Foundations of Macroeconomics
Test Preparation
Course Introduction
Foundations of Macroeconomics provides an introduction to the principles and analytical frameworks used to understand the aggregate behavior of modern economies. The course explores topics such as national income accounting, economic growth, inflation, unemployment, monetary and fiscal policy, and the interactions between different sectors of the economy. Through theoretical models and real-world applications, students develop critical thinking skills and a deeper understanding of how policy decisions impact overall economic performance, laying the groundwork for advanced study in economics.
Recommended Textbook
Principles of Macroeconomics 1st Edition by N. Gregory Mankiw
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17 Chapters
3530 Verified Questions
3530 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) What does making decisions "at the margin" mean?
A) that people make those decisions that do not impose a marginal cost
B) that people evaluate how easily a decision can be reversed if problems arise
C) that people compare the marginal costs and marginal benefits of each decision
D) that people always calculate the marginal dollar costs for each decision
Answer: C
Q2) What is an increase in the overall level of prices in an economy called?
A) economic growth
B) inflation
C) monetary policy
D) rate of return
Answer: B
Q3) Which observation was made famous by Adam Smith in his book The Wealth of Nations?
A) There is no such thing as a free lunch.
B) People buy more when prices are low than when prices are high.
C) People tend to spend more than they earn.
D) Markets are guided by an invisible hand that leads to desirable outcomes.
Answer: D
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Page 3
Chapter 2: Thinking Like an Economist
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239 Verified Questions
239 Flashcards
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Sample Questions
Q1) Which statement best describes economic models?
A) They are based on unrealistic assumptions.
B) They accurately describe the reality.
C) They allow economists to learn how the economy works.
D) They include as many variables as possible.
Answer: C
Q2) What is a coordinate system used for?
A) to show the flow of income and products in an economic system
B) to organize labour and other resources in the production process
C) to allow economists to show two variables on a single graph
D) to teach economists how to draw graphs consistently
Answer: C
Q3) What will the slope of a fairly flat upward-sloping line be?
A) a small positive number
B) a large positive number
C) a small negative number
D) a large negative number
Answer: A
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Chapter 3: Interdependence and the Gains From Trade
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) When will a production possibilities frontier be linear and not bowed out?
A) if no tradeoffs exist
B) if the tradeoff between the two goods is always at a constant rate
C) if unemployment is zero
D) if resources are allocated efficiently
Answer: B
Q2) Refer to Table 3-5. What is the opportunity cost of one unit of bread in Italy?
A) ½ cheese
B) 1 cheese
C) 2 cheeses
D) 4 cheeses
Answer: D
Q3) Refer to the table. If Alberta and Manitoba trade based on the principle of comparative advantage, what will be exported?
A) Alberta will export baskets, and Manitoba will export birdhouses.
B) Alberta will export birdhouses, and Manitoba will export baskets.
C) Alberta will export neither good, and Manitoba will export both goods.
D) Alberta will export both goods, and Manitoba will export neither good.
Answer: A
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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347 Verified Questions
347 Flashcards
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Sample Questions
Q1) Refer to the Figure 4-5. Which of the four graphs represents the market for oranges after disease impacts much of the Florida orange harvest?
A) graph A
B) graph B
C) graph C
D) graph D
Q2) The law of supply states that, other things equal, when the price of a good rises, the quantity supplied of the good falls.
A)True
B)False
Q3) In a perfectly competitive market, buyers and sellers are price setters.
A)True
B)False
Q4) Which of the following would cause both the equilibrium price and equilibrium quantity of day-old bread (an inferior good) to increase?
A) an increase in consumer income
B) a decrease in consumer income
C) greater government restrictions on agricultural chemicals
D) fewer government restrictions on agricultural chemicals
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Chapter 5: Measuring a Nations Income
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169 Verified Questions
169 Flashcards
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Sample Questions
Q1) According to economists, why is it useful to measure the behaviour of the economy with statistics such as GDP?
A) It can be used to forecast economic recessions and prevent them.
B) It measures the total value of a country's wealth.
C) It can be helpful in developing macroeconomic science, but is not useful for policymaking.
D) It is a crucial step toward developing the science of macroeconomics.
Q2) If the GDP deflator is 400 and nominal GDP is $2 trillion billion, what is real GDP?
A) $5 billion
B) $200 billion
C) $500 billion
D) $2 trillion
Q3) Refer to the Table 5-1. What is the personal income for this economy?
A) $154
B) $169
C) $170
D) $178
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Page 7
Chapter 6: Measuring the Cost of Living
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173 Verified Questions
173 Flashcards
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Sample Questions
Q1) Suppose that dairy products have risen in price less than prices in general over the past several years. Which problem in the construction of the CPI is this price increase most relevant to?
