Intermediate Macroeconomics Practice Exam
Course Introduction
Intermediate Macroeconomics delves into the analysis of aggregate economic activity and the factors that determine national income, employment, inflation, and economic growth. Building on fundamental macroeconomic principles, this course examines the roles of consumption, investment, government spending, and international trade within various macroeconomic models. Students will explore key concepts such as economic fluctuations, fiscal and monetary policy, and long-term growth, applying analytical tools like the IS-LM model, the AD-AS framework, and the Solow growth model to real-world scenarios. By the end of the course, students gain a deeper understanding of how economies function and the policy choices available to address macroeconomic challenges.
Recommended Textbook
Macroeconomics 3rd Edition Canadian by Paul Krugman Robin Wells
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) Scarcity in economics means that:
A) we often do not have sufficient resources to achieve our objectives.
B) the wants of people are limited.
C) there must be poor people in rich countries.
D) shortages exist in nearly all markets.
Answer: A
Q2) Marla will make $10 by tutoring for an additional hour,but she will lose an hour of studying for her economics test.Marla decides to study rather than tutor.Marla's choice indicates that she:
A) values an additional hour of studying more than the $10 she would earn tutoring.
B) values an hour of studying less than the $10 she would earn tutoring.
C) does not understand that there is no benefit from studying.
D) doesn't need the money.
Answer: A
Q3) Handicapped-designated parking spaces are an example of the market economy achieving efficiency.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Economic Models: Trade-Offs and Trade
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Sample Questions
Q1) If countries engage in international trade:
A) they give up the ability to specialize in production.
B) worldwide levels of production are lower.
C) they can consume inside their production possibility frontiers.
D) they can consume outside their production possibility frontiers.
Answer: D
Q2) (Figure: Production Possibility Frontier)Use Figure: Production Possibilities Frontier.This production possibility frontier is:
A) bowed out because of increasing opportunity costs.
B) bowed in because of increasing opportunity costs.
C) bowed out because of constant cost of cars and computers.
D) linear because of constant costs.
Answer: A
Q3) In the circular-flow diagram,households buy _____ in the _____ market.
A) goods and services;product
B) goods and services;factor
C) resources;factor
D) resources;product
Answer: A
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) (Figure: Supply and Demand in the Apple Juice Market)Use Figure: Supply and Demand in the apple juice market.The market is in equilibrium at point C.A reputable scientist asserts in a major scientific publication that drinking apple juice will increase your life span.What will be the MOST likely new equilibrium point in the apple juice market?
A) A
B) B
C) D
D) E
Answer: B
Q2) Which factor would result solely in a movement along the demand curve for a particular good?
A) a change in the prices of related goods
B) a change in the price of that good
C) a change in the size of the population
D) both a change in the price of that good and a change in the size of the population
Answer: B
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Page 5
Chapter 4: Price Controls and Quotas: Meddling With Markets
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Sample Questions
Q1) The dictator of a small country restricts the price of cars to an amount less than or equal to $1 200 (a price below the equilibrium price for cars).Such a policy would set a: A) price floor.
B) price ceiling.
C) quota.
D) tariff.
Q2) (Figure: The Market for Milk)Use Figure: The Market for Milk.With a binding price floor,the price could be equal to _____,consumers would demand _____,and producers would supply _____.
A) P<sub>1</sub>;Q<sub>1</sub>;Q<sub>3</sub>
B) P<sub>2</sub>;Q<sub>2</sub>;Q<sub>2</sub>
C) P<sub>1</sub>;Q<sub>3</sub>;Q<sub>1</sub>
D) P<sub>3</sub>;Q<sub>3</sub>;Q<sub>1</sub>
Q3) Price controls:
A) always increase economic efficiency.
B) always lead to more equitable results.
C) can result in inequitable outcomes.
D) are always set below the equilibrium price.
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Chapter 5: International Trade
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Sample Questions
Q1) (Table: The Production Possibilities for Tractors and Crude Oil)Use Table: The Production Possibilities for Tractors and Crude Oil.Canada has a comparative advantage in _____,and Mexico has a comparative advantage in _____.
A) both goods;neither good
B) neither good;both goods
C) tractors;crude oil
D) crude oil;tractors
Q2) If a country has the comparative advantage in producing cloth,in the market for cloth,the autarky price would be _____ the world price and the country would _____ cloth.
A) less than;export
B) greater than;export
C) less than;import
D) the same as;export
Q3) If Canada removed the tariffs and quotas on sugar,in the Canadian market for sugar:
A) consumer surplus would not change.
B) consumer surplus would decrease.
C) total surplus would decrease.
D) producer surplus would decrease.
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Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) Fiscal policy entails:
A) setting the money supply.
B) setting levels of taxation and/or government spending.
C) setting interest rates in specific markets.
D) correcting only recessionary problems.
