Intermediate Macroeconomics
Test Preparation
Course Introduction
Intermediate Macroeconomics builds upon foundational economic principles to deepen students' understanding of aggregate economic performance, growth, and policy. The course explores key macroeconomic models, such as the IS-LM framework, aggregate demand and supply, and the Solow growth model, examining how economies respond to various internal and external shocks. Through analysis of fiscal and monetary policy, inflation, unemployment, and open economy dynamics, students develop the analytical tools required to interpret real-world macroeconomic phenomena and assess policy decisions. Emphasis is placed on both theoretical rigor and application to contemporary economic issues.
Recommended Textbook
Macroeconomics 6th Canadian Edition by Andrew B. Abel
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15 Chapters
1206 Verified Questions
1206 Flashcards
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Chapter 1: Introduction to Macroeconomics
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64 Verified Questions
64 Flashcards
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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) In 2001 Anchovy had imports of $50 billion, exports of $60 billion, and Anchovy's GDP was equal to $300 billion. The trade surplus was what percent of GDP in 2001?
A) 3.3%
B) 10.0%
C) 16.7%
D) 20.0%
Answer: A
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3
Chapter 2: The Measurement and Structure of the Canadian Economy
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83 Verified Questions
83 Flashcards
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Sample Questions
Q1) The uses-of-saving identity shows that if the government budget deficit rises, then one of the following must happen:
A) private saving must rise, investment must fall, and/or the current account must fall.
B) private saving must rise, investment must fall, and/or the current account must rise.
C) private saving must rise, investment must rise, and/or the current account must fall.
D) private saving must rise, investment must rise, and/or the current account must rise.
Answer: A
Q2) If the price index last year was 1.0 and today it is 1.4, what is the inflation rate over this period?
A) -4%
B) 1.4%
C) 4%
D) 40%
Answer: D
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4
Chapter 3: Productivity, Output, and Employment
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94 Verified Questions
94 Flashcards
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Sample Questions
Q1) Technological progress is measured by
A) average labour productivity
B) marginal product of labour
C) total factor productivity
D) marginal product of capital
Answer: C
Q2) The fact that the production function relating output to labour becomes flatter as we move from left to right means that
A) the marginal product of labour is positive.
B) the marginal product of capital is positive.
C) there is diminishing marginal productivity of labour.
D) there is diminishing marginal productivity of capital.
Answer: C
Q3) Your boss wants to know if you should lay off any workers. You answer that you should lay off workers if the
A) marginal revenue product of labour is greater than the nominal wage rate.
B) marginal product of labour is greater than or equal to the real wage rate.
C) marginal revenue product of labour is equal to the nominal wage rate.
D) marginal product of labour is less than the real wage rate.
Answer: D
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Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) An invention that raises the future marginal product of capital would cause an increase in desired investment, which would cause the investment curve to shift to the ________ and would cause the real interest rate to ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Q2) The effective tax rate is
A) a single measure of tax owed by a firm.
B) a single measure of the tax credit on investment.
C) a single measure of how much tax a firm pays.
D) a single measure of the tax burden on capital.
Q3) The effect of an increase in current consumption that results when a higher real interest rate makes a consumer richer is called
A) the substitution effect of the real interest rate on saving.
B) the income effect of the real interest rate on saving.
C) the net effect of the real interest rate on saving.
D) the substitution effect of the real interest rate on consumption.
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Chapter 5: Saving and Investment in the Open Economy
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Net foreign lending would be equal to
A) -$4 billion.
B) -$2 billion.
C) $2 billion.
D) $4 billion.
Q2) If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds, what items are recorded in the Canadian balance of payments accounts?
A) credit the trade account; credit the capital account
B) credit the trade account; debit the capital account
C) debit the trade account; debit the capital account
D) debit the trade account; credit the capital account
Q3) When a current account has a surplus of $5 billion, it means that
A) the capital account must have a deficit of $5 billion.
B) next exports must be negative.
C) net foreign lending is negative.
