Honours Microeconomics Exam Solutions
Course Introduction
Honours Microeconomics is an advanced course that delves into the foundational theories and models of microeconomic analysis, emphasizing rigorous mathematical and analytical approaches to understanding individual and firm behavior, market structures, and welfare implications. Topics typically include consumer and producer theory, game theory, market equilibrium and efficiency, general equilibrium, and the economics of information. Through a blend of theoretical frameworks and real-world applications, students develop a deeper comprehension of how economic agents make decisions, how markets allocate resources, and the role of government in addressing market failures. This course is designed to prepare students for research-oriented or higher-level economics studies by fostering strong critical thinking and quantitative problem-solving skills.
Recommended Textbook Microeconomics 2nd Canadian Edition by Glenn Hubbard
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15 Chapters
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4098 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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148 Flashcards
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Sample Questions
Q1) What are some of the reasons given for the the increase in coffee prices?
Answer: The reasons include bad weather in Colombia, wages, and the actions of individual firms.
Q2) Refer to Scenario 1.1.Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones?
A)gross earnings
B)marginal revenue
C)sales revenue
D)gross profit
Answer: B
Q3) Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars.What fundamental economic question are they addressing by making this range of products?
A)How to produce goods that consumers want?
B)Why produce a variety of automobiles?
C)What to produce?
D)Who to produce automobiles for?
Answer: C
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3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Should countries specialize in producing goods and services based on having a comparative advantage or an absolute advantage? Why?
Answer: Countries should specialize in producing products based on comparative advantage because this allows countries to produce those products and services at a lower opportunity cost than potential trading partners.
Q2) Without an increase in the supplies of factors of production, how can a nation achieve economic growth?
A)by producing more high-value goods and less of low-value goods
B)through technological advancement which enables more output with the same quantity of resources
C)by lowering the prices of factors of production
D)by increasing the prices of factors of production
Answer: B
Q3) List the four broad categories of factors of production.
Answer: labour, capital, natural resources, and entrepreneurship
Q4) What is meant by the term "free market"?
Answer: A free market is a market with few government restrictions on how a good or service can be produced or sold or on how factors of production can be employed.
Page 4
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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Sample Questions
Q1) Select the phrase that correctly completes the following statement."A decrease in the number of manufacturers caused a decrease in the supply of sailboats.As a result, ________."
A)the price of sailboats increased and the demand for sailboats decreased B)the equilibrium quantity of sailboats increased
C)the price of sailboats increased and the quantity demanded of sailboats decreased D)the price of sailboats increased and the higher price caused the supply of sailboats to increase
Answer: C
Q2) Refer to Figure 3.3.A decrease in the price of the product would be represented by a movement from
A)A to B.
B)B to A.
C)S<sub>1</sub> to S<sub>2</sub>.
D)S<sub>2 </sub>to S<sub>1</sub>.
Answer: B
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5
Chapter 4: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Suppose Bob works for Mary as a proofreader.Mary and Bob fall deeply in love, marry and have eight children.Bob stops working for Mary in order to care for the children.What will be the effect on GDP?
A)GDP will decrease.
B)GDP will increase.
C)GDP will not change.
D)GDP may increase or may decrease depending on inflation.
Q2) Final consumption expenditures do not include household purchases of A)dental care.
B)social workers salaries.
C)road construction.
D)clothing purchases by households.
E)medication.
Q3) The purchase of a new automobile is included in A)consumption expenditures on services.
B)consumption expenditures on nondurable goods.
C)consumption expenditures on durable goods.
D)investment expenditures.
E)household savings.
Q4) Give two reasons why GDP does not reflect total production in an economy.
Page 6
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Chapter 5: Unemployment and Inflation
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Sample Questions
Q1) The average price of goods and services in the economy is also known as
A)the price level.
B)the inflation rate.
C)a market basket.
D)the cost of living.
E)average expenditure.
Q2) The labour force participation rates of women have rapidly increased since 1976. A)True
B)False
Q3) By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce
A)frictional unemployment.
B)structural unemployment.
C)cyclical unemployment.
D)seasonal unemployment.
E)unnatural unemployment.
Q4) Refer to Table 5.7.Consider a simple economy that produces only three products: tacos, earplugs, and toothbrushes.Use the information in the table to calculate the inflation rate for 2014, as measured by the consumer price index.
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Chapter 6: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds.
A)demanders; suppliers
B)suppliers; demanders
C)suppliers; suppliers
D)demanders; demanders
Q2) Human capital refers to which of the following?
A)the quantity of goods and services that can be produced by one worker or by one hour of work
B)the accumulated knowledge and skills workers acquire from education and training or from their life experiences
C)manufactured goods that are used to produce other goods and services
D)physical equipment that is made by human labourers, not machines
E)the number of workers that apply for a specific job or can be hired on short notice
Q3) Centrally-planned economies tend to grow more quickly than market economies.
A)True
B)False
Q4) Carefully define the two categories of saving in the economy.
Q5) Explain why the demand curve for loanable funds has a negative slope.
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Chapter 7: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) The economic growth model predicts that ________ across countries will converge over time.
A)income levels
B)GDP per capita
C)foreign direct investment rates
D)growth rates
E)unemployment rates
Q2) If property rights are not enforced in a country,
A)the market system will still work smoothly.
B)entrepreneurs are unlikely to risk their own funds investing in such an economy.
C)that country's growth rate will not be affected.
D)that country will grow more rapidly because of the reduction of law suits.
E)that country's growth will be high due to added incentive to innovate.
Q3) Productivity gains in Canada since 1990 have been ________ productivity gains in the United States.
A)the same as B)lower than C)higher than
D)more variable than
Page 9
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Chapter 8: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) The marginal propensity to save is defined as
A)saving divided by disposable income.
