Intermediate Macroeconomics
Study Guide Questions
Course Introduction
Intermediate Macroeconomics builds on foundational concepts in macroeconomic theory to deepen students' understanding of how economies operate at an aggregate level. The course covers key topics such as national income determination, economic growth, unemployment, inflation, business cycle analysis, monetary and fiscal policy, and open economy macroeconomics. Through a combination of theoretical models and real-world applications, students learn to analyze macroeconomic data, evaluate policy effectiveness, and understand the linkages between different sectors of the economy. The course emphasizes critical thinking and analytical skills, equipping students with the tools necessary to explore current macroeconomic issues and debates.
Recommended Textbook
Macroeconomics 8th Canadian Edition by Andrew B. Abel
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15 Chapters
1394 Verified Questions
1394 Flashcards
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Equilibrium in the economy means
A)unemployment is zero.
B)quantities demanded and supplied are equal in all markets.
C)prices aren't changing over time.
D)tax revenues equal government spending,so the government has no budget deficit.
Answer: B
Q2) The two major reasons for the tremendous growth in output in the Canadian economy over the last 125 years are
A)population growth and budget deficit.
B)population growth and increased productivity.
C)low unemployment and budget surplus.
D)low budget deficit and low trade deficits.
Answer: B
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Chapter 2: The Measurement and Structure of the Canadian Economy
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Sample Questions
Q1) The real interest rate
A)is always positive.
B)can be negative.
C)is always greater than the nominal interest rate.
D)is always smaller than the nominal interest rate.
Answer: B
Q2) Which of the following statements is true?
A)GDP calculated by income approach is greater than GDP calculated by expenditure approach.
B)GDP calculated by product approach is greater than GDP calculated by expenditure approach.
C)GDP calculated by expenditure approach is greater than GDP calculated by product approach.
D)All three approaches for calculating GDP will result in the same value for GDP.
Answer: D
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Chapter 3: Productivity, output, and Employment
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111 Flashcards
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Sample Questions
Q1) Your boss has told you that you will receive an increase in your salary next year.In response to this news,you would reduce your labour supply because
A)the income effect would be equal to the substitution effect.
B)the substitution effect would be stronger than the income effect.
C)there would be an income effect but no substitution effect.
D)there would be a substitution effect,but no income effect.
Answer: C
Q2) A decrease in the real wage will cause an individual to increase his or her supply of labour if
A)the substitution effect is greater than the income effect.
B)the income effect is greater than the substitution effect.
C)the substitution effect is positive and the income effect is negative.
D)the substitution effect is equal to the income effect.
Answer: B
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) Explain how and why Canadians might change their consumption in response to an increase in wealth arising from a rise in stock prices and an increase in housing prices.
Q2) A lump-sum increase in current taxes would cause interest rates to
A)fall if Ricardian equivalence held.
B)fall if Ricardian equivalence did not hold.
C)fall regardless of whether Ricardian equivalence held.
D)rise.
Q3) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut
A)causes inflation.
B)causes a current account deficit.
C)raises interest rates.
D)doesn't affect consumption.
Q4) An increase in the expected real interest rate tends to
A)raise desired savings only.
B)raise desired investment only.
C)raise both desired savings and desired investment.
D)raise desired savings,but lower desired investment.
Q5) Explain why the Ricardian equivalence proposition is not supported by data.
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) A large open economy is an economy
A)that has a large government sector.
B)that has a positive net exports.
C)that is large enough to affect the world real interest rate.
D)that has a positive balance of payments.
Q2) If all international factor payment flows are investment income,then net investment income from abroad equals A)net exports.
B)the current account balance.
C)the trade balance.
D)net factor payments from abroad.
Q3) The term "twin deficits" refers to a situation in which there exists
A)a budget deficit as well as a current account deficit.
B)a budget deficit as well as a capital account deficit.
C)a budget deficit as well as a balance of payment deficit.
D)a current account deficit as well as a capital account deficit.
Q4) Explain why the current account balance and the capital account balance of an economy must sum to zero.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) All else being equal,a permanent decrease in the saving rate in a steady-state economy would cause
A)an increase in the capital-labour ratio and an increase in consumption per worker.
