and contrast the population theories of Malthus and Kremer.
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) When opening a restaurant,you may need to buy ovens,freezers,tables,and cash registers.What do economists call these expenditures?
A)capital investment
B)investment in human capital
C)business consumption expenditures
D)inventories
Q2) When the government runs a budget deficit,national saving is reduced,interest rates rise,and investment falls.
A)True
B)False
Q3) The country of Nemedia does not trade with any other country.Its GDP is $20 billion.Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments.Consumption equals $15 billion,and investment equals $2 billion.What is the value of the goods and services purchased by the government of Nemedia?
A)$3 billion
B)$5 billion
C)$17 billion
D)$19 billion
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Chapter 9: Unemployment and Its Natural Rate
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191 Flashcards
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Sample Questions
Q1) Dawn is the CEO of a corporation that hires nonunion labour.According to the theory of efficiency wages,if she decides to pay her workers more than the competitive equilibrium wage,which of the following is most likely to happen?
A)The profits of her firm may increase.
B)The higher wages will induce her workers to shirk.
C)The turnover of her workers may increase.
D)She will face a shortage of labour.
Q2) How does Statistics Canada define the unemployment rate?
A)as the percentage of those unemployed relative to the percentage employed
B)as the percentage of the labour force that is unemployed
C)as the percentage of the adult population that is unemployed
D)as the percentage of the labour force without full-time employment
Q3) Which of the following is a possible effect of unions?
A)Unions decrease the natural rate of unemployment.
B)Unions decrease the wages of workers in the union.
C)Unions raise the profits of firms they work for.
D)Unions cause wages of nonunionized workers to fall.
Q4) Unemployment due to job search is best classified as structural unemployment.
A)True
B)False
Page 12
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Chapter 10: The Monetary System
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Sample Questions
Q1) Which of the following best defines reserve requirements?
A)They are regulations concerning the amount banks are allowed to borrow from the central bank.
B)They are regulations concerning the amount of reserves banks must hold against deposits.
C)They are regulations concerning reserves banks must hold based on the number and type of loans they make.
D)They are regulations concerning the interest rate at which banks can borrow from the central bank.
Q2) Which of the following best defines barter?
A)It is an exchange of goods for money.
B)It is an exchange of money for foreign currency.
C)It is a generally accepted legal tender.
D)It is a transaction that requires a double coincidence of wants.
Q3) Which of the following plays the role of a central bank in Canada?
A)TD Canada Trust
B)the Bank of Montreal
C)the Bank of Canada
D)the Royal Bank of Canada
Q4) What is the difference between money and wealth?
Page 13
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Chapter 11: Money Growth and Inflation
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198 Flashcards
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Sample Questions
Q1) When the price level falls,what happens to the number of dollars needed to buy a representative basket of goods?
A)It increases, so the value of money rises.
B)It increases, so the value of money falls.
C)It decreases, so the value of money rises.
D)It decreases, so the value of money falls.
Q2) Which of the following does an increase in the money supply growth rate increase?
A)inflation, nominal interest rates, and real interest rates
B)inflation and nominal interest rates, but it does not change real interest rates
C)inflation and real interest rates, but it does not change nominal interest rates
D)nominal and real interest rates, but it does not change inflation
Q3) According to the quantity equation,if Y and M are constant and V doubles,what factor does the price level multiply by?
A)1/4
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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220 Flashcards
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Sample Questions
Q1) Suppose that a lobster in Nova Scotia costs $10 and the same type of lobster in New Brunswick costs $30.How could people make a profit in the situation?
A)by buying lobsters in Nova Scotia and selling them in New Brunswick, which would increase the price of lobster in New Brunswick
B)by buying lobsters in Nova Scotia and selling them in New Brunswick, which would decrease the price of lobster in New Brunswick
C)by buying lobsters in New Brunswick and selling them in Nova Scotia, which would increase the price of lobster in New Brunswick
D)by buying lobsters in New Brunswick and selling them in Nova Scotia, which would decrease the price of lobster in New Brunswick
Q2) Which of the following is an example of Canadian foreign portfolio investment?
A)Albert, a German citizen, buys shares of stock in a Canadian computer company.
B)Larry, a citizen of Ireland, opens a fish-and-chips restaurant in Canada.
C)Ruth, a Canadian citizen, buys bonds issued by a German corporation.
D)Dustin, a Canadian citizen, opens a tavern in New Zealand.
Q3) How do the nominal exchange rate and the real exchange rate differ?
Q4) Why are net exports and net capital outflow always equal?
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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 of the following best predicts the effects?