Q2) If all of the households and businesses start saving more during economic hard times,then aggregate income will fall,hurting everyone in the economy.This is known as the:
A) quantity theory.
B) crowding-out theory.
C) paradox of thrift.
D) permanent income hypothesis.
Q3) One of the issues of importance to macroeconomists is:
A) the behavior of individuals and their allocation of income.
B) how firms determine the profit-maximizing level of output.
C) understanding how living standards change over time.
D) the behavior of individual markets.
Q4) The business cycle is the long-run alternation between downturns and upturns.
A)True
B)False
Page 8
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Chapter 7: Gdp and the Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) A market basket used to measure the aggregate price level is a group of stocks that the wealthiest investors own.
A)True
B)False
Q2) Goods that are produced domestically but sold abroad are:
A) imports.
B) exports.
C) part of domestic consumption.
D) investment.
Q3) GDP per capita measures the value of all intermediate goods and services produced in the economy.
A)True
B)False
Q4) In the product markets:
A) households supply goods and services.
B) households demand goods and services.
C) firms demand resources.
D) firms supply resources.
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Page 9
Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) Cyclical unemployment is a result of recessions and economic downturns and is not considered a part of the natural rate of unemployment.
A)True
B)False
Q2) Unit-of-account costs of inflation are the:
A) costs associated with money not being a reliable unit of measurement.
B) costs of transactions associated with avoiding the inflation tax.
C) costs associated with businesses changing prices.
D) transfers the government gets from printing money.
Q3) The natural rate of unemployment:
A) would increase if a larger percentage of the labour force were over 25 years old.
B) would increase if union membership fell.
C) would increase if unemployment benefits were increased.
D) will always remain fixed.
Q4) A person who has no job but is looking for one is:
A) unemployed.
B) a discouraged worker.
C) part of the labour force.
D) unemployed and part of the labour force.
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Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) Suppose that real GDP per capita of Canada is $32 000 and its growth rate is 2% per year and that real GDP per capita of China is $4 000,and its annual growth rate is 7%.According to the rule of 70,how large will China's real GDP per capita be in 20 years?
A) $5 600
B) $8 000
C) $16 000
D) $28 000
Q2) The aggregate production function exhibits _____ returns to physical capital.
A) diminishing
B) constant
C) increasing
D) negative
Q3) Infrastructure does NOT include:
A) roads.
B) iron ore deposits.
C) power plants.
D) cell phone towers.
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) (Table: Investment Projects)Use Table: Investment Projects.If the market interest rate is 11%,the last project undertaken is:
A) G.
B) H.
C) I.
D) J.
Q2) The interest rate is 5% in loanable funds market.Investors wish to borrow $100 million,and savers wish to save $125 million at this interest rate.We would expect the interest rate to _____,as there is a _____ of loanable funds.
A) fall;shortage
B) rise;surplus
C) rise;shortage
D) fall;surplus
Q3) Student loans,auto loans,and credit card loans are often securitized.
A)True
B)False
Q4) Lower interest rates will lead to less investment spending.
A)True
B)False
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Chapter 11: Income and Expenditure
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Sample Questions
Q1) The decline in the Finnish economy of 2016 is primarily an example of how:
A) too much government regulation is harmful to the economy.
B) changes in consumer spending can be multiplied through the entire economy.
C) immigration affects local economies.
D) high tax rates can decrease the economic activity in an area.
Q2) In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 500,the marginal propensity to consume is -0.25.
A)True
B)False
Q3) In a simple,closed economy (no government or foreign sector),disposable income increases from $2 000 to $3 000.If consumption increases from $1 500 to $2 100,the marginal propensity to save is:
A) $600.
B) $400.
C) 0.80.
D) 0.40.
Q4) If the marginal propensity to consume is 0.9,the multiplier will be 0.1.
A)True
B)False
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Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) A movement along the aggregate demand curve is caused by a(n):
A) change in the aggregate price level.
B) increase in consumer spending.
C) reduction in taxes.
D) reduction in government spending.
Q2) An economic policy maker would rank a _____ shock as the MOST preferred type.
A) positive demand
B) negative demand
C) positive supply
D) negative supply
Q3) Suppose the economy is operating in long-run equilibrium and a positive demand shock hits.We expect a short-run increase in real GDP and the price level and a long-run _____ in real GDP and _____ in the price level.
A) decrease;increase
B) increase;increase
C) decrease;decrease
D) increase;decrease
Q4) Stagflation is the combination of inflation and rising aggregate output.
A)True
B)False
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Which statement is CORRECT?
A) Automatic stabilizers indicate deliberate action by policy makers.
B) Discretionary fiscal policy shows automatic adjustments without any specific effort by policy makers.
C) Discretionary fiscal policy indicates deliberate action by policy makers.
D) Automatic stabilizers are risky to use and sometimes can get the economy destabilized.
Q2) Due to rules requiring states to have balanced budgets,many states experienced a large increase in layoffs once money from the 2009 stimulus ended.
