Foundations of Economics Review Questions
Course Introduction
Foundations of Economics introduces students to the fundamental principles and concepts that form the basis of economic theory and practice. The course explores essential topics such as scarcity, opportunity cost, supply and demand, market equilibrium, and the roles of consumers and producers in different types of economies. Through real-world examples and analytical tools, students learn how economic agents make decisions, how markets function, and how government policies can impact economic outcomes. This course provides a crucial framework for understanding both microeconomic and macroeconomic phenomena, laying the groundwork for more advanced study in economics and related disciplines.
Recommended Textbook
Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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18 Chapters
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) If the average income of an Australian is higher than the average income of a Russian,what is the most likely reason?
A)Productivity is higher in Australia than in Russia.
B)Australia has a more industrial economy than Russia.
C)There is more competition in Australia than in Russia.
D)Labour unions are more aggressive in Australia than in Russia.
Answer: A
Q2) The government can potentially improve market outcomes if market inequalities or market failure exist.
A)True
B)False
Answer: True
Q3) Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping.For Daniel,what would his tradeoff be?
A)nothing, since no dollar value can be put on sleep
B)nothing, since studying would be more beneficial than sleep
C)the six hours of sleep he could have had if he had gone to bed before midnight
D)the two hours of rest he would have gotten
Answer: D
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Chapter 2: Thinking Like an Economist
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235 Flashcards
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Sample Questions
Q1) In what region of the production possibilities frontier can an economy produce?
A)An economy can produce only on the production possibilities frontier.
B)An economy can produce at any point inside or outside the production possibilities frontier.
C)An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.
D)An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier.
Answer: C
Q2) What does a relatively steep demand curve mean?
A)quantity demand will adjust slightly to a price change
B)quantity demand will adjust greatly to a price change
C)quantity demand will not adjust to a price change
D)the change in quantity demand will exactly equal a change in price
Answer: A
Q3) A circular-flow diagram is a visual model of how an economy is organized.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains from Trade
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205 Flashcards
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Sample Questions
Q1) Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year,and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.Each nation has 10 workers.Without trade,Freedonia produces and consumes 30 units of corn and 10 units of wheat per year.Sylvania produces and consumes 10 units of corn and 30 units of wheat.Then suppose that trade is initiated between the two countries,and Freedonia sends 30 units of corn to Sylvania in exchange for 30 units of wheat.What maximum amounts will Freedonia now be able to consume?
A)30 units of corn and 30 units of wheat
B)0 units of corn and 30 units of wheat
C)60 units of corn and 30 units of wheat
D)0 units of corn and 60 units of wheat
Answer: A
Q2) Differences in opportunity cost allow for gains from trade.
A)True
B)False
Answer: True
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Chapter 4: The Market Forces of Supply and Demand (PART
1)
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246 Verified Questions
246 Flashcards
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Sample Questions
Q1) Wheat is the main input in the production of flour.All else equal,if the price of wheat decreases,what would we expect?
A)the supply of flour to decrease
B)the demand for flour to decrease
C)the supply of flour to increase
D)the demand for flour to increase
Q2) 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
Q3) Market demand is given as Qd = 220 - 4P.Market supply is given as Qs = 2P +
40.What would result if the market price were $10?
A)a shortage of 120
B)a surplus of 120
C)a surplus of 80
D)a shortage of 80
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) What does the market supply curve show?
A)the total quantity supplied at any price
B)the average quantity supplied at any price
C)a ratio between price and quantity supplied for the market
D)the price sellers will receive from consumers at given quantities
Q2) What does fewer sellers in the market cause?
A)the supply curve to shift to the left
B)the supply curve to shift to the right
C)a movement up a stationary supply curve
D)a movement down a stationary supply curve
Q3) What might cause a movement along the supply curve?
A)a change in technology
B)a change in input prices
C)a change in expectations about future prices
D)a change in the price of the good or service
Q4) In a perfectly competitive market,buyers and sellers are price setters.
A)True
B)False
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) GDP is used as the basic measure of a society's economic well-being.What is a better measure of the economic well-being of individuals in society?
A)GDP per person
B)the consumption component of GDP
C)government expenditures per person
D)the level of business investment
Q2) In a simple circular-flow diagram,why is total income equal to total expenditure?
A)because firms re-invest their revenue
B)because savings are small
C)because income from interest is not part of GDP
D)because every transaction has a buyer and a seller
Q3) What was Canadian GDP in 2011,approximately?
