Intermediate Macroeconomics
Practice Questions
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to examine national economic performance, focusing on the determination of output, employment, inflation, and economic growth. The course introduces students to advanced models such as the IS-LM model, aggregate demand and supply analysis, and the Solow growth model, exploring the short-run and long-run effects of monetary and fiscal policies. Students will analyze real-world policy debates and macroeconomic crises, gaining a deeper understanding of issues such as unemployment, inflation, public debt, and international trade imbalances. Emphasis is placed on developing analytical skills, applying mathematical models, and interpreting macroeconomic data to evaluate the impact of government interventions and global economic trends.
Recommended Textbook
Macroeconomics 14th Canadian Edition by Campbell R. McConnell
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18 Chapters
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Page 2
Chapter 1: Limits, Alternatives, and Choices
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Sample Questions
Q1) Which of the following statements is correct?
A) The value of the independent variable is determined by the value of the dependent variable.
B) The value of the dependent variable is determined by the value of the independent variable.
C) The dependent variable designates the "cause" and the independent variable the "effect."
D) Dependent variables graph as upsloping lines;independent variables graph as downward sloping lines.
Answer: B
Q2) Refer to the above diagram.If society is currently producing the combination of bicycles and computers shown by point D,the production of 2 more units of bicycles:
A) cannot be realized because resources are fully employed.
B) will cost 1 unit of computers.
C) will cost 2 units of computers.
D) will cause some resources to become unemployed.
Answer: B
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Chapter 2: The Market System and the Circular Flow
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Sample Questions
Q1) The market system is said to be characterized by "consumer sovereignty." This is because:
A) a large number of consumer goods are produced.
B) the prices of consumer goods are regulated by government.
C) consumer goods are more profitable than investment goods.
D) of the role of consumers in determining what goods are produced.
Answer: D
Q2) The division of labour enhances productivity and efficiency by:
A) allowing workers to take advantage of existing differences in their abilities and skills.
B) avoiding the time loss involved in shifting from one production task to another.
C) allowing workers to develop skills by working on one,or a limited number,of tasks.
D) all of the above means.
Answer: D
Q3) Households and businesses are both suppliers in the product market.
A)True
B)False
Answer: False
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4
Chapter 3: Demand, Supply, and Market Equilibrium
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Sample Questions
Q1) The law of supply:
A) reflects the amounts which producers will want to offer at each price in a series of prices.
B) is reflected in an upsloping supply curve.
C) shows that the relationship between price and quantity supplied is positive.
D) is reflected in all of the above.
Answer: D
Q2) A government set minimum wage:
A) imposes a legal ceiling above the wage of the least skilled worker.
B) is one of the reasons why price level falls during recessions.
C) imposes a legal floor under the wage of the most skilled worker.
D) imposes a legal floor under the wage of the least skilled worker.
Answer: D
Q3) The higher a price floor is above the equilibrium price,the greater will be the surplus output.
A)True
B)False
Answer: True
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5
Chapter 4: Market Failures: Public Goods and Externalities
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Sample Questions
Q1) Society's optimal amount of pollution moderation is where society's marginal benefit of moderation is zero.
A)True
B)False
Q2) Market failures
A) fall only on the demand-side.
B) fall only on the supply-side.
C) can fall on either the demand-side or the supply-side.
D) fall on non-competitive markets only.
Q3) If the price of a product increases:
A) the consumer surplus will increase.
B) the producer surplus will increase.
C) the price increase has no effect on the producer surplus.
D) the consumer surplus will not change.
Q4) A market for pollution rights can be expected to:
A) eliminate all pollution.
B) produce a shortage of pollution.
C) encourage potential polluters to increase emissions.
D) provide potential polluters with a monetary incentive to reduce emissions.
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Chapter 5: Governments Role and Government Failure
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Sample Questions
Q1) According to some economists,the private sector is more efficient than the public sector mainly because:
A) the private sector has a clear test of performance: profit and loss.
B) wages,salaries,and fringe benefits are higher in the private sector.
C) worker turnover is higher in the public sector.
D) of extensive negative externalities in the public sector.
Q2) The government's ability to force people to do things can increase economic efficiency.
A)True
B)False
Q3) Monetary stimulus is only helpful to an economy:
A) that is experiencing high inflation.
B) that is in recession.
C) experiencing significant negative externalities.
D) with few public goods.
Q4) Changes in tax rates are a form of monetary policy.
A)True
B)False
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Chapter 6: An Introduction to Macroeconomics
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Sample Questions
Q1) Which would be considered an investment according to economists?
A) the buying of shares of Fidelity mutual funds
B) the purchase of a new machinery by McCain Food
C) the selling of Boeing stock by a businessman
D) the selling of GE corporate bonds
Q2) Because prices change too slowly in the short-run and as a result,they do not quickly equalize the quantity demanded and quantity supplied of goods and services,the short-run response of the economy to a demand shock is through:
A) changes in output and employment levels rather than through changes in prices.
