Economics II Exam Review
Course Introduction
Economics II builds upon the foundational principles introduced in earlier coursework, advancing students understanding of macroeconomic theory and policy. The course delves into topics such as national income determination, aggregate demand and supply, monetary and fiscal policy, inflation, unemployment, and the functioning of financial markets. Emphasis is placed on the analysis of current economic issues and their implications for government policy and business strategy. Students will engage with economic models to interpret real-world data, develop critical thinking skills, and assess the effectiveness of various policy tools in promoting economic stability and growth.
Recommended Textbook
Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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17 Chapters
3576 Verified Questions
3576 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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216 Verified Questions
216 Flashcards
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Sample Questions
Q1) A worker in Bangladesh can earn $1 per day making cotton cloth on a handloom.A worker in Canada can earn $100 per day making cotton cloth with a mechanical loom.What accounts for the difference in wages?
A) Canadian textile workers belong to a union.
B) There is little demand for cotton cloth in Bangladesh and great demand in Canada. C) Labour is more productive making cotton cloth with a mechanical loom than with a hand loom.
D) Bangladesh has a low-wage policy to make its textile industry more competitive in world markets.
Answer: C
Q2) Trade with any nation can be mutually beneficial.
A)True
B)False
Answer: True
Q3) Inflation increases the value of money.
A)True
B)False
Answer: False
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) How do economists view positive statements?
A) affirmative,justifying existing economic policy
B) optimistic,putting the best possible interpretation on things
C) descriptive,making a claim about how the world is
D) prescriptive,making a claim about how the world ought to be
Answer: C
Q2) Refer to Figure 2-8.Which combination is NOT possible for this economy to produce?
A) 10 barrels and 14 bathtubs
B) 20 barrels and 8 bathtubs
C) 25 barrels and 10 bathtubs
D) 30 barrels and 6 bathtubs
Answer: C
Q3) What happens when a relevant variable that is not named on either axis changes?
A) There will be a movement along the curve.
B) The curve may or may not change depending on how the variables are related.
C) The curve will be unaffected since only the variables on the axis affect the curve.
D) The curve will shift.
Answer: D
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Suppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year,and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year.Each nation has 10 workers.For many years the two countries traded,each completely specializing in producing the grain for which it has a comparative advantage.Now,however,war has broken out between them and all trade has stopped.Without trade,Freedonia produces and consumes 30 units of corn and 20 units of wheat per year.Sylvania produces and consumes 20 units of corn and 30 units of wheat.By how much has the combined yearly output of the two countries declined?
A) 10 units of corn and 10 units of wheat
B) 20 units of corn and 20 units of wheat
C) 30 units of corn and 30 units of wheat
D) 40 units of corn and 40 units of wheat
Answer: A
Q2) Refer to Table 3-5.What is the opportunity cost of one airplane for Canada?
A) 1 / 4 car
B) 1 / 3 car
C) 3 cars
D) 4 cars
Answer: C
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Market demand is given as QD = 100 - P.Market supply is given as QS = 4P.If price increases from $70 to $74,what is the price elasticity of demand?
A) 0.4
B) 0.7
C) 2.57
D) 3.5
Q2) Refer to the Figure 4-7.What does the movement from point B to point A on the graph show?
A) a decrease in demand
B) an increase in demand
C) a decrease in quantity demanded
D) an increase in quantity demanded
Q3) Market demand is given as QD = 220 - 4P.Market supply is given as QS = 2P + 40.If price increases from $42 to $46,what is the price elasticity of demand?
A) 0.3
B) 0.4
C) 4.0
D) 5.9
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) If a small country has current nominal GDP of $20 billion and the GDP deflator is 125,what is its real GDP?
A) $16 billion
B) $105 billion
C) $ 145 billion
D) $625 billion
Q2) Refer to the Table 5-4.Using 2013 as the base year,what can we conclude for 2014?
A) Real GDP is $880,and the GDP deflator is 80.
B) Real GDP is $880,and the GDP deflator is 95
C) Real GDP is $880,and the GDP deflator is 125
D) Real GDP is $950,and the GDP deflator is 95.
Q3) If a Canadian citizen buys a television made in Korea made by a Korean firm,what is the impact on net exports and GDP?
A) Canadian net exports and Canadian GDP decrease.
B) Canadian net exports are unaffected,but Canadian GDP decreases.
C) Canadian net exports and Canadian GDP are unaffected.
D) Canadian net exports decrease,but Canadian GDP is unaffected.