D) net acquisition of foreign assets is negative.
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Page 7
Chapter 6: Long-Run Economic Growth
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) If f(k) = 6k<sup>0.5</sup>, s = 0.1, n = 0.1, and d = 0.2, what is the value of k at equilibrium?
A) 1
B) 2
C) 3
D) 4
Q2) You believe that democracy is compatible with high rates of economic growth. Which of the following arguments would you be least likely to use to justify this belief?
A) Democratic governments are more stable than dictatorships.
B) Democratic governments are less likely to start wars than dictatorships.
C) Democratic governments have better relations with advanced industrial nations than dictatorships.
D) Democratic governments are better able to undertake unpopular but necessary economic reforms.
Q3) The major source of economic growth is A) capital.
B) labour.
C) technology.
D) all of the above.
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Page 8
Chapter 7: The Asset Market, Money, and Prices
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) If the income elasticity of money demand is 3/4, by what percent does money demand rise if income rises 10%?
A) 10.00%
B) 7.50%
C) 2.50%
D) 0.75%
Q2) When a government prints money to finance its expenditures, it is likely to cause
A) unemployment.
B) inflation.
C) deflation.
D) reductions in the use of barter.
Q3) Suppose you read in the paper that the Central Bank of Canada plans to expand the money supply. The Central Bank is most likely to do this by
A) printing more currency and distributing it.
B) purchasing government bonds from the public.
C) selling government bonds to the public.
D) buying newly issued government bonds directly from the government itself.
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Chapter 8: Business Cycles
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76 Flashcards
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Sample Questions
Q1) Which of the following macroeconomic variables would you exclude from an index of leading economic indicators?
A) residential investment
B) employment
C) the money supply
D) stock prices
Q2) What are the two main components of business cycle theories?
A) a description of shocks and a model of how the economy responds to them
B) a model of how people decide to spend and a description of the government's role in the economy
C) a model of how equilibrium is reached and a description of the government's role
D) a description of shocks and a description of the government's role in the economy
Q3) Which of the following is included in the index of leading indicators calculated by Statistic Canada?
A) CPI
B) Retail sales of furniture and appliances
C) Interest rate
D) Real GDP
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Chapter 9: The IS-LMAD-AS Model: A General Framework for
Macroeconomic Analysis
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) A decline in wealth that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.
A) down; is unchanged
B) down; left
C) up; is unchanged
D) up; left
Q2) Suppose the Bank of Canada's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate. What would happen to money supply if there were a reduction in government purchases? Given the Bank of Canada's policy, what would happen in the very short run (before general equilibrium is restored) to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium?
Q3) A decrease in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to ________ and output to ________ in the short run, before prices adjust to restore equilibrium.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Page 11
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Chapter 10: Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy
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93 Verified Questions
93 Flashcards
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Sample Questions
Q1) A classical economy is described by the equations AD Y = 1000 + 100M/P AS Y = 1500. The real exchange rate is 3 bushels/bottle, the domestic nominal money supply is 30 florins, and the foreign price level is 8 crowns/bushel.
a. What is the nominal exchange rate?
b. If the government wants to maintain an official nominal exchange rate of 6 crowns/florin, what must the nominal money supply be?
Q2) Compared to a system of fixed exchange rates, currency unions are beneficial because they
A) allow exchange rates to float.
B) allow every country to have an independent monetary policy.
C) reduce the costs of trading goods and assets.
D) restrict what countries can do with fiscal policy.
Q3) Relative purchasing power parity occurs when
A) purchasing power parity holds between two countries.
B) purchasing power parity only holds in recessions.
C) the nominal exchange rate is constant.
D) the real exchange rate is constant.
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Page 12
Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) One important reason why the Solow residual may be strongly procyclical even if the actual technology used in production doesn't change is that
A) employment is procyclical.
B) resource utilization is procyclical.
C) demand shocks are the dominant force determining the business cycle.
D) the coefficients (a and l-a) on capital and labour in the production function are procyclical.
