Fundamentals of Economics Review Questions
Course Introduction
Fundamentals of Economics introduces students to the core principles and concepts that form the foundation of economic analysis. The course covers both microeconomics focusing on the behavior of individuals, households, and firms and macroeconomics, which examines the performance and structure of entire economies. Key topics include supply and demand, market equilibrium, elasticity, production and costs, economic efficiency, and the role of government. Students will also explore issues such as inflation, unemployment, economic growth, and international trade. Through real-world examples and analytical tools, this course aims to equip students with the understanding necessary to critically evaluate economic phenomena and policy decisions.
Recommended Textbook
Principles of Macroeconomics 5th Canadian Edition by N. Mankiw
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17 Chapters
3430 Verified Questions
3430 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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205 Verified Questions
205 Flashcards
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Sample Questions
Q1) Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.
A)True
B)False
Answer: True
Q2) Which of the following is NOT included in the decisions that every society must make?
A)what goods will be produced
B)who will produce the goods
C)what determines consumer preferences
D)who will consume the goods
Answer: C
Q3) What is an externality?
A)the impact of one person's actions on the well-being of a bystander
B)the impact of a person's actions on that person's well-being
C)the impact of society's decisions on the well-being of society
D)the impact of society's decisions on the well-being of one person in the society
Answer: A
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3
Chapter 2: Thinking Like an Economist
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230 Flashcards
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Sample Questions
Q1) What does The Bank of Canada do?
A)designs tax policy
B)enforces the country's antitrust laws
C)sets the country's monetary policy
D)analyzes the data on workers
Answer: C
Q2) What are factors of production?
A)They are used to produce goods and services.
B)They are owned by firms.
C)They are abundant in most economies.
D)They are used by both firms and households.
Answer: A
Q3) 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
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4
Chapter 3: Interdependence and the Gains From Trade
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200 Flashcards
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Sample Questions
Q1) Adam Smith developed the theory of comparative advantage as we know it today.
A)True
B)False
Answer: False
Q2) Refer to Table 3-4. What is the opportunity cost of 1 basket for Manitoba?
A)1/4 birdhouse.
B)3/4 birdhouse.
C)1 birdhouse.
D)4/3 birdhouses.
Answer: B
Q3) Suppose a producer can produce a product with lower opportunity cost. Which of the following is correct?
A)The producer has a comparative advantage in the production of that good.
B)The producer has an absolute advantage in the production of that good.
C)The producer has both an absolute and comparative advantage in the production of that good.
D)The producer should import that product.
Answer: A
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Chapter 4: The Market Forces of Supply and Demand
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303 Flashcards
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Sample Questions
Q1) If the price of a substitute to good X increases, what will happen?
A)Demand for good X will decrease.
B)Market price of good X will decrease.
C)Demand for good X will increase.
D)Quantity demanded for good X will increase.
Q2) How is a demand curve constructed?
A)Demand is on the vertical axis and quantity is on the horizontal axis.
B)Price is on the horizontal axis and quantity is on the vertical axis.
C)Price is on the vertical axis and demand is on the horizontal axis.
D)Price is on the vertical axis and quantity is on the horizontal axis.
Q3) What is the law of demand?
A)When the price of a good falls, buyers respond by purchasing more.
B)When income levels increase, buyers respond by purchasing more.
C)When buyers' tastes for the good increase, they purchase more of the good.
D)When the price of a good or service rises, buyers respond by purchasing more.
Q4) Refer to Figure 4-1. What could cause the movement from S<sub>1</sub> to S?
A)a decrease in the price of the good
B)an improvement in technology
C)an increase in income
D)an increase in input prices
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Refer to Table 5-2. What is the NNP for this economy?
A)$380
B)$388
C)$404
D)$405
Q2) David lives in Canada. He operates a pizza business in his native town. Robert is Canadian, but he works in the United States. On a typical day, David makes $275 in sales, of which he pays to the government $25 in sales taxes. Robert makes $150 in wages, of which he pays the US government $15 in income taxes. There are no other costs or taxes.