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Samantha goes to the grocery store to make her monthly purchase of ginger ale.As she enters the soft drink section,she notices that the price of ginger ale has been raised by 15 percent,so she decides to buy some peppermint tea instead.Which problem in the construction of the CPI is this situation most relevant to?
A) substitution bias
B) introduction of new goods
C) unmeasured quality change
D) income effect
Q2) Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2015 if the base year is 2014?
A) 120.00
B) 129.17
C) 136.11
D) 150.00
Q3) Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.
A)True
B)False
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Chapter 7: Production and Growth
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Sample Questions
Q1) The president of a developing country proposes that his country needs to help domestic firms by imposing trade restrictions.What kind of policies are these?
A) These are outward-oriented policies and most economists believe they would have beneficial effects on growth.
B) These are outward-oriented policies and most economists believe they would have adverse effects on growth.
C) These are inward-oriented policies and most economists believe they would have beneficial effects on growth.
D) These are inward-oriented policies and most economists believe they would have adverse effects on growth.
Q2) What is one of the consequences of accumulating capital?
A) Accumulating capital requires that society sacrifice consumption in the present.
B) Accumulating capital allows society to consume more in the present.
C) Accumulating capital decreases saving rates.
D) Accumulating capital increases income inequality.
Q3) What might the African governments do to foster higher economic growth?
Q4) What is the difference between human capital and technology?
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) Which statement best describes a characteristic of a bond?
A) The maturity of a bond refers to the amount to be paid back.
B) The principal of the bond refers to the person buying the bond.
C) A bond buyer cannot sell a bond before it matures.
D) The interest paid by a bond depends on its price.
Q2) As a money management fee,how much do mutual funds usually charge their customers?
A) between 0.5 and 3.0 percent of assets each year
B) between 1.5 and 3.0 percent of assets each year
C) nothing,because they receive commissions from the firms whose stock they buy
D) a flat fee of about $50
Q3) Melinda buys a paint sprayer and a hydraulic lift for her car customizing shop.A macroeconomist would refer to these purchases as investment.
A)True
B)False
Q4) What is public saving equal to?
A) national saving
B) the total amount that consumers save
C) government spending plus transfers minus government revenue
D) government revenue minus government spending minus transfers
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Chapter 9: Unemployment and Its Natural Rate
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Sample
Questions
Q1) Suppose that there is an excess supply of economics professors.Should universities necessarily reduce salaries? What does standard economic theory suggest? What does efficiency-wage theory suggest?
Q2) How do sectoral shifts in the economy affect unemployment?
A) They create structural unemployment.
B) They reduce unemployment.
C) They increase unemployment due to job search.
D) Overall,they leave unemployment unchanged.
Q3) What industry in the Canadian economy has the highest percentage of unionized workers?
A) agriculture
B) the public sector
C) oil and gas
D) food and accommodation
Q4) Which of the following constitutes the labour force?
A) the number of people who are employed
B) the number of people who are unemployed
C) the number of people employed plus the number of people unemployed
D) the number of people in the adult population
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Chapter 10: The Monetary System
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Sample Questions
Q1) Who owns the Bank of Canada?
A) private individuals
B) the Queen
C) the chartered banks
D) the federal government of Canada
Q2) How does the Bank of Canada conduct open-market transactions?
A) It prints new currency.
B) It buys or sells government bonds from or to the public.
C) It lowers the bank rate.
D) It increases its lending to chartered banks.
Q3) Marc puts prices on surfboards and skateboards at his sporting goods store.He is using money as a unit of account.
A)True
B)False
Q4) Bottles of very fine wine have less liquidity than demand deposits.
A)True
B)False
Q5) What is the difference between money and wealth?
Q6) What does the text mean by,and how does it answer the question,"Where is all the currency?"
Page 12
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) If the nominal interest rate is 7 percent and the inflation rate is 4 percent,what is the real interest rate?
A) 2 percent
B) 3 percent
C) 5 percent
D) 7 percent
Q2) Define each of the symbols and explain the meaning of M × V = P × Y.
Q3) According to the classical dichotomy,when the money supply doubles,what also double(s)?
A) employment
B) nominal interest rates
C) real interest rates
D) the price level
Q4) Which term refers to economic variables whose values are measured in monetary units?
A) dichotomous variables
B) nominal variables
C) classical variables
D) real variables
Q5) Explain how inflation affects savings.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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220 Flashcards
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Sample Questions
Q1) Hungary buys railroad engines from a Canadian firm and pays for them with forints (Hungarian currency).What happens to Canadian net exports and net foreign investment due to this transaction?
A) It increases both Canadian net exports and Canadian net foreign investment.