A)True
B)False
Q3) An increase in government transfer payments of $100 billion and a tax cut of $100 billion will have equal effects on the budget balance and unequal effects on real GDP.
A)True
B)False
Q4) A fiscal year for the federal government runs from January 1 to December 31. A)True
B)False
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Page 15
Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) The bank rate is the interest rate that the Bank of Canada charges on loans to banks. A)True
B)False
Q2) Shadow banking:
A) doesn't look like traditional banking but serves similar purposes while posing significantly more risk.
B) is another name for traditional banking.
C) looks like traditional banking but serves different purposes and imposes significantly more risk.
D) doesn't look like traditional banking but serves similar purposes while not posing any additional risk.
Q3) Suppose that the reserve ratio is 20%.If Sam deposits $500 in his chequing account,his bank can increase loans by:
A) $500.
B) $2 500.
C) $100.
D) $400.
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Page 16
Chapter 15: Monetary Policy
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Questions
Q1) (Figure: Monetary Policy and the AD-SRAS Model)Refer to Figure: Monetary Policy and the AD-SRAS Model.If the economy is in an inflationary gap at point h,it can move to point i as a result of:
A) an increase in the money supply.
B) a reduction in the bank rate.
C) a decrease in the money supply.
D) purchases of government securities in the open market.
Q2) If the equilibrium interest rate in the money market is 5%,then at an interest rate of 2%,the quantity of money demanded is _____ than the quantity of money supplied.
A) less than B) greater than C) equal to
D) It is impossible to predict which is greater,money demanded or money supplied.
Q3) To decrease interest rates,the Bank of Canada should increase the money supply.
A)True
B)False
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) Suppose the economy is in long-run equilibrium.The government has just decided to lower income taxes.The long-run impact of this policy will be _____ in the natural rate of unemployment and _____ in price level.
A) a decrease;an increase
B) a decrease;no change
C) no change;an increase
D) no change;no change
Q2) During a liquidity trap:
A) monetary policy is ineffective,since nominal interest rates cannot fall below zero.
B) the money market is in disequilibrium.
C) the only tool that the Bank of Canada finds effective is expansionary monetary policy.
D) nominal interest rates will rise regardless of what policy the Bank of Canada pursues.
Q3) Which statement accurately describes disinflation?
A) It must be accompanied by a decline in the price level.
B) The inflation rate rises at a higher rate.
C) It is a reduction of the inflation.
D) It is a gradual reduction in the price level over time.
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Chapter 17: Macroeconomics: Events and Ideas
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Sample Questions
Q1) Monetarism suggests that:
A) money should be backed by gold.
B) the economy is unstable.
C) monetary policy should be used to offset economic fluctuations.
D) discretionary monetary policy does more harm than good.
Q2) According to the natural rate hypothesis,attempts to keep unemployment below the natural rate will lead to increasing inflation.
A)True
B)False
Q3) A fundamental feature of early classical macroeconomics is that:
A) aggregate demand and aggregate income are usually unequal.
B) prices of inputs and outputs are usually relatively rigid.
C) the economy's level of employment can remain substantially below its natural level over a long period.
D) the economy can achieve full employment on its own,though there may be short periods in which employment falls below the natural level.
Q4) Classical economists focused on short-run effects of monetary policy.
A)True
B)False
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Chapter 18: International Macroeconomics
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Sample Questions
Q1) Expansionary monetary policy in Canada causes Canadian interest rates to _____ and the dollar to _____.
A) rise;appreciate
B) rise;depreciate
C) fall;appreciate
D) fall;depreciate
Q2) (Scenario: Exchange Rates)Refer to Scenario: Exchange Rates.The euro has:
A) depreciated.
B) appreciated.
C) been devalued.
D) not been affected for use in international trade.
Q3) When the Mexican government changes the fixed rate of pesos per Canadian dollar from 1.5 to 3.0,the peso is _____.When the equilibrium exchange rate of Canadian dollars per euro changes from 1.15 to 1.30,the euro is _____.
A) revaluated;appreciated
B) appreciated;devaluated
C) devaluated;appreciated
D) appreciated;revaluated
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Chapter 19: Graphs in Economics
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Sample Questions
Q1) In looking at a chart of the positive relationship between police officers and crime,the mayor remarks that more police officers cause more crime.The mayor may be wrong because she did not consider:
A) the features of construction.
B) omitted variables.
C) reverse causality.
D) tangent lines.
Q2) (Figure: Illustrating Slope)Use Figure: Illustrating Slope.In the graph,line 3 depicts X and Y to be:
A) positively related.
B) unrelated.
C) negatively related.
D) both fixed in value.
Q3) A scatter diagram shows:
A) how far apart dependent variables are.
B) individual points of data showing both variable values.
C) the slope of a line.
D) the intercept of a curve.
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