B) changes in prices rather than through changes in employment.
C) changes in employment but not in output.
D) changes in output but not in the employment.
Q3) Economic growth is defined as:
A) an increase in either real GDP or real GDP per capita.
B) an increase in the nominal GDP.
C) an increase in the overall general price level.
D) an increase in the level of consumption.
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Chapter 7: Measuring the Economys Output
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Sample Questions
Q1) By summing the values added at each stage in the production of some good we obtain:
A) the price of that good.
B) the total income generated by that good's production.
C) the total cost (including profits)of that product.
D) all of the above.
Q2) Environmental pollution is accounted for in:
A) GDP.
B) DI.
C) PI.
D) None of the above.
Q3) A price index is 100 times the ratio of real GDP to nominal GDP.
A)True
B)False
Q4) In calculating GDP by the expenditure approach,we sum up:
A) consumption,investment,government purchases,exports,and imports.
B) investment,government purchases,consumption,and net exports.
C) consumption,investment,wages,and rents.
D) consumption,investment,government purchases,and imports.
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Chapter 8: Economic Growth
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Sample Questions
Q1) Economic well-being in Canada is understated by growth rates because they:
A) account for pollution expenditures.
B) account for improvement in products.
C) account for illegal activity.
D) don't account for the added leisure of labour.
Q2) Which is a demand factor in economic growth?
A) more human and natural resources
B) technological progress and innovation
C) an increase in the economy's stock of capital goods
D) an increase in total spending in the economy
Q3) Real GDP was $9,950 billion in Year 1 and $10,270 billion in Year 2.The population rose from 270 million in Year 1 to 275 million in Year 2.What was the approximate increase in real GDP per capita rate from Year 1 to Year 2?
A) 1.3 percent
B) 2.1 percent
C) 3.3 percent
D) 4.2 percent
Q4) In Canada,real GDP per capita has increased more rapidly than real GDP.
A)True
B)False
Page 10
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Chapter 9: Business Cycles, Unemployment, and Inflation
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Sample Questions
Q1) If the natural rate of unemployment is 6 percent and the actual unemployment rate is 9 percent,then Okun's law indicates that the GDP gap is:
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 6 percent.
Q2) Anne Kasperson works in her own home as a full-time caretaker and homemaker.Officially,she is:
A) unemployed.
B) employed.
C) not in the labour force.
D) in the labour force.
Q3) Unanticipated inflation benefits some groups in the economy.
A)True
B)False
Q4) Official unemployment statistics overstate unemployment because discouraged workers who are not actively seeking work are counted as unemployed.
A)True
B)False
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Chapter 10: Basic Macroeconomic Relationships
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Sample Questions
Q1) The reverse wealth effect will tend to decrease consumption and increase saving.
A)True
B)False
Q2) The consumption schedule is such that:
A) both the APC and the MPC increase as income rises.
B) the APC is constant and the MPC declines as income rises.
C) the MPC is constant and the APC declines as income rises.
D) the MPC and APC must be equal at all levels of income.
Q3) Refer to the above table.The total change in consumption resulting from the initial change in investment will be:
A) $100
B) $96
C) $180
D) $80
Q4) The relationship between the real interest rate and investment is shown by the: A) investment-demand schedule.
B) consumption of fixed capital schedule.
C) saving schedule.
D) aggregate supply curve.
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Chapter 11: The Aggregate Expenditures Model
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Sample Questions
Q1) Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.75.The federal government now finds that it must increase spending on military goods by $21 billion in response to a deterioration in the international political situation.To sustain full-employment-noninflationary GDP government must:
A) reduce taxes by $28 billion.
B) reduce transfer payments by $21 billion.
C) increase taxes by $21 billion.
D) increase taxes by $28 billion.
Q2) In reality,if a nation imposes tariffs,then the final result will be that net exports and GDP will decrease.
A)True
B)False
Q3) In the aggregate expenditures model,it is assumed that the planned investment:
A) automatically changes in response to changes in the current level of real domestic output.
B) changes by less in percentage terms than changes in the level of real domestic output.
C) does not respond to changes in interest rates.
D) does not change when the level of real domestic output changes.
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Page 13
Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) A movement downward along an existing aggregate demand curve is equivalent to a(n):
A) decrease in aggregate demand.
B) increase in aggregate demand.
C) upward shift in the aggregate expenditures schedule.
D) downward shift in the aggregate expenditures schedule.
Q2) Which of the above diagrams best portrays the effects of declines in the incomes of other major nations with whom we trade?
A) A
B) B
C) C
D) D
Q3) In which of the following sets of circumstances can we confidently expect inflation?
A) aggregate supply and aggregate demand both increase
B) aggregate supply and aggregate demand both decrease
C) aggregate supply decreases and aggregate demand increases
D) aggregate supply increases and aggregate demand decreases
Q4) List three events that would shift the short-run aggregate supply curve leftward.