B) It decreases both Canadian net exports and Canadian net foreign investment.
C) It increases Canadian net exports and decreases Canadian net foreign investment.
D) It decreases Canadian net exports and increases Canadian net foreign investment.
Q2) Suppose a bottle of wine costs 25 euros in France and $20 in Canada.If the exchange rate is 1.25 euros per dollar,what is the real exchange rate?
Q3) A Canadian firm buys couscous from Morocco and pays for it with Canadian dollars.What are the effects of this transaction?
A) Canadian net exports increase,and Canadian net capital outflow increases.
B) Canadian net exports increase,and Canadian net capital outflow decreases.
C) Canadian net exports decrease,and Canadian net capital outflow increases.
D) Canadian net exports decrease,and Canadian net capital outflow decreases.
Q4) How do the nominal exchange rate and the real exchange rate differ?
Q5) 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) In the open-economy macroeconomic model,what is net capital outflow equal to?
A) the quantity of dollars supplied in the foreign exchange market
B) the quantity of dollars demanded in the foreign exchange market
C) the quantity of funds supplied in the loanable funds market
D) the quantity of funds demanded in the loanable funds market
Q2) If there is capital flight from Canada,how does the open-economy macroeconomic model change?
A) Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift right.
B) Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift left.
C) The supply of loanable funds shifts left,while the supply of dollars shifts right.
D) The supply of loanable funds shifts right,while the supply of dollars shifts left.
Q3) What is most likely to increase exports in the country of Turania?
A) The government of Turania introduces an investment tax credit.
B) The government of Turania reduces the size of the budget surplus.
C) The government of Turania reduces the size of the budget deficit.
D) The government of Turania imposes an import quota.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) When taxes decrease,consumption increases.How is this situation represented in the aggregate demand and aggregate supply model?
A) by a movement to the right along a given aggregate-demand curve
B) by shifting aggregate demand to the right
C) by shifting aggregate supply to the right
D) by a movement to the left along a given aggregate-demand curve
Q2) What happens to prices and output when the long-run aggregate-supply curve shifts right?
A) Prices and output both increase.
B) Prices and output both decrease.
C) Prices increase and output decreases.
D) Prices decrease and output increases.
Q3) Which of the following adjusts to bring aggregate supply and demand into balance?
A) the price level
B) the real rate of interest
C) the money supply
D) immigration
Q4) Make a list of things that would shift the long-run aggregate-supply curve to the right.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Permanent tax cuts have a larger impact on consumption spending than temporary ones.
A)True
B)False
Q2) Assume that the MPC is 0.75.What is the multiplier?
A) 0.25
B) 1.33
C) 4
D) 7.5
Q3) The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $20 billion.The marginal propensity to consume is MPC = 75 and the marginal propensity to import is MPI = .20.Suppose the crowding-out effect is twice the amount of government spending.
a.In a closed economy,what is the increase in output caused by the stimulus package of $20 billion?
b.What is the increase in output if the economy is open?
Q4) Stock prices often rise when the Bank of Canada raises interest rates.
A)True
B)False
17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Which of the following was the primary cause of the large increase in oil prices in the 1970s?
A) an increase in demand for oil
B) the introduction of the National Energy Program
C) a decrease in the supply of oil by OPEC
D) an increase in the supply of oil by OPEC
Q2) How much was the unemployment rate in Canada in 1983?
A) about 4 percent
B) about 6 percent
C) about 8 percent
D) more than 10 percent
Q3) How will an adverse supply shock shift the short-run Phillips curve,and how will it change unemployment?
A) It will shift the short-run Phillips curve right and raise unemployment.
B) It will shift the short-run Phillips curve right and lower unemployment.
C) It will shift the short-run Phillips curve left and raise unemployment.
D) It will shift the short-run Phillips curve left and lower unemployment.
Q4) Use the AD / AS model and the Phillips curve to analyze the short-run and long-run effects of devaluating the home currency under a fixed exchange rate regime.
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) Explain how it is possible for the government debt to grow forever.
Q2) Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,what must the central bank do,and what will happen to output?
A) The central bank must decrease the money supply,which will move output back toward its long-run level.
B) The central bank must decrease the money supply,which will move output farther from its long-run level.
C) The central bank must increase the money supply,which will move output back toward its long-run level.
D) The central bank must increase the money supply,which will move output farther from its long-run level.
Q3) Some studies have found that saving is not very sensitive to the rate of return on saving.
A)True
B)False
Q4) Why do many economists advocate a consumption tax rather than an income tax?
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Page 19