A) substitution bias
B) introduction of new goods
C) unmeasured quality change
D) income bias
Q2) Ruth collected pension benefits of $220 a month in 2015. If the price index rose from 90 to 105 in the period 2015-2015, what should her pension benefits for 2015 be?
A) $231.00
B) $252.43
C) $253.00
D) $256.67
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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Chapter 7: Production and Growth
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182 Verified Questions
182 Flashcards
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Sample Questions
Q1) If the number of workers in an economy doubled, all other inputs stayed the same, and there were constant returns to scale, what would happen to productivity?
A) It would fall to half its former value.
B) It would fall, but by less than half.
C) It would stay the same.
D) It would rise, but by less than double.
Q2) Michael Kremer found that world growth rates have increased as world population has.
A)True
B)False
Q3) In countries where women are discriminated against, policies that increase their career and educational opportunities are likely to increase the birth rate.
A)True
B)False
Q4) In a market economy, what is scarcity of resources most clearly reflected in?
A) supply
B) demand
C) market prices
D) the stock of the resource
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Chapter 8: Saving, Investment, and the Financial System
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214 Verified Questions
214 Flashcards
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Sample Questions
Q1) If the current market interest rate for loanable funds is above the equilibrium level, what would we expect to happen?
A) Because there is a surplus of loanable funds, the interest rate will rise.
B) Because there is a shortage of loanable funds, the interest rate will rise.
C) Because there is a shortage of loanable funds, the interest rate will fall.
D) Because there is a surplus of loanable funds, the interest rate will fall.
Q2) Most entrepreneurs finance their purchases of real capital using their past saving. A)True
B)False
Q3) Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.
A)True
B)False
Q4) Generally, if people expect a company to have higher future profits, the price of the stock will be driven down.
A)True
B)False
Q5) Draw and label a graph showing equilibrium in the market for loanable funds.
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Chapter 9: Unemployment and Its Natural Rate
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194 Verified Questions
194 Flashcards
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Sample Questions
Q1) How does Statistics Canada call a person who has a temporary, part-time job?
A) not in the labour force
B) unemployed
C) partially employed
D) employed
Q2) In 2014 in Japan, based on concepts similar to those used to compute Canadian employment statistics, the unemployment rate was about 3.4 percent, the labour force participation rate was about 59 percent, and the adult population was about 127 million. How many people were employed?
A) about 52 million
B) about 64 million
C) about 72 million
D) about 103 million
Q3) From time to time, the demand for workers has risen in one region of Canada and fallen in another. Which type of unemployment does this occurrence illustrate?
A) frictional unemployment created by efficiency wages
B) structural unemployment created by efficiency wages
C) frictional unemployment created by sectoral shifts
D) structural unemployment created by sectoral shifts
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Page 11
Chapter 10: The Monetary System
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188 Verified Questions
188 Flashcards
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Sample Questions
Q1) Refer to the Table 10-2. If the reserve requirement is 12 percent, what is the state of this bank?
A) It can make a new loan of $17,500.
B) It has less reserves than required.
C) It has excess reserves of less than $5000.
D) It has excess reserves of more than $5000.
Q2) Which of the following is quantitative easing?
A) The Bank of Canada sells short-term government securities.
B) The Bank of Canada sells long-term government securities.
C) The Bank of Canada buys long-term government securities.
D) The Bank of Canada buys short-term government securities.
Q3) Which list ranks the Bank of Canada's monetary policy tools from most to least frequently used?
A) bank rate changes; open-market transactions; reserve requirement changes
B) bank rate changes; reserve requirement changes; open-market transactions
C) open-market transactions; bank rate changes; reserve requirement changes
D) open-market transactions; reserve requirement changes; bank rate changes
Q4) M2 is both larger and more liquid than M1+.
A)True
B)False
Page 12
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Chapter 11: Money Growth and Inflation
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196 Verified Questions
196 Flashcards
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Sample Questions
Q1) According to the classical dichotomy, what is NOT influenced by monetary factors?
A) the nominal GDP
B) the real wage rate
C) the price level
D) the nominal interest rate
Q2) The quantity theory of money can explain hyperinflations but not moderate inflation.
A)True
B)False
Q3) People use more resources to reduce their money holdings because of high inflation. What is this an example of?
A) inflation-induced tax distortions
B) resource misallocation costs
C) shoe leather costs
D) menu costs
Q4) Inflation induces people to spend more resources maintaining lower money holdings. This is called shoe leather costs.
A)True
B)False
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Page 13
Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) What equation is the GDP identity in an open economy?
A) Y = C + I + G + NCO
B) NX = - NCO
C) NCO = S - I + NX
D) Y = C + I + G - NX
Q2) According to the theory of purchasing-power parity, what must the nominal exchange rate between two countries reflect?
A) the different price levels in those countries
B) the different resource endowments in those countries
C) the different income levels in those countries
D) the different standards of living between those countries
Q3) For an economy as a whole, net exports must equal minus one times net capital outflow.