A)Interest rates rise, and the trade balance moves toward surplus.
B)Interest rates rise, and the trade balance moves toward deficit.
C)Interest rates fall, and the trade balance moves toward surplus.
D)Interest rates fall, and the trade balance moves toward deficit.
Q2) The law of one price assumes that trade take place at no cost,so that prices across borders equalize.The result of this assumption is that the real interest rate is always constant.
a)Draw a graph to show the demand for dollars in the foreign-currency exchange market under the assumption that purchasing-power parity holds.
b)On the other hand,our model of real exchange rate determination shows a downward sloping demand-for-dollars curve.What could determine how steep or flat the demand for dollars is?
Q3) Which of the following will decrease Canadian net capital outflow?
A)capital flight from Canada
B)an increase in the government budget deficit
C)the imposition of Canadian government import quotas
D)a decrease in the tax on capital gains
Page 16
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Make a list of things that would shift the long-run aggregate-supply curve to the right.
Q2) Refer to the Figure 14-1.In the short run,which of the following would result from a favourable shift in aggregate supply?
A)It would move the economy from A to B.
B)It would move the economy from B to C.
C)It would move the economy from C to D.
D)It would move the economy from D to A.
Q3) What did Keynes believe that economies experiencing high unemployment should do?
A)adopt policies to reduce the money supply
B)adopt policies to reduce government expenditures
C)adopt policies to increase aggregate demand
D)adopt policies to increase aggregate supply
Q4) What does an increase in the interest rate cause?
A)It causes investment to rise and the exchange rate to appreciate.
B)It causes investment to fall and the exchange rate to depreciate.
C)It causes investment to rise and the exchange rate to depreciate.
D)It causes investment to fall and the exchange rate to appreciate.
Q5) Make a list of things that would shift the aggregate-demand curve to the right.
Q6) Discuss what economists believe is different about the long and short run.
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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 shifts money demand to the right?
A)an increase in the price level and the interest rate
B)an increase in the price level and a decrease in the interest rate
C)a decrease in the interest rate but not a change in the price level
D)an increase in the price level but not a change in the interest rate
Q2) Which of the following is the most likely effect of an increase in government spending on goods to build or repair infrastructure?
A)It would shift the aggregate-demand curve to the left.
B)It would shift the long-run aggregate-supply curve to the left. .
C)It would shift the short-run aggregate-supply curve to the left.
D)It would shift the long run aggregate-supply curve to the right.
Q3) If the federal government cuts spending to balance the federal budget,how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?
A)by increasing the money supply
B)by decreasing the money supply
C)by raising taxes
D)by cutting expenditures
Q4) Why and in what way are fiscal policy lags different from monetary policy lags?
Q5) Explain how unemployment insurance acts as an automatic stabilizer.
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Sample Questions
Q1) Where does the short-run Phillips curve intersect the long-run Phillips curve?
A)where expected inflation is greater than actual inflation
B)where expected inflation equals actual inflation
C)where the quantity of goods and services demanded equals the quantity supplied
D)where the quantity of labour demanded equals the quantity supplied
Q2) Refer to the Figure 16-3.Starting from c and 3,in the long run,where does a decrease in money supply growth move the economy to?
A)a and 1
B)e and 5
C)d and 4
Q3) Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?
Q4) How will a favourable supply shock shift short-run aggregate supply,and how will output change?
A)It will shift short-run aggregate supply left, making output rise.
B)It will shift short-run aggregate supply left, making output fall.
C)It will shift short-run aggregate supply right, making output rise.
D)It will shift short-run aggregate supply right, making output fall.
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) Some studies have found that saving is not very sensitive to the rate of return on saving.
A)True
B)False
Q2) In which of the following situations is a program to reduce inflation likely to have the lowest costs?
A)if the sacrifice ratio is high and the reduction is unexpected
B)if the sacrifice ratio is high and the reduction is expected
C)if the sacrifice ratio is low and the reduction is unexpected
D)if the sacrifice ratio is low and the reduction is expected
Q3) How would a permanent reduction in inflation impact menu costs and unemployment?
A)It would permanently reduce menu costs and permanently lower unemployment.
B)It would permanently reduce menu costs and temporarily raise unemployment.
C)It would temporarily reduce menu costs and temporarily lower unemployment.
D)It would temporarily reduce menu costs and temporarily raise unemployment.
Q4) Explain why a government deficit is likely to lead to lower living standards in the future.
Q5) Identify three of the five costs of inflation.
Q6) Deficits do not necessarily burden future generations.Discuss and provide some examples.
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