Intermediate Macroeconomics
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Course Introduction
Intermediate Macroeconomics delves into the theories and models that explain the functioning of economies at a national and global scale. The course explores important macroeconomic variables such as output, unemployment, inflation, interest rates, and economic growth. Building on foundational principles, it examines the roles of aggregate demand and aggregate supply, fiscal and monetary policy, and the effects of government interventions. Students will analyze real-world policy debates, use mathematical models to evaluate macroeconomic outcomes, and gain insight into current economic challenges. This course equips students with analytical tools to critically assess macroeconomic issues and policies in both closed and open economies.
Recommended Textbook
Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Which of the following is NOT a reason for the government to intervene in the market?
A)to promote efficiency
B)to enforce property rights
C)to promote equity
D)to protect an industry
Answer: D
Q2) For most students,what is the largest single cost of a university education?
A)the wages given up to attend school
B)tuition, fees, and books
C)room and board
D)transportation, parking, and entertainment
Answer: A
Q3) If an externality is present in a market,what may enhance economic efficiency?
A)government intervention
B)increased competition
C)better informed market participants
D)more defined property rights
Answer: A
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Chapter 2: Thinking Like an Economist
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Q1) What are economists who try to explain economic phenomena considered?
A)scientists
B)policy advisors
C)mathematicians
D)teachers
Answer: A
Q2) In the markets for goods and services,as in the markets for the factors of production,households are buyers and firms are sellers.
A)True
B)False
Answer: False
Q3) What does microeconomics study?
A)the behaviour of consumers
B)how individual households and firms make decisions
C)how government affects the economy
D)how the economy as a whole works
Answer: B
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Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to Figure 3-5.If Fred and Ginger both specialize in the good in which they have a comparative advantage,what would the total production be?
A)6 ballet slippers and 6 tap shoes
B)8 ballet slippers and 6 tap shoes
C)8 ballet slippers and 8 tap shoes
D)8 ballet slippers and 10 tap shoes
Answer: D
Q2) Refer to Figure 3-5.What should Fred and Ginger produce?
A)Fred should produce tap shoes, and Ginger should produce ballet slippers.
B)Fred should produce tap shoes and ballet slippers, and Ginger should produce ballet slippers.
C)Fred should produce tap shoes, and Ginger should produce ballet slippers and tap shoes.
D)Fred should produce ballet slippers, and Ginger should produce tap shoes.
Answer: A
Q3) Adam Smith developed the theory of comparative advantage as we know it today.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) Music compact discs are normal goods.What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties,compact disc players become cheaper,more firms start producing music compact discs,and music lovers experience an increase in income?
A)price will fall and the effect on quantity is ambiguous
B)price will rise and the effect on quantity is ambiguous
C)quantity will fall and the effect on price is ambiguous
D)quantity will rise and the effect on price is ambiguous
Q2) Market demand is given as Qd = 200 - 3P.Market supply is given as Qs = 2P + 100.What would result if the market price were $30?
A)a shortage of 110
B)a surplus of 110
C)a surplus of 50
D)a shortage of 50
Q3) What is the sum of all individual demand curves for a product?
A)total demand
B)consumption demand
C)summation demand
D)market demand
Page 6
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Q1) In the aftermath of hurricane Sandy,parts of New Jersey have been isolated so that the transportation of gasoline to consumers has become very difficult.Local authorities in various locations have tried various ways to address the situation.
a)Using a supply and demand model,analyze the effect of the hurricane on the market for gasoline.
b)In some places,local authorities have decided to distribute a certain amount of gasoline for free,so that every consumer had the right to a fixed allowance.Show and discuss the effects of this decision on the market.
c)In other places,local authorities have imposed a price cap on gas.Show this in a supply and demand diagram and explain the consequences.
Q2) What will a technological advancement do?
A)shift the supply curve to the right
B)shift the demand curve to the left
C)shift the demand curve to the right
D)shift the supply curve to the left
Q3) It is not possible for demand and supply to shift at the same time.
A)True
B)False
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Chapter 5: Measuring a Nation's Income
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Q1) A German citizen buys an automobile produced in Canada by a Japanese company.What happens as a result?
A)Canadian net exports increase, Canadian GNP and GDP are unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.
B)Canadian net exports, GNP, and GDP increase; Japanese GDP increases; German net exports decrease; and German GDP is unaffected.
C)Canadian net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GDP and GNP are unaffected.
D)Canadian net exports, GNP, and GDP are unaffected; Japanese GNP increases; German net exports decrease; and German GDP and GNP decrease.
Q2) When economists talk about growth in the economy,how do they measure that growth?
A)with the absolute change in nominal GDP
B)with the percentage change in real GDP
C)with the absolute change in real GDP
D)with the percentage change in nominal GDP
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent.What happened with the value of savings?
A)The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent.
B)The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent.
C)The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 2 percent.
D)The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent.
Q2) Henry Ford paid his workers $5 a day in 1914 when the CPI was 10.Today,with the price index at 177,the $5 a day is worth $88.50.
A)True
B)False
Q3) Which is likely to have the larger effect on the CPI,a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Chapter 7: Production and Growth
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Sample Questions
Q1) How do inward-oriented policies affect a nation's growth?
Q2) In 2012,Freedonia had a population of 2700 and real GDP of about $1 080 000.In 2011,it had a population of 2500 and real GDP of about $1 000 000.What was the approximate growth rate of real GDP per person in Freedonia between 2011 and 2012?
A)0 percent
B)2.5 percent
C)5 percent
D)7.5 percent
Q3) Which of the following best defines productivity?
A)Productivity is the ability of a company to generate profit.
B)Productivity is the quantity of goods and services that a nation can produce in a year.
C)Productivity is the quantity of goods or services that a worker can produce in one hour.
D)Productivity is the ability of a company to produce goods and services.
Q4) Some economists argue that it is possible to raise the standard of living by reducing population growth.As an economist interested in incentives rather than coercion,what kind of policy would you recommend to slow population growth?
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) In a closed economy,how does national saving compare with investment?
A)National saving is usually greater than investment.
B)National saving is equal to investment.
C)National saving is usually less than investment because of the leakage of taxes.
D)National saving is usually less than investment.
Q2) The demand for loanable funds comes from saving,and the supply of loanable funds comes from investment.
A)True
B)False
Q3) If the current market interest rate for loanable funds is above the equilibrium level,which of the following would we expect to happen?
A)Because there is a surplus of loanable funds, the interest rate will rise.
B)Because there is a shortage of loanable funds, the interest rate will rise.
C)Because there is a shortage of loanable funds, the interest rate will fall.
D)Because there is a surplus of loanable funds, the interest rate will fall.
Q4) In the national income accounting identity showing the equality between national saving and investment,what is the representation of private saving and what is the representation of public saving?
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) About what fraction of unemployed persons have been unemployed for less than a month?
A)4/5
B)3/4
C)2/3
D)1/3
Q2) In Canada in recent years,how does the unemployment rate among those aged 15 to 24 compare with that of older adults?
A)less than that of older adults
B)about the same as that of older adults
C)much higher than that of older adults
D)approximately half that of older adults
Q3) Which of the following is most likely to cause frictional unemployment?
A)the minimum wage
B)a worker leaving a job to find one with better benefits
C)labour unions
D)an increase in income tax
Q4) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
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Chapter 10: The Monetary System
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Q1) Suppose a bank has a 5 percent reserve ratio,$4000 in deposits,and it loans out all it can,given the reserve ratio.Which of the following describes the bank's assets?
A)It has $800 in reserves and $16 000 in loans.
B)It has $200 in reserves and $3800 in loans.
C)It has $200 in reserves and $4000 in loans.
D)It has $800 in reserves and $3200 in loans.
Q2) Refer to the Table 10-3.Assume that all other banks hold only the required 5 percent of deposits as reserves and people hold only deposits and no currency.If the Bank of Edmonton decides to hold exactly 5 percent in reserves,by how much would the economy's money supply increase?
A)$500
B)$1000
C)$1500
D)$2000
Q3) M2 is both larger and more liquid than M1+.
A)True
B)False
Q4) Economists argue that the move from barter to money increased trade and production.How is this possible?
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Which of the following events took place in the early 1920s in Germany?
A)deflation that proved detrimental to farmers
B)an aversion to inflation by policymakers that kept wages stagnant
C)an unexpected drop in inflation that hurt borrowers
D)an extraordinarily high rate of inflation
Q2) When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?
A)It shifts to the right, lowering the price level.
B)It shifts to the right, raising the price level.
C)It shifts to the left, raising the price level.
D)It shifts to the left, lowering the price level.
Q3) What does the evidence gained from studying hyperinflation indicate?
A)The rate of inflation is not closely related to the rate at which the money supply changes.
B)Nominal interest rates are independent of the money supply.
C)Inflation rates parallel money supply growth rates.
D)Inflation rates move in the opposite direction as the growth rate in money supply.
Q4) List and define any two of the costs of high