Based on this information, compute David and Robert's contribution to the following measures of income:
a.Canadian GDP
b.Canadian GNP
c.US GDP
d.US GNP
Q3) Refer to Table 5-3. Using 2008 as the base year, what can we conclude for 2009?
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.
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Chapter 6: Measuring the Cost of Living
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176 Flashcards
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Sample Questions
Q1) How do the CPI and the GDP deflator relate to each other?
A)They generally move together.
B)They generally show different patterns of movement.
C)They show identical changes.
D)They show unrelated patterns of movement.
Q2) Which of the following is the consumer price index used for?
A)to track changes in the level of wholesale prices in the economy
B)to monitor changes in the cost of living
C)to monitor changes in the level of real GDP
D)to track changes in the stock market
Q3) If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?
A)16 percent
B)10 percent
C)6 percent
D)4 percent
Q4) If the current-year CPI is 140, then, since the base year, the price level has increased 40 percent.
A)True
B)False
8
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Chapter 7: Production and Growth
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185 Flashcards
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Sample Questions
Q1) Which of the following best defines proprietary technology?
A)It is knowledge that is known but no longer used much.
B)It is knowledge that is known, but has only recently been discovered.
C)It is knowledge that is known widely by those in a profession.
D)It is knowledge that is known only by the company that discovers it.
Q2) Suppose Japanese-based Sony Corporation builds and operates a new chip factory in Canada. What would the future production from such an investment do?
A)increase Canadian GNP more than it would increase Canadian GDP
B)increase Canadian GDP more than it would increase Canadian GNP
C)not affect Canadian GNP, but it would increase Canadian GDP
D)have no effect on Canadian GNP or GDP
Q3) How large were the growth rates of Japan and Brazil over the past 100 years?
A)1.5 percent
B)1.75 percent
C)2.0 percent
D)2.25 percent
Q4) Why are property rights important for the growth of a nation's standard of living?
Q5) How do inward-oriented policies affect a nation's growth?
Q6) What is the difference between human capital and technology?
Page 9
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Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) In a closed economy GDP = $1300, private saving = $125, government budget deficit = $5, and government spending =$15 (all numbers are in billions). Calculate national saving, taxes, and consumption.
Q2) Queen City Sausage stock is selling at $40 per share. It has retained earnings of $2.00 per share, and dividends of $0.50 per share. What is the price-earnings ratio?
A)100
B)20
C)16
D)0.06
Q3) What makes Y = C + I + G + NX an identity?
A)Each symbol identifies a variable.
B)The right-hand and left-hand sides are equal.
C)The equality holds due to the way the variables are defined.
D)This relationship is identical for all economies.
Q4) In the national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving?
Q5) What are the basic differences between bonds and stocks?
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Chapter 9: Unemployment and Its Natural Rate
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186 Flashcards
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Sample Questions
Q1) 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
Q2) 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.
Q3) Over one-half of the unemployed are recent entrants into the labour force.
A)True
B)False
Q4) Full-time students, retirees, and unpaid stay-at-home fathers are counted as unemployed.
A)True
B)False
Page 11
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Chapter 10: The Monetary System
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196 Verified Questions
196 Flashcards
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Sample Questions
Q1) If the reserve ratio is 10 percent, what is the money multiplier?
A)100
B)10
C)9/10
D)1/10
Q2) 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.
Q3) Which of the following lists contains only actions that decrease the money supply?
A)make open market purchases; raise the reserve requirement ratio
B)make open market purchases; lower the reserve requirement ratio
C)make open market sales; raise the reserve requirement ratio
D)make open market sales; lower the reserve requirement ratio
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Page 12
Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Since 1992, which of the following has the Bank of Canada done?
A)It has announced that it was targeting the money supply growth of 2 percent.
B)It has announced a target rate of inflation of 2 percent.
C)It has announced an inflation target close to 4 percent.
D)It has announced its objective of maintaining a stable rate of economic growth of 2 percent.
Q2) According to the quantity equation, if P = 4 and Y = 800, which of the following pairs could M and V be?