Q2) The distinction between real and nominal shocks is that
A) real shocks directly affect only the IS curve, but not the FE line or LM curve.
B) real shocks directly affect only the FE line, but not the LM curve.
C) real shocks directly affect only the IS curve or the FE line, but not the LM curve.
D) real shocks have a large direct effect on the IS curve and the FE line, but only a small direct effect on the LM curve.
Q3) Why doesn't stabilization policy work, according to economists using the misperceptions theory?
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Chapter 12: Keynesian Business Cycle Analysis:
Non-Market-Clearing Macroeconomics
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Sample Questions
Q1) A Keynesian economy is described by the following equations:
C<sup>d </sup>= 250 + 0.5(Y - T) - 250r
I<sup>d</sup> = 250 - 250r
G = 300
T = 300
L = 0.5Y - 500r + <sup>e</sup>
<sup> M</sup> = 3000
Y = 1250
<sup> </sup> <sup>e </sup>= 0
a. Calculate the values of the real interest rate, the price level, consumption, and investment for the economy in general equilibrium.
b. Now suppose government purchases increase to 350 with no change in taxes. What will be the real interest rate, the price level, output, consumption, and investment in the short run?
c. What will be the real interest rate, the price level, output, consumption, and investment in the long run?
Q2) Describe the effects of an oil price shock in a Keynesian model; why are such supply shocks difficult to handle using macroeconomic stabilization policies?
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Chapter 13: Unemployment and Inflation
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82 Flashcards
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Sample Questions
Q1) Which of the following represents the expectations-augmented Phillips curve?
A) Anticipated inflation rate is proportional to the cyclical unemployment rate.
B) Unanticipated inflation rate is proportional to the cyclical unemployment rate.
C) Unanticipated inflation rate is proportional to unemployment rate.
D) Anticipated inflation rate is proportional to unemployment rate.
Q2) In the extended classical model, an unexpected decrease in aggregate demand would cause unanticipated inflation to be ________ and cyclical unemployment to be
A) positive; negative
B) positive; positive
C) negative; negative
D) negative; positive
Q3) A rapid and decisive reduction in the rate of growth of the money supply for the purpose of disinflation is called
A) a salt water policy.
B) a cold shower policy.
C) gradualism.
D) a cold turkey policy.
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15
Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) Magog banks currently have 1 million dinars and a system of 100% reserve banking. The government passes a law allowing fractional reserve banking and a minimum reserve-deposit ratio of 10%. Assuming people hold no currency, after the full process of multiple expansion of loans and deposits had worked itself out, the nation's money supply would equal
A) 1,000,000 dinars.
B) 9,000,000 dinars.
C) 10,000,000 dinars.
D) 11,000,000 dinars.
Q2) The problem with the strategy of achieving credibility through reputation is that A) reputations are rarely credible. B) reputations lack any commitment.
C) serious costs may be incurred during the period in which reputation is established. D) rules always have a lower cost than reputations in maintaining credibility.
Q3) If you could determine the goals of the Bank of Canada, what goals would you choose? Should the Bank's policy be activist? Discuss the pros and cons.
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Chapter 15: Government Spending and Its Financing
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77 Verified Questions
77 Flashcards
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Sample Questions
Q1) In which case would you be most likely to expect inflation to occur?
A) The government runs a sustained government deficit by lowering taxes.
B) The government runs a sustained government deficit by increasing purchases.
C) The government runs a sustained primary deficit by increasing purchases.
D) The government funds its sustained deficit by increasing the money supply.
Q2) The deficit is
A) the amount by which government purchases, transfers, and net interest exceed tax revenues.
B) the amount by which government purchases and transfers exceed tax revenues.
C) the primary deficit minus net interest payments.
D) total tax revenues minus net interest minus government expenditures.
Q3) Real money demand in the economy is given by L = 0.3Y - 600 i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 2000 and the real interest rate is 5%. At what rate of inflation is seignorage maximized?
A) 42.5%
B) 45.0%
C) 47.5%
D) 50.0%
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Page 17