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Chapter 13: Fiscal Policy, Deficits, Surpluses, and Debt
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Sample Questions
Q1) In Year 1,the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion.In Year 2,the actual budget deficit was $125 billion and the cyclically adjusted deficit was $100 billion.It can be concluded that fiscal policy from Year 1 to Year 2 was:
A) proportional.
B) progressive.
C) contractionary.
D) expansionary.
Q2) The net export effect may partially counteract an expansionary fiscal policy.
A)True
B)False
Q3) Lines A and B in the above graph represent:
A) the crowding-out effect.
B) the interest-rate effect.
C) investment demand curves.
D) money demand curves.
Q4) An increase in taxes and a decrease in government spending would be characteristic of a contractionary fiscal policy.
A)True
B)False
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Chapter 14: Money, Banking, and Money Creation
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Sample Questions
Q1) Securatization is:
A) the process of slicing up and bundling groups of loans,mortgages,corporate bonds and other financial debts into distinct new securities.
B) the securing of loans,mortgages,corporate bonds and other financial debts by governments.
C) a guarantee that loans,mortgages,corporate bonds and other financial debts were secure.
D) the process of securing loans,mortgages,corporate bonds and other financial debts by insurance companies.
Q2) Refer to the above information.After a deposit of $10 billion of new currency into a chequing account in the banking system,excess reserves will increase by:
A) $0 billion.
B) $7 billion.
C) $9 billion.
D) $10 billion.
Q3) The currency owned by chartered banks is included in the money supply.
A)True
B)False
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16
Chapter 15: Interest Rates and Monetary Policy
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Sample Questions
Q1) Refer to the above information.The total demand for money curve in this market for money would graph as a:
A) vertical line.
B) horizontal line.
C) line sloping upward to the right.
D) line sloping downward to the right.
Q2) Which statement is true?
A) Bond prices and the interest rate are inversely related.
B) A lower interest rate raises the opportunity cost of holding money.
C) The supply of money is directly related to the interest rate.
D) The total demand for money is directly related to the interest rate.
Q3) The easy money of Japan during the 1990s and early 2000s:
A) was effective in reducing high inflation.
B) was effective in stimulating the economy.
C) suffered from cyclical asymmetry.
D) resulted in an increase in aggregate supply.
Q4) An expansionary monetary policy will decrease net exports.
A)True
B)False
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Chapter 16: Long-Run Macroeconomic Adjustments
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Sample Questions
Q1) Refer to the above diagram.The initial aggregate demand curve is AD<sub>1</sub> and the initial aggregate supply curve is AS<sub>1</sub>.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD<sub>1</sub> to AD<sub>2</sub>:
A) real output will rise above Q<sub>f</sub>.
B) the price level will rise from P<sub>1</sub> to P<sub>2</sub>.
C) it is possible that aggregate supply will shift rightward from AS<sub>2</sub> because nominal wage demands will rise.
D) the price level will rise from P<sub>2</sub> to P<sub>3</sub>.
Q2) An increase in inflation is likely to occur when government:
A) counters cost-push inflation with a stimulative fiscal policy or monetary policy. B) adopts a hands-off approach to cost-push inflation.
C) increases aggregate supply by lowering nominal wages.
D) increases aggregate demand by raising nominal wages.
Q3) If the government attempts to maintain full employment under conditions of cost-push inflation,deflation is likely to occur.
A)True
B)False
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18
Chapter 17: International Trade
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Sample Questions
Q1) Refer to the above tables.If these two nations specialize on the basis of comparative advantage:
A) Trombonia will produce beans and Latalia will produce pork.
B) Trombonia will produce both beans and pork.
C) Latalia will produce both beans and pork and Trombonia will produce neither.
D) Latalia will produce beans and Trombonia will produce pork.
Q2) The World Trade Organization:
A) is also known as the International Monetary Fund (IMF).
B) was established by the Uruguay Round of the General Agreement on Tariffs and Trade (GATT)to resolve disputes arising under the GATT rules.
C) is also known as the European Union-NAFTA Alliance.
D) enhances world trade by providing interest rate subsidies to foreign borrowers who buy exports on credit.
Q3) The law of increasing opportunity costs limits international specialization.
A)True
B)False
Q4) The terms of trade will favour a larger nation over a smaller nation.
A)True
B)False
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Chapter 18: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) Under the managed floating system of exchange rates:
A) all exchange rates vary with changes in the free-market prices of gold.
B) industrialized nations meet once each year to negotiate readjustments in their exchange rates.
C) exchange rates are essentially flexible,but governments intervene to offset "disorderly" fluctuations in rates.
D) exchange rates are adjusted at the discretion of the IMF.
Q2) Which of the following countries is a G-8 nation?
A) China
B) Brazil
C) Italy
D) Korea
Q3) In using exchange controls,a nation attempts to eliminate a balance of payments deficit by:
A) limiting its imports to the dollar value of its exports.
B) decreasing the nation's domestic price level.
C) limiting its exports to the dollar value of its imports.
D) appreciating the value of its currency.
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