A)800, 4
B)600, 3
C)400, 2
D)200, 1
Q3) According to the classical dichotomy, which of the following is influenced by monetary factors?
A)real GDP
B)unemployment
C)nominal interest rates
D)the real wage rate
Q4) Explain how inflation affects savings.
Q5) Show in your graph how this curve changes when Y changes.
Page 13
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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215 Flashcards
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Sample Questions
Q1) If goods in Canada cost the same number of dollars as German goods cost in euros, the real exchange rate would be computed as how many German goods per Canadian goods?
A)one
B)the price of the Canadian goods
C)the amount of German currency that can be bought with one unit of Canadian currency
D)the amount of Canadian currency that can be bought with one unit of German currency
Q2) Tony, an Italian citizen, opens and operates a spaghetti factory in Canada. This counts as which of the following?
A)Italian foreign direct investment that increases Italian net capital outflow
B)Italian foreign direct investment that decreases Italian net capital outflow
C)Italian foreign portfolio investment that increases Italian net capital outflow
D)Italian foreign portfolio investment that decreases Italian net capital outflow
Q3) Suppose that money supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?
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Chapter 13: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) Refer to Figure 32-1. If the world interest rate equals 6 percent, what is the net capital outflow?
A)positive
B)negative
C)either positive or negative
D)Net capital outflow is not determined by the world interest rate.
Q2) Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?
A)The exchange rate rises.
B)The exchange rate falls.
C)The expected rate of return on Canadian assets rises.
D)The expected rate of return on Canadian assets falls.
Q3) Which of the following 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)Political instability in Turania increases modestly.
D)The government of Turania imposes an import quota.
Q4) Why do higher real interest rates lead to lower net capital outflow?
Q5) Explain why saving need not equal domestic investment in an open economy.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?
A)In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same.
B)In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected.
C)In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.
D)In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.
Q2) Which of the following happens during recessions?
A)Firms produce less but invest more.
B)Firms have to increase production because of falling prices.
C)Incomes increase because workers have to work overtime.
D)Many workers are laid off.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) What is the effect of a stock market boom, and how could the Bank of Canada offset that effect?
A)Aggregate demand increases, which Bank of Canada could offset by increasing the money supply.
B)Aggregate supply increases, which Bank of Canada could offset by increasing the money supply.
C)Aggregate demand increases, which Bank of Canada could offset by decreasing the money supply.
D)Aggregate supply increases, which Bank of Canada could offset by decreasing the money supply.
Q2) Use the money market to explain why the aggregate demand curve slopes downward.
Q3) Economists agree on all of the following statements EXCEPT which one?
A)Increases in the money supply shift aggregate demand to the right.
B)In the long run, increases in the money supply increase prices, but not output.
C)Recessions are associated with decreases in consumption, investment, and employment.
D)Government should use fiscal policy to try and stabilize the economy.
Q4) What is the difference between monetary policy and fiscal policy?
Page 17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Suppose that reducing inflation 3 percentage points would cost a country 12 percent of annual output. What is this country's sacrifice ratio?
A)3
B)3.5
C)4
D)12
Q2) If the Bank of Canada announced a policy to reduce inflation and people found it credible, what would happen to the short-run Phillips curve and the sacrifice ratio?
A)The short-run Phillips curve would shift right, and the sacrifice ratio would fall.
B)The short-run Phillips curve would shift right, and the sacrifice ratio would rise.
C)The short-run Phillips curve would shift left, and the sacrifice ratio would fall.
D)The short-run Phillips curve would shift left, and the sacrifice ratio would rise.
Q3) The Phillips curve and the short-run aggregate supply curve are closely related, yet one slopes downward and the other slopes upward. Discuss.
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18
Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) 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 towards 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 towards its long-run level.
D)The central bank must increase the money supply, which will move output farther from its long-run level.
Q2) Why are deficits undesirable?
A)They reduce private savings.
B)If deficits accumulate, people consume at the expense of their children.
C)They lead to high inflation.
D)They increase unemployment.
Q3) Identify three of the five costs of inflation.
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