A)$1500 billion
B)$1600 billion
C)$1700 billion
D)$1800 billion
Q4) Income exceeds production.
A)True
B)False
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Chapter 6: Measuring the Cost of Living
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181 Flashcards
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Sample Questions
Q1) What does "substitution bias" in the consumer price index refer to?
A)replacing old goods with new goods in consumer purchases
B)replacing low-quality goods with high-quality goods in consumer purchases
C)replacing expensive goods with cheaper goods in consumer purchases
D)replacing old-design goods with technologically advanced goods in consumer purchases
Q2) For any given year,what is the CPI?
A)the price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100 B)the price of the basket of goods and services in the given year divided by the price of the basket in the previous year, then multiplied by 100
C)the price of the basket of goods and services in the base year divided by the price of the basket in the given year, then multiplied by 100 D)the price of the basket of goods and services in the previous year divided by the price of the basket in the given year, then multiplied by 100
Q3) 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 statements best characterizes the variations in real GDP per person and its rate of growth across countries?
A)Real GDP per person differs widely across countries, but the growth rate of real GDP per person is similar across countries.
B)Real GDP per person is very similar across countries, but the growth rate of real GDP per person differs widely across countries.
C)Real GDP per person and the growth rate of real GDP per person are similar across countries.
D)Real GDP per person and the growth rate of real GDP per person vary widely across countries.
Q2) Which of the following would be considered physical capital?
A)the pizza oven at the Liquidity Preferences Tavern
B)soy beans used to make soy milk
C)the skills and knowledge of a barber
D)the number of hours people spend in the gym
Q3) Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean.Make a list of things that determine labour productivity.
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) Which of the following bonds is most likely to default?
A)a junk bond
B)a municipal bond
C)a federal government bond
D)a corporate bond issued by Tim Hortons
Q2) 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
Q3) To make the financial markets safer,the Canadian government proposes tightening the rules for making a loan.Such rules require higher borrower creditworthiness and shorter pay-back periods.Analyze this proposal in a supply and demand for loanable funds model.
Q4) In a closed economy,investment must be equal to private saving.
A)True
B)False
Q5) 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?
Q6) Draw and label a graph showing equilibrium in the market for loanable funds.
Page 11
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Chapter 9: Unemployment and Its Natural Rate
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191 Flashcards
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Sample Questions
Q1) Refer to the Table 9-1.What is the adult labour-force participation rate in Dan?
A)4.12 percent
B)12.50 percent
C)37.50 percent
D)66.67 percent
Q2) In 2000 in Japan,based on concepts similar to those used to compute Canadian employment statistics,the unemployment rate was about 4.8 percent,the labour force participation rate was about 62 percent,and the adult population was about 108 million.How many people were employed?
A)about 52 million
B)about 64 million
C)about 67 million
D)about 103 million
Q3) What is the approximate labour-force participation rate of the Canadian adult population (aged 15 and over)?
A)47 percent
B)55 percent
C)67 percent
D)75 percent
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Chapter 10: The Monetary System
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Sample Questions
Q1) Draw a simple T-account for First National Bank of Me,which has $5000 of deposits,a reserve ratio of 10 percent,and excess reserves of $300.
Q2) Which of the three functions of money are met by each of the following assets in the Canadian economy?
a.paper dollar
b.precious metals
c.collectibles such as baseball cards, stamps, and antiques
Q3) Which of the following best describes the process of open-market purchases conducted by the Bank of Canada?
A)The Bank of Canada buys Treasury bills, which increases the money supply.
B)The Bank of Canada buys Treasury bills, which decreases the money supply.
C)The Bank of Canada borrows from member banks, which increases the money supply.
D)The Bank of Canada lends money to member banks, which decreases the money supply.
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?
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) How can inflation be measured?
A)by the change in the consumer price index
B)by the percentage change in the consumer price index
C)by the percentage change in the price of a specific commodity
D)by the change in the price of a specific commodity
Q2) As the price level decreases,what happens to the value of money?
A)It increases, so people want to hold more of it.
B)It increases, so people want to hold less of it.
C)It decreases, so people want to hold more of it.
D)It decreases, so people want to hold less of it.
Q3) Arnold puts money into an account.One year later,he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods.Which of the following is consistent with these facts?
A)The nominal interest rate was 7 percent, and the inflation rate was 4 percent.
B)The nominal interest rate was 10 percent, and the inflation rate was 3 percent.
C)The nominal interest rate was 3 percent, and the inflation rate was -10 percent.