B)an increase in the capital-labour ratio and a decrease in consumption per worker.
C)a decrease in the capital-labour ratio and a decrease in consumption per worker.
D)a decrease in the capital-labour ratio and an increase in consumption per worker.
Q2) Suppose the rate of economic growth in Mainland was 25 percent,capital growth 30 percent,and labour growth 20 percent.If labour contribution to economic growth is 14 percent,how much is the elasticity of output with respect to labour?
A)0.3
B)0.7
C)0.5
D)0.8
Q3) Discuss what government policies can affect long-run economic growth.Do your answers depend on what growth model you use? Explain.
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Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) Which of the following measures represent inflation expectations?
A)the current inflation rate
B)an index of GDP and unemployment rate
C)the difference between the yields paid to owners of the government of Canada's long-term bond and the real return bond
D)government budget deficit
Q2) Which of the following measures is the best measure of money as a medium of exchange?
A)M1
B)M2
C)M3
D)L
Q3) If the quantity of money demanded exceeds the quantity of money supplied,then
A)the quantity of nonmonetary assets demanded exceeds the quantity supplied.
B)the quantity of nonmonetary assets supplied exceeds the quantity demanded.
C)the quantity of nonmonetary assets demanded will still equal the quantity supplied,all else being equal.
D)you can make no conclusions about the relative supply and demand of nonmonetary assets.
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Chapter 8: Business Cycles
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Sample Questions
Q1) Industries that are extremely sensitive to the business cycle are the
A)durable goods and service sectors.
B)nondurable goods and service sectors.
C)capital goods and nondurable goods sectors.
D)capital goods and durable goods sectors.
Q2) Which of the following activities is less sensitive to the business cycles?
A)car manufacturing
B)computer industry
C)insurance services
D)building material
Q3) Which of the following is NOT true about the business cycles?
A)Nominal interest rates are procyclical and lagging.
B)Real interest rates are countercyclical and leading.
C)Stock prices are procyclical and leading.
D)Inflation is procyclical and lagging.
Q4) The two deepest recessions in Canada's history occurred in A)2000 and 2008.
B)1981 and 1991.
C)1961 and 1981.
D)1920 and 1929.
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Chapter 9: The Is-Lm-Fe Model: a General Framework for
Macroeconomic Analysis
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Sample Questions
Q1) You have just read that Australia has suffered a drought,destroying its wheat crop for this year.The effect of this adverse supply shock on Australia would probably be
A)an increase in prices and an increase in real interest rates.
B)an increase in prices,an increase in nominal interest rates,but a decrease in real interest rates.
C)a decrease in prices and a decrease in real interest rates.
D)a decrease in prices,a decrease in nominal interest rates,but an increase in real interest rates.
Q2) The full-employment (FE)line shifts right if
A)unemployment declines.
B)technology advances.
C)net exports increase.
D)GDP rises.
Q3) The aggregate demand curve shows the combinations of output and the price level that put the economy on
A)the FE line and the IS curve.
B)the FE line,the IS curve,and the LM curve.
C)the IS curve.
D)the IS curve and the LM curve.
Page 11
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Chapter 10: Exchange Rates, business Cycles, and Macroeconomic Policy
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Sample Questions
Q1) You have just noticed that the dollar depreciated and you suspect that the Canadian government was behind this change.Which would you choose as the most likely cause of this depreciation in the real exchange rate?
A)an increase in the money supply
B)a decrease in the money supply
C)a temporary increase in government purchases
D)a temporary decrease in taxes
Q2) The Canadian interest rate is 4 percent and the U.S.interest rate is 6 percent.If the interest parity condition holds,we expect
A)the Canadian dollar to appreciate by 2 percent.
B)the Canadian dollar to depreciate by 6 percent.
C)the U.S.dollar to depreciate 2 percent.
D)the U.S.dollar to appreciate by 2 percent.
Q3) Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.
Q4) Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.
Page 12
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Chapter 11: Classical Business Cycle Analysis:
Market-Clearing
Macroeconomics
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99 Flashcards
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Sample Questions
Q1) What do RBC economists mean by the term calibration?
