Intermediate Macroeconomics
Pre-Test Questions
Course Introduction
Intermediate Macroeconomics deepens students understanding of national economic performance by exploring theories and models that explain aggregate output, employment, inflation, and economic growth. Building on introductory macroeconomic concepts, the course examines the roles of fiscal and monetary policy, the determinants of consumption and investment, and how economies respond to shocks and policy interventions in both the short run and long run. Key topics include business cycles, the labor market, international frameworks, and contemporary macroeconomic issues, equipping students with analytical tools to interpret real-world economic events and policy debates.
Recommended Textbook
Macroeconomics 1st Canadian Edition by R. Glenn Hubbard
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16 Chapters
1250 Verified Questions
1250 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics and the Great Recession
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Sample Questions
Q1) Changes in ________ that are intended to achieve macroeconomic policy objectives refer to fiscal policy.
A) exchange rates
B) interest rates
C) government taxes and purchases
D) the money supply
Answer: C
Q2) The quantity of goods and services that can be produced by one worker or by one hour of work is known as
A) per-capita GDP.
B) labour productivity.
C) real domestic output.
D) the labour force participation rate.
Answer: B
Q3) Economic models do all of the following,except
A) simplify some aspect of economic life.
B) answer economic questions.
C) make economic ideas explicit and concrete for use by decision makers.
D) portray reality in all its minute details.
Answer: D
Page 3
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Chapter 2: Measuring the Macroeconomy
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Sample Questions
Q1) If a U.S.firm opens a production facility in Canada,the profits from this production facility received by the U.S.owners of the firm in exchange for the factors of production they supply will be included in the
A) gross domestic product of the United States.
B) gross national product of Canada.
C) gross national product of the United States.
D) imports from Canada and exports to the United States.
Answer: C
Q2) List and briefly describe the 4 categories of expenditures included in GDP.
Answer: 1.Consumption,or personal consumption expenditures,is the purchase of new goods and services by households.
2.Investment,or gross private domestic investment,is spending by firms on new factories,office buildings,machinery,and additions to inventories,plus spending by households and firms on new houses.
3.Government,or government purchases,is spending by federal,state,and local governments on goods and services.
4.Net exports is the value of all exports minus the value of all imports.
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Chapter 3: The Canadian Financial System
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Sample Questions
Q1) Luke purchases a $50 000 face value one-year Treasury bill for $46 296.30,and the next day investors decide they will only buy one-year Treasury bills if they receive an interest rate of 4%.If Luke decides to sell his Treasury bill to another investor the day after he purchased it,he will
A) receive a capital gain of $1780.62.
B) receive a capital gain of $2000.00.
C) suffer a capital loss of $1923.08.
D) suffer a capital loss of $1851.85.
Answer: A
Q2) Suppose you purchase a new home for $300 000,making a down payment of 50% and taking out a mortgage on the balance.What is the return on your investment in your home if one year later the price of your home increases by 50%?
A) 0%
B) 10%
C) 50%
D) 100%
Answer: D
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Page 5
Chapter 4: Money and Inflation
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Sample Questions
Q1) Over the long run and across countries,there is evidence of ________ between the growth rate of the money supply and the inflation rate.
A) no relationship
B) a weak link
C) a strong link
D) a negative relationship
Q2) If the currency-to-deposit ratio decreases and the monetary base is unchanged,the value of the money multiplier will ________ and the value of the money supply will
A) decline; decline
B) decline; increase
C) increase; decline
D) increase; increase
Q3) If Jennifer withdraws $750 from her chequing account and holds it as currency,then M1+ will ________ and M2+ will ________.
A) decrease; not change
B) not change; increase
C) decrease; decrease
D) not change; not change
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Page 6
Chapter 5: The Global Financial System and Exchange Rates
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Sample Questions
Q1) The supply of loanable funds is equal to the supply of saving in the economy.The three sources of saving in an economy include all of the following,except A) households.
B) businesses.
C) the government.
D) the foreign sector.
Q2) What three factors regarding differences in interest rates on similar bonds can prevent the interest parity condition from holding?
Q3) <b>Refer to Figure 5.2</b>With which scenario will you be best off by investing in Japanese bonds instead of Canadian bonds?
A) A
B) B
C) C
D) D
Q4) What are the three major types of foreign-exchange systems,and how do they operate?
Q5) What is the difference between nominal exchange rates and real exchange rates?
Page 7
Q6) What determines the supply of loanable funds and the demand for loanable funds?
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Chapter 6: The Labour Market
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Sample Questions
Q1) If the rate of job finding equals 19%,and the natural rate of unemployment is 5%,then the rate of job separation equals
A) 1%.
B) 5.26%.