D)The nominal interest rate was 4 percent, and the inflation rate was -3 percent.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Tony,a Canadian citizen,uses some previously obtained Portuguese currency (escudo)to purchase a bond issued by a Portuguese company.How does this transaction affect Canadian net capital outflow?
A)It increases Canadian net capital outflow by more than the value of the bond.
B)It increases Canadian net capital outflow by the value of the bond.
C)It does not change Canadian net capital outflow.
D)It decreases Canadian net capital outflow.
Q2) A British pharmacy buys drugs from a Canadian company and pays for them with British pounds.Which of the following correctly identifies the effects of this transaction?
A)It increases British net exports and increases Canadian capital outflow.
B)It increases British net exports and decreases Canadian capital outflow.
C)It decreases British net exports and increases Canadian capital outflow.
D)It decreases British net exports and decreases Canadian capital outflow.
Q3) For many questions in macroeconomics,international issues are peripheral.
A)True
B)False
Q4) How do the nominal exchange rate and the real exchange rate differ?
Q5) List the factors that might influence a country's exports,imports,and trade balance.
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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,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.
A)True
B)False
Q2) What happens in Canada when the Canadian government imposes an import quota on computer components?
A)the real interest rate increases
B)the real interest rate decreases
C)the real exchange rate increases
D)the real exchange rate decreases
Q3) Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?
A)Canadian net exports will rise.
B)Canadian saving will rise.
C)Canadian domestic investment will rise.
D)Canadian imports will rise.
Q4) Explain why saving need not equal domestic investment in an open economy.
Q5) Why do higher real interest rates lead to lower net capital outflow?
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?
A)the price level and real output
B)real output and employment
C)employment and the inflation rate
D)inflation rate and the price level
Q2) In which of the following situations would the long-run aggregate-supply curve shift right?
A)if immigration from abroad decreases
B)if the capital stock decreases
C)if the money supply increases
D)if technology advances
Q3) Which of the following shifts the short-run aggregate supply right?
A)an increase in the price level
B)an increase in the minimum wage
C)a decrease in the price of oil
D)a decrease in immigration from abroad
Q4) We know the theories that explain why the short-run aggregate-supply is upward sloping.But what determines how steep is the short-run aggregate-supply curve,and why is this important?
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Suppose the closed economy is in long-run equilibrium.Advances in technology shift the long-run aggregate-supply curve $75 billion to the right.Optimistic investors have shifted the aggregate-demand curve $150 billion to the right.In order to stabilize the price level at its original value,the government wants to reduce its spending.If the crowding-out effect is always half of the multiplier effect,and if the MPC equals 0.8,by how much must the government cut its spending?
A)$4 billion
B)$30 billion
C)$75 billion
D)$150 billion
Q2) In recent years,the Bank of Canada has conducted policy by setting a target for which of the following?
A)bank reserves
B)the monetary growth rate
C)the exchange rate
D)the bank rate
Q3) During recessions,the government tends to run a budget deficit.
A)True
B)False
Page 18
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Sample Questions
Q1) Suppose the government decides to decrease the income tax.What is the primary effect of this decision?
A)it decreases unemployment in the long-run
B)it increases output in the long-run
C)it decreases the price level in the short-run
D)it increases inflation in the short-run
Q2) How will an adverse supply shock shift the short-run aggregate-supply curve,and what will be the effect on prices?
A)It will shift the short-run aggregate-supply curve right, making prices rise.
B)It will shift the short-run aggregate-supply curve left, making prices rise.
C)It will shift the short-run aggregate-supply curve right, making prices fall.
D)It will shift the short-run aggregate-supply curve left, making prices fall.
Q3) According to Friedman and Phelps,when is the unemployment rate below the natural rate?
A)when actual inflation is greater than expected inflation
B)when actual inflation is less than expected inflation
C)when actual inflation equals expected inflation
D)when actual inflation is low
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) What does double taxation mean?
A)Both wage income and interest income are taxed, which is currently the case in Canada.
B)Both wage income and interest income are taxed, which is not currently the case in Canada.
C)Both the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in Canada.
D)Both the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in Canada.
Q2) If a central bank had to give up its discretion and had to follow a rule that required it to keep inflation low,how would the Phillips curve shift?
A)The short-run Phillips curve would shift up.
B)The short-run Phillips curve would shift down.
C)The long-run Phillips curve would shift right.
D)The long-run Phillips curve would shift left.
Q3) Explain why policy lags could make stabilization policies counterproductive.
Q4) Explain the time inconsistency of monetary policy.
Q5) Identify three of the five costs of inflation.
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