B)disposable income divided by saving.
C)the change in saving divided by the change in disposable income.
D)the change in disposable income divided by the change in saving.
E)the portion of additional income that is saved.
Q2) When we graph consumption as a function of ________ rather than as a function of disposable income, the slope of this consumption function is ________.
A)national income; the MPC
B)personal income; (MPC - MPS)
C)national income; the MPS
D)personal income; the MPS
E)national savings; the MPS
Q3) If the marginal propensity to consume is 0.6, the marginal propensity to save is
A)0.4.
B)0).6.
C)1.
D)1.5.
E)0.8.
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Q4) What is the difference between aggregate expenditure and aggregate demand?
Chapter 9: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Inflation will
A)increase aggregate demand.
B)increase the quantity of real GDP demanded.
C)decrease aggregate demand.
D)decrease the quantity of real GDP demanded.
E)increase aggregate supply.
Q2) If the Canadian dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?
A)This will move the economy up along a stationary aggregate demand curve.
B)This will move the economy down along a stationary aggregate demand curve.
C)This will shift the aggregate demand curve to the left.
D)This will shift the aggregate demand curve to the right.
E)This will not affect the Canadian economy.
Q3) Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.
Q4) Explain how the aggregate demand and aggregate supply model can be made more dynamic.
Q5) Stagflation occurs when aggregate supply and aggregate demand both increase. A)True B)False
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Chapter 10: Money, Banks, and the Bank of Canada
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Sample Questions
Q1) Refer to Scenario 10.2.As a result of Kristy's deposit, Bank A's excess reserves increase by
A)$2,000.
B)$8,000.
C)$10,000.
D)$40,000.
E)$50,000.
Q2) Suppose Kevin O'Leary withdraws $1 million from his chequing account at Scotia Bank.If Scotia Bank's desired reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?
A)-$5 million
B)-$4 million
C)-$200,000
D)$1 million
E)$5 million
Q3) Liquidity increases as we move from the M1+ to the M2+ definition of the money supply.
A)True
B)False
Q4) How do open market operations work?
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Chapter 11: Monetary Policy
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Sample Questions
Q1) Increases in the price level
A)increase the opportunity cost of holding money.
B)decrease the opportunity cost of holding money.
C)increase the quantity of money needed for buying and selling.
D)decrease the quantity of money needed for buying and selling.
E)decreases the quantity of money needed as a unit of account.
Q2) If the Bank of Canada orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level
Q3) What problems can high inflation rates cause for the economy?
Q4) What is a symmetric inflation targeting, and what does it mean for the Bank of Canada?
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) Crowding out refers to a decline in ________ as a result of an increase in
A)tax revenues; unemployment
B)government purchases; tax rates
C)government purchases; private expenditures
D)private expenditures; government purchases
E)exports; tariffs
Q2) Prior to the 1970s, the majority of dollars spent by government was spent at the provincial and local levels.
A)True
B)False
Q3) Parliament carries out fiscal policy through changes in
A)interest rates and the money supply.
B)taxes and the interest rate.
C)government purchases and the money supply.
D)government purchases and taxes.
E)transfers to other government and regulations.
Q4) Recessions are bad for all aspects of personal health.
A)True
B)False
Page 14
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Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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Sample Questions
Q1) If the long-run aggregate supply curve is vertical,
A)the economy stays at the natural rate of inflation in the long run.
B)the short-run Phillips curve must be vertical.
C)unemployment and inflation are positively related in the long run.
D)the trade-off between unemployment and inflation cannot be permanent.
E)any change in the unemployment rate must be permanent.
Q2) The short-run Phillips curve shifting down following the 1989 Bank of Canada announcement that they were adopting inflation targets shows that workers and firms
A)had adaptive expectations.
B)had rational expectations and that they trusted Bank of Canada announcements.
C)preferred high unemployment to high inflation.
D)consistently ignored inflation when setting nominal wages.
E)Both A and B are correct answers.
Q3) If changes in inflation are higher than expected,
A)the short-run Phillips curve will be positively sloped, but not vertical.
B)the short-run Phillips curve will be negatively sloped.
C)the short-run Phillips curve will be vertical.
D)the long-run Phillips curve will be negative sloped.
E)the short-run Phillips curve will be horizontal.
Page 15
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) In 2015, the value of IBM's global profits ________, because the US dollar ________ in value relative to most other currencies.
A)fell; rose
B)rose; rose
C)fell; fell
D)rose; fell
Q2) If the nominal exchange rate between the Canadian dollar and the American dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?
A)$1.32
B)$2.23
C)2.5
D)$2.75
E)$2.81
Q3) Ceteris paribus, an increase in the government's budget deficit will decrease the financial account surplus.
A)True
B)False
Q4) Why is the balance of payments always zero?
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Chapter 15: The International Financial System
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Sample Questions
Q1) The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.If the average price of a Big Mac in Canada was $4.07.In Japan, the average price of a Big Mac was 320 yen.What is the "implied exchange rate" between the yen and the Canadian dollar?
A)0.013 yen per Canadian dollar
B)0.99 yen per Canadian dollar
C)78.62 yen per Canadian dollar
D)127.18 yen per Canadian dollar
E)130.24 yen per Canadian dollar
Q2) China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of U.S.dollars as the government purchased more ________ to maintain the pegged exchange rate.
A)undervalued; increased; dollars
B)undervalued; decreased; yuan
C)overvalued; decreased; yuan
D)overvalued; increased; yuan
Q3) Explain why international capital markets have expanded since the 1980s.
Q4) Why might a country raise interest rates in the face of an exchange rate crisis?
Q5) Which aspects of globalization help to increase growth in the world economy?
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