C) 20.8%.
D) 26.3%.
Q2) ________ is short-term unemployment that arises from the process of matching the job skills of workers to the requirements of jobs.
A) Structural unemployment
B) Frictional unemployment
C) Natural unemployment
D) Cyclical unemployment
Q3) <b>Refer to Figure 6.1.</b>Holding other variables constant,a decrease in the capital stock will result in a
A) shift from curve D to curve D .
B) shift from curve D to curve D .
C) movement from point A to point B.
D) movement from point B to point A.
Q4) How does a real wage above the equilibrium wage cause unemployment?
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Chapter 7: The Standard of Living Over Time and Across Countries
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Sample Questions
Q1) Explain the relationships between the marginal product of labour and the demand for labour,and the marginal product of capital and the demand for capital.
Q2) Suppose that the production function is Y = AK²/ ³/ .Assume that real GDP is $5000 billion,capital stock is $15 000 billion,and the labour supply is 75 million workers.What are the values for the marginal product of labour and the marginal product of capital? Show this data graphically.
Q3) What two factors determine output per worker? Explain which of the two is more important.
Q4) Which of the following is a way to measure of real GDP per capita?
A) (Labour productivity) × (Fraction of the population working)
B) (Nominal GDP) / (Real GDP)
C) (Total factor productivity) / (Capital stock)
D) (Real GDP) × (Population)
Q5) What is human capital? How do workers acquire human capital?
Q6) Explain why the differences in GDP per capita actually understate the true difference in living standards between countries.
Q7) Explain how a well-functioning financial system can increase total factor productivity and promote economic growth.
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Chapter 8: Long-Run Economic Growth
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Sample Questions
Q1) Describe the relationship between the production function,the investment function,and the capital-labour ratio.
Q2) Over half of the increase in labour productivity in India since 1993 has been due to A) the growth rate of the capital stock.
B) total factor productivity growth.
C) a decrease in the population.
D) successful infrastructure investment.
Q3) If the capital-labour ratio equals 1.5 in the steady state,depreciation equals 20,and dilution equals 10,break-even investment equals A) 15.
B) 20.
C) 30.
D) 45.
Q4) Over time,nations tend to converge to
A) the same balanced growth path and same income per capita.
B) the same balanced growth path but varying income per capita.
C) different balanced growth paths but the same income per capita.
D) different balanced growth paths because of varying income per capita.
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Chapter 9: Business Cycles
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Sample Questions
Q1) From the classical perspective,an increase in unemployment during a recession represents
A) voluntary unemployment.
B) a roughly equal mix of voluntary and involuntary unemployment.
C) involuntary unemployment.
D) a decrease in the number of discouraged workers in an economy.
Q2) <b>Refer to Figure 9.1</b>.Assume the economy is initially at point A.The eventual change from a shock that increases investment expenditure is best represented by which long-run equilibrium combination of price level and real GDP?
A) P ; Y
B) P ; Y
C) P ; Y
D) P ; Y
Q3) Often,the farther real GDP is below potential GDP,
A) the smaller the multiplier effect.
B) the larger the multiplier effect.
C) the less effective is the multiplier effect.
D) the less meaningful is the multiplier effect.
Q4) List three reasons why nominal wages can be sticky in the short run.
Q5) Explain the relationship between business cycles in different countries.
Page 11
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Chapter 10: Explaining Aggregate Demand: the Is-Mp Model
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Sample Questions
Q1) Other things equal,if planned investment spending is greater than actual investment spending,then aggregate expenditure will be ________ real GDP and inventories will
A) greater than; rise
B) greater than; fall
C) less than; rise
D) less than; fall
Q2) Which of the following best represents the consumption function?
A) consumption = autonomous consumption + (the marginal propensity to consume × disposable income)
B) consumption = disposable income - (autonomous consumption / the marginal propensity to consume)
C) consumption = disposable income × (1 / 1 - the marginal propensity to consume)
D) consumption = autonomous consumption + (the marginal propensity to consume × transfer payments) / disposable income
Q3) Explain how the AD curve can be derived from the IS-MP model.
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Chapter 11: The Is-Mp Model: Adding Inflation and the Open Economy
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Sample Questions
Q1) <b>Refer to Figure 11.2.</b>.Assume the economy is in equilibrium at ,where real GDP equals potential GDP,and then the economy experiences a positive demand shock.Other things equal,the positive demand shock is best represented by a(n)
A) movement up along the Phillips curve.
B) movement down along the Phillips curve.
C) upward shift of the Phillips curve.
D) downward shift of the Phillips curve.
Q2) Among the countries that use the euro,the real exchange rate ________ and the nominal exchange rate ________.