A)modifying the structure of an economic theory to strengthen its logic
B)changing a theory as the economy changes
C)working out a detailed numerical example of a more general theory
D)writing out the implication of a theory for all the main economic variables
Q2) According to the misperceptions theory,an unanticipated decrease in the money supply shifts the AD curve to the ________,causing output to ________ in the short run.
A)right;rise
B)right;fall
C)left;rise
D)left;fall
Q3) The Solow residual is
A)the waste from the production process.
B)the most common measure of productivity shocks.
C)a measure of the efficiency of the production process.
D)a measure of the proportion of involuntarily unemployed workers.
Q4) Use the AD-AS model to describe the short-run and the long-run effects of an unexpected decrease in the money supply by the Bank of Canada on GDP,the price level,and real wages.
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Chapter 12: Keynesian Business Cycle Analysis: Non Market
Clearing Macroeconomics
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91 Flashcards
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Sample Questions
Q1) In the Keynesian model,a decrease in the money supply would cause prices to ________ in the short run and ________ in the long run.
A)remain unchanged;remain unchanged.
B)remain unchanged;decrease
C)decrease;remain unchanged
D)decrease;decrease
Q2) The main difference between the short-run and the long-run aggregate supply in the Keynesian model is
A)in the short run prices and wages are assumed fixed,but in the long run they are assumed flexible.
B)in the short run prices are assumed flexible but wages fixed,whereas in the long run both are assumed flexible.
C)in the short run wages are assumed flexible but prices fixed,whereas in the long run both are assumed flexible.
D)in the short run potential GDP is equal to actual GDP,but in the long run the former exceeds the latter.
Q3) Explain how the Keynesian model of business cycles is consistent with the business cycles facts.
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Ball's research on disinflation across different countries found that
A)costs of disinflation were smaller for rapid disinflation than for gradual disinflation.
B)costs of disinflation were larger for rapid disinflation than for gradual disinflation.
C)costs of disinflation were about the same for both rapid and gradual disinflation.
D)costs of disinflation were smaller when the Central Bank had a strong inflation-fighting reputation.
Q2) Classicals argue that an adverse supply shock would
A)raise neither the natural rate of unemployment nor the actual rate of unemployment.
B)raise the actual rate of unemployment,but not the natural rate of unemployment.
C)raise the natural rate of unemployment,but not the actual rate of unemployment.
D)raise both the natural rate of unemployment and the actual rate of unemployment.
Q3) Discuss different costs imposed on an economy by high unemployment rates.What are the offsetting factors?
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) Suppose the Bank of Canada decides to increase the money supply by $10 billion.In Canada,the currency-deposit ratio is 0.1485,and the reserve-deposit ratio is 0.0079.How much should the Bank of Canada change the monetary base?
A)$1.4 billion
B)$14.85 billion
C)$10 billion
D)$14.85 million
Q2) Open-market operations directly and immediately affect A)the monetary base.
B)banks' holdings of securities.
C)the Bank's holdings of foreign exchange.
D)the money multiplier.
Q3) Which of the following is true (M = Money supply,CU = currency held by public,DEP = bank deposits,BASE = monetary base)?
A)BASE = M + DEP
B)M = CU + BASE
C)CU = BASE - M
D)M = CU + DEP
Q4) What is inflation targeting policy? Discuss its advantages and disadvantages.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Consider an economy that has the following monetary data: Currency in circulation=$300
Bank reserves=$50
Monetary base=$350
Deposits=$700
Money supply=$1000
The monetary base and the money supply are expected to grow at a constant rate of 20% per year.Inflation and expected inflation are 20% per year.Suppose that bank reserves and currency pay no interest,all currency is held by the public,and bank deposits pay no interest.What is the profit to the banks from the inflation?
A)$130
B)$140
C)$190
D)$200
Q2) Why should government smooth tax rates? If they do so,what happens to deficits over the business cycle?
Q3) Who bears the burden of the government debt? Explain why.Under what circumstances is there no burden to be borne?
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