A)True
B)False
Q4) What partly caused the increase in international trade in Canada since 1989?
A) an increase in Canadian GDP
B) an appreciation of the dollar
C) better quality of Canadian products
D) the free trade agreement between Canada and the United States
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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195 Verified Questions
195 Flashcards
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Sample Questions
Q1) The 1998 default by the Russian government had results that were predictable using the textbook model. Which statement best describes what happened?
A) The event increased Russian interest rates and net exports.
B) The event reduced Russian interest rates and net exports.
C) The event increased Russian interest rates and reduced Russian net exports.
D) The event reduced Russian interest rates and increased Russian net exports.
Q2) In the market for foreign-currency exchange in the open-economy macroeconomic model, what does the amount of net capital outflow represent?
A) the quantity of dollars supplied for the purpose of selling assets domestically
B) the quantity of dollars supplied for the purpose of buying assets abroad
C) the quantity of dollars demanded for the purpose of buying Canadian exports of goods and services
D) the quantity of dollars demanded for the purpose of importing foreign goods and services
Q3) Suppose that Canadian citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?
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Page 15
Chapter 14: Aggregate Demand and Aggregate Supply
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256 Verified Questions
256 Flashcards
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Sample Questions
Q1) What was one of the major reasons why the United States was slower to recover from the 2008-2009 recession than Canada?
A) Housing price declines in Canadian were much larger than in the United States.
B) Housing price declines in the United States were much larger than in Canada.
C) The impact of the rise in house prices on Canadian household consumption was greater.
D) The impact of the rise in house prices on American household consumption was greater.
Q2) Which of the following shifts the short-run aggregate supply left?
A) an increase in price expectations
B) an increase in the price level
C) an increase in the money supply
D) a decrease in the price of oil
Q3) In which situation would the long-run aggregate-supply curve shift right?
A) if the government were to increase the minimum-wage
B) if the government were to make unemployment benefits more generous
C) if the government were to raise taxes on investment spending
D) if the government were to increase immigration
Q4) Make a list of expenditures whose sum equals GDP.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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223 Verified Questions
223 Flashcards
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Sample Questions
Q1) In the short run, what effect does an increase in the money supply have on interest rates and aggregate demand?
A) It causes interest rates to increase and aggregate demand to shift right.
B) It causes interest rates to increase and aggregate demand to shift left.
C) It causes interest rates to decrease and aggregate demand to shift right.
D) It causes interest rates to decrease and aggregate demand to shift left.
Q2) Which of the following is an effect of an increase in the interest rate?
A) It induces firms to invest more.
B) It induces households to increase consumption.
C) It shifts money demand to the right.
D) It leads to the appreciation of the exchange rate.
Q3) What do supply-side economists believe a reduction in the tax rate will cause?
A) a large shift of the aggregate-supply curve to the left
B) a large shift of the aggregate-supply curve to the right
C) a small shift of the aggregate-supply curve to the right
D) a small shift of the aggregate-supply curve to the left
Q4) For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.
A)True
B)False
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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205 Verified Questions
205 Flashcards
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Sample Questions
Q1) How does an increase in the expected rate of inflation shift the Phillips curves?
A) It shifts only the short-run Phillips curve to the right.
B) It shifts only the short-run Phillips curve to the left.
C) It shifts the long-run Phillips curve right and the short-run Phillips curve left.
D) It shifts both the short-run and long-run Phillips curves to the left.
Q2) The long-run response to a decrease in the growth rate of the money supply is shown by shifting which of the Phillips curves and in what direction?
A) by shifting the short-run and long-run Phillips curves left
B) by shifting the short-run and long-run Phillips curves right
C) by shifting only the short-run Phillips curve left
D) by shifting only the short-run Phillips curve right
Q3) How does the short-run Phillips curve model reflect an increase in the natural rate of unemployment?
A) as a leftward shift in the short-run Phillips curve
B) as a rightward shift in the short-run Phillips curve
C) as a downward movement along the short-run Phillips curve
D) as an upward movement along the short-run Phillips curve
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Page 18
Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) Why should policymakers NOT try to stabilize the economy?
A) Recessions represent a waste of resources.
B) Pessimism on the part of households and firms may become a self-fulfilling prophecy.
C) "Leaning against the wind" requires policymakers to increase aggregate demand in recessions and reduce aggregate demand in booms.
D) Economic conditions can easily change between the time when a policy action begins and when it takes effect.
Q2) Tax laws do not give preferential treatment to some kinds of retirement saving.
A)True
B)False
Q3) In the aggregate demand and aggregate supply model, which pair of simultaneous events causes a decrease in output and employment?
A) lower demand and lower supply
B) lower demand and higher supply
C) higher demand and higher supply
D) higher demand and lower supply
Q4) Identify three of the five costs of inflation.
Q5) Explain how it is possible for the government debt to grow forever.
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