A) is fixed; is fixed
B) is fixed; can change
C) can change; is fixed
D) can change; can change
Q3) Assume the economy is in equilibrium at ??= 0,where real GDP equals potential GDP,and the economy experiences a positive demand shock.What policy could the Bank of Canada use to keep the inflation rate from rising? Use the IS-MP model and the Phillips curve to explain your answer.
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Page 13
Chapter 12: Monetary Policy in the Short Run
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Sample Questions
Q1) With its goal of price stability,the Bank of Canada attempts to A) keep the inflation rate from falling below 5% and rising above 10%.
B) maintain an inflation rate of zero.
C) achieve a low, stable inflation rate.
D) counteract periods of inflation with periods of deflation.
Q2) To increase the money supply,the Bank of Canada could A) engage in an open market purchase.
B) increase reserve requirements.
C) decrease income tax rates.
D) raise the discount rate.
Q3) <b>Refer to Scenario 12.1.</b>Use the IS-MP model and the Phillips curve to explain the above changes in the economy of Ludmilla.Be sure to identify each of the changes to the economy on your graphs.
Q4) ________ institutions are banks and other financial institutions whose failure would lead to large disruptions in the economy.
A) Systematically important
B) Commercial
C) Corporate
D) Federal
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Chapter 13: Fiscal Policy in the Short Run
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Sample Questions
Q1) A key reason that most people did not anticipate the severity of the Great Recession is that
A) they thought the Bank of Canada would reduce the target for the federal funds rate to a lower level.
B) they did not believe that the federal government would actually bail out large financial institutions.
C) they failed to see the financial crisis coming.
D) they were more worried about rising inflation than about falling real GDP.
Q2) An increasing federal budget deficit will ________ the federal government debt as this will ________ the total value of Canadian government bonds outstanding. A) increase; increase B) increase; decrease
C) not impact; not change
D) not impact; be offset by
Q3) Explain the differences between expansionary and contractionary fiscal policies,and list the typical actions that are used for expansionary and contractionary fiscal policies.
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15
Chapter 14: Aggregate Demand, aggregate Supply, and Monetary Policy
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Sample Questions
Q1) <b>Refer to Figure 14.1.</b>Other things equal,a decrease in taxes is best represented as a movement from
A) point Y to point Z.
B) point Z to point X.
C) point Z to point Y.
D) point Y to point X.
Q2) <b>Refer to Figure 14.3.</b>Suppose the economy is initially at long-run equilibrium and the Bank of Canada increases the target inflation rate,and to hit this rate,it must reduce the real interest rate.The economy then reaches a new,short-run equilibrium point.Assuming expectations are adaptive,the next movement will result in real GDP
A) decreasing back to potential GDP.
B) increasing beyond potential GDP.
C) increasing back to potential GDP.
D) declining below potential GDP.
Q3) What are rational expectations,and how might rational expectations make monetary policy ineffective?
Q4) Explain the difference between the Bank of Canada following discretionary policy as opposed to following a rules strategy.
Page 16
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Chapter 15: Fiscal Policy and the Government Budget in the Long Run
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Sample Questions
Q1) Assuming seigniorage equals zero,the federal debt is ________ and the budget deficit is ________.
A) a flow variable representing the total value of government bonds outstanding; a stock variable representing the yearly increase in value of newly issued government bonds
B) a stock variable representing the total value of government bonds outstanding; a flow variable representing the yearly increase in value of newly issued government bonds
C) a flow variable representing the yearly increase in value of newly issued government bonds; a stock variable representing the total value of government bonds outstanding
D) a stock variable representing the yearly increase in value of newly issued government bonds; a flow variable representing the total value of government bonds outstanding
Q2) Since 1992,Canadian federal expenditures have ________ as a percentage of GDP. A) remained fairly stable
B) increased dramatically
C) slowly declined
D) been extremely volatile
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Page 17
Chapter 16: Consumption and Investment
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Sample Questions
Q1) If a person completely smooths consumption over his lifetime,then consumption is best represented by which of the following?
A) wealth / the number of years the person expects to live
B) lifetime income / the number of years the person expects to work
C) (wealth + lifetime income) / the number of years the person expects to live
D) (wealth + lifetime income) / the number of years the person expects to work
Q2) Given a real interest rate,a decrease in taxes on saving ________ the after-tax real interest rate and ________ the incentive to save.
A) increases; increases
B) increases; reduces C) decreases; increases
D) decreases; reduces
Q3) The effects of tax incentive programs such as RRSP and TFSA accounts suggest that these government programs designed to increase saving lead to ________ in the private capital stock.
A) virtually no change
B) a slight decrease
C) a slight increase
D) a significant increase
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Page 18