Intermediate Macroeconomics
Midterm Exam
Course Introduction
Intermediate Macroeconomics builds on foundational economic principles to provide students with a deeper understanding of aggregate economic phenomena. The course covers key topics such as national income determination, economic growth, unemployment, inflation, monetary and fiscal policy, and open economy macroeconomics. Students will analyze how various macroeconomic variables interact through theoretical models, including the IS-LM framework, aggregate demand and supply, and the Solow growth model. By integrating mathematical and graphical tools, the course emphasizes the application of macroeconomic theory to real-world issues, policy evaluation, and current economic events, preparing students for more advanced economics coursework and informed participation in macroeconomic policy debates.
Recommended Textbook
Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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17 Chapters
3576 Verified Questions
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) 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 another society
D) the impact of society's decisions on the well-being of one person in the society
Answer: A
Q2) What is market power?
A) the power of a single person or group to influence market prices
B) the ability of a person or group of people to successfully market new products
C) the power of the government to regulate a market
D) the relative importance of a market to the overall economy
Answer: A
Q3) Which business most likely has market power?
A) a furniture store in Kingston
B) a vineyard in the Okanagan Valley
C) a maple sugar candy store in Sherbrooke,Quebec
D) a hockey arena in the small town of Invermere,British Columbia
Answer: D
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What is the single most important purpose of your textbook?
A) to teach you about the effects of the government's economic policies
B) to teach you the language of economics
C) to teach you the economist's way of thinking
D) to teach you how to make good consumer choices
Answer: C
Q2) Which of the following is an example of a normative statement?
A) If the price of a product decreases,quantity demanded increases.
B) Reducing speed limits to 40km / hr would reduce accidents involving pedestrians.
C) Students who take public transit to school are more concerned about the environment.
D) An increase in minimum wages will increase unemployment.
Answer: C
Q3) What do economists at Industry Canada do?
A) assess temporary foreign worker programs
B) give advice to overseas development projects
C) help design and enforce Canada's competition laws
D) decide which industries should be protected
Answer: D
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Table 3-5.What is the opportunity cost of one airplane for Japan?
A) 1 / 4 car
B) 1 / 3 car
C) 3 cars
D) 4 cars
Answer: D
Q2) Refer to Table 3-5.If Denmark and Italy trade based on the principle of comparative advantage,which country will export or import each product?
A) Denmark will export bread,and Italy will export cheese.
B) Denmark will export bread,and Italy will export bread.
C) Denmark will export cheese,and Italy will export cheese.
D) Denmark will export cheese,and Italy will export bread.
Answer: A
Q3) Refer to Figure 3-5.What is the opportunity cost of one pair of tap shoes for Ginger?
A) 1 / 4 pair of ballet slippers
B) 1 / 3 pair of ballet slippers
C) 3 / 4 pair of ballet slippers
D) 4 / 3 pairs of ballet slippers
Answer: D
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) 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
Q2) What is the relationship between price and quantity supplied?
A) negative,or inverse
B) positive,or direct
C) nonexistent
D) the same as the relationship between price and quantity demanded
Q3) How is a market supply curve constructed?
A) by vertically summing individual supply curves
B) by horizontally summing individual supply curves
C) by finding the average quantity supplied of the market's individual supply curves
D) by summing a consumer's demands for all goods
Q4) The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a particular price.
A)True
B)False
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Chapter 5: Measuring a Nations Income
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Q1) In the nation of Ophelia,quarterly GDP is always higher in the second quarter than in other quarters.In order to account for this predictable jump in GDP,what will Ophelia's government statisticians most likely do?
A) Make sure to account for inventory changes during the second quarter.
B) Report real GDP,not nominal GDP.
C) Focus on GNP rather than GDP during the second quarter.
D) Make a seasonal adjustment for the second quarter data.
Q2) If a province with legalized gambling made gambling illegal,then,other things the same,what would happen to GDP?
A) It would decrease.
B) It would increase.
C) It would not change because both legal and illegal production are included in GDP.
D) It does not change because gambling is never included in GDP.
Q3) Which statistic is the best single measure of an economy's well-being?
A) unemployment rate
B) inflation rate
C) gross domestic product
D) trade balance
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent.What happened with the value of savings?
A) The dollar value of savings increased at 2 percent,and the value of savings measured in goods increased at 3 percent.
B) The dollar value of savings increased at 1 percent,and the value of savings measured in goods increased at 2 percent.
C) The dollar value of savings increased at 3 percent,and the value of savings measured in goods increased at 1 percent.
D) The dollar value of savings increased at 4 percent,and the value of savings measured in goods increased at 3 percent.
Q2) Suppose the average price of gas in 2014 was $0.95 per litre and $0.97 in 2015.The inflation rate was 3 percent in 2015.What was the 2015 price of gas in 2014 dollars?
A) $0.922
B) $0.942
C) $0.978
D) $0.999
Q3) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Page 8
Chapter 7: Production and Growth
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Sample Questions
Q1) If there are constant returns to scale,how is the production function written?
A) xY = 2 x A F(L,K,H,N)
B) Y / L = A F(xL,xK,xH,xN)
C) Y / L = A F( 1,K / L,H / L,N / L)
D) xL = A F(1,Y,K,H,N)
Q2) Cedar Valley Furniture uses 10 workers working 8 hours to produce 160 rocking chairs.What is the productivity of these workers?
A) 1 chair per hour
B) 2 chairs per hour
C) 10 chairs per day
D) 80 chairs per day
Q3) Which country benefitted a lot from the catch-up effect in the last half of the twentieth century?
A) Ethiopia
B) Saudi Arabia
C) South Korea
D) Ireland
Q4) Investment in both human and physical capital has opportunity costs.
A)True
B)False
Page 9
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) What are junk bonds?
A) Junk bonds are those that yield low interest rates.
B) Junk bonds are those that never mature.
C) Junk bonds refer to bonds that have been resold many times.
D) Junk bonds are those issued by financially weak corporations.
Q2) Refer to Table 8-2.Which company had the highest dollar dividend?
A) P
B) Q
C) R
D) S
Q3) Which equation will always represent GDP in an open economy?
A) S = I - G
B) I = Y - C + G
C) Y = C + I + G
D) Y = C + I + G + NX
Q4) Lenders sell bonds,and borrowers buy them.
A)True
B)False
Q5) What are the basic differences between bonds and stocks?
Q6) Draw and label a graph showing equilibrium in the market for loanable funds.
Page 10
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Four employers have justified their actions as follows.Whose logic is consistent with the logic of efficiency wage theory?
A) Jay develops a new assembly line technology that limits the amount shirking workers may do,so he reduces what he pays his employees so as to make it closer to the equilibrium wage.
B) Kay pays her workers less than the equilibrium wage so they won't have the time or money to look for work somewhere else.
C) Ray pays his workers in a developing country more than the going wage,hoping that they will get a better diet and so be more productive.
D) Ms.Fay pays her workers the market wages,but she hires more supervisors to make sure workers do not shirk.
Q2) What is most likely to cause frictional unemployment?
A) the minimum wage
B) a worker leaving a job to find one with better benefits
C) labour unions
D) an increase in income tax
Q3) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
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Chapter 10: The Monetary System
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Sample Questions
Q1) When was the Bank of Canada Act first enacted?
A) 1867
B) 1934
C) 1935
D) 1984
Q2) Suppose a bank has $200,000 in deposits and $150,000 in loans.What is its reserve ratio?
A) 1 percent
B) 5 percent
C) 10 percent
D) 25 percent
Q3) During wars,the public tends to hold relatively more currency and relatively fewer deposits.Which statement best describes the effects of this increase in currency holdings?
A) Reserves would decrease,and the money supply would increase.
B) Reserves and the money supply would decrease.
C) Reserves would increase,but the money supply would be unchanged.
D) Reserves would decrease,but the money supply would be unchanged.
Q4) Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) (Challenging)Let ÄX denote a small change in the variable X.Starting from the quantity equation MV = PY,show that the following relation between percentage changes holds: ÄM / M + ÄV / V = ÄP / P + ÄY / Y.(Note: It should be emphasized that this relationship holds for small changes,say less than 5 percent.The larger the changes,the less precise are the results derived from this relationship.)
Q2) You put money in an account and earn a real interest rate of 10 percent.Inflation is 4 percent,and your marginal tax rate is 40 percent.What is your after-tax real interest rate? A) 1.8 percent
B) 2.4 percent
C) 3.2 percent
D) 4.4 percent
Q3) Suppose Bob considers borrowing $100 from Sheila.They both think that a 4 percent real interest rate would be fair,but they are aware of a 30 percent interest income tax.Therefore,they think of the fair 4 percent real interest rate as an after-tax rate.How much should Bob pay to Sheila in interest,such that the after-tax real interest rate would be 4 percent,if they expect inflation to be 6 percent? What if the expected inflation was 8 percent? How does this affect Bob's incentive to borrow?
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Suppose that the dollar buys more bananas in Honduras than in Costa Rica.How could traders make a profit?
A) by buying bananas in Honduras and selling them in Costa Rica,which would tend to raise the price of bananas in Honduras
B) by buying bananas in Honduras and selling them in Costa Rica,which would tend to raise the price of bananas in Costa Rica
C) by buying bananas in Costa Rica and selling them in Honduras,which would tend to raise the price of bananas in Costa Rica
D) by buying bananas in Costa Rica and selling them in Honduras,which would tend to raise the price of bananas in Honduras
Q2) When Canada imports more than it exports,it must also buy domestic assets from foreigners.
A)True
B)False
Q3) According to purchasing-power parity,what is the relationship between changes in price levels between two countries and changes in nominal exchange rates?
Q4) What is the logic behind the theory of purchasing-power parity?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r; in country 2,it is I = 18 - 4r and S = 8 + 2r.
a)Find the relationships between net capital outflow and the world interest rate (rw)in the two countries.
b)What is the nature of these relationships? (Are they both positive,both negative,or one positive and the other negative?)
c)Calculate the world equilibrium interest rate.
d)How can you reconcile the result from part b with the one from part c?
Q2) Refer to the Figure13-2.If the interest rate was initially at r0 and an import quota was imposed,what would happen to the real interest rate?
A) It would not change because the world interest rate is not affected.
B) It would decrease because supply would shift right.
C) It would not change because both supply and demand would shift right.
D) It would decrease because demand would shift left.
Q3) Although trade policies do not affect a country's overall trade balance,they do affect specific firms and industries.
A)True
B)False
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) What would happen to Canadian net exports and aggregate demand if countries that imported from Canada went into recession?
A) Net exports would rise,and aggregate demand would shift right.
B) Net exports would rise,and aggregate demand would shift left.
C) Net exports would fall,and aggregate demand would shift right.
D) Net exports would fall,and aggregate demand would shift left.
Q2) Make a list of expenditures whose sum equals GDP.
Q3) Refer to the Scenario 14-2.Initially,which curve shifts in which direction?
A) AD shifts right.
B) AD shifts left.
C) Short-run AS shifts left.
D) Short-run AS shifts right.
Q4) What are the recessions of the 1970s often most attributed to?
A) OPEC increasing oil production
B) an increase in oil prices
C) declines in the price of stock
D) decreases in the money supply
Q5) Make a list of things that would shift the aggregate-demand curve to the right.
Q6) Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.
Page 16
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) A decrease in government spending initially and primarily shifts which curve in what direction?
A) aggregate demand right
B) aggregate demand left
C) aggregate supply right
D) aggregate supply left
Q2) Refer to the Figure 15-1.What is most likely to happen if the interest rate is equal to 4?
A) There is excess demand for money,and the interest rate will fall.
B) There is excess supply of money,and the interest rate will rise.
C) There is excess demand for money,and the interest rate will rise.
D) There is an excess supply of money,and the interest rate will fall.
Q3) Which statement is NOT a reason the aggregate-demand curve slopes downward?
A) As the price level increases,real wages decline.
B) As the price level increases,real wealth declines.
C) As the price level increases,the interest rate increases.
D) As the price level increases,the exchange rate increases.
Q4) What is the difference between monetary policy and fiscal policy?
Q5) Use the money market to explain why the aggregate demand curve slopes downward.
Q6) Explain how unemployment insurance acts as an automatic stabilizer. Page 17
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Page 18
Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Proponents of rational expectations theory have argued that the sacrifice ratio could be as small as what?
A) 0
B) 2
C) 4
D) 6
Q2) Refer to the Figure 16-4.Along SRPC1,what is the expected rate of inflation?
A) 0 percent
B) 2 percent
C) 5 percent
D) 8 percent
Q3) In 1980,how did the Canadian misery index compare to the average?
A) It was much higher than average.
B) It was slightly higher than average.
C) It was just below average.
D) It was well below average.
Q4) Discuss the factors determining the slope of the short-run Phillips curve.Is the linear shape appropriate? Why,or why not?
Q5) 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) Which of the following would transfer wealth from the old to the young?
A) increases in the budget deficit
B) decreased building of highways and bridges
C) more generous education subsidies
D) indexation of pensions to inflation
Q2) In essence,a consumption tax puts all saving into tax-advantaged savings accounts.
A)True
B)False
Q3) Suppose the budget deficit is rising 8 percent per year and nominal GDP is rising 10 percent per year.Which of the following best describes the debt created by these deficits?
A) sustainable,but the future burden on your children cannot be offset
B) not sustainable,and the future burden on your children cannot be offset
C) not sustainable,but the future burden on your children can be offset if you save for them
D) sustainable,and the future burden on your children can be offset if you save for them
Q4) Explain how it is possible for the government debt to grow forever.
Q5) Why do many economists advocate a consumption tax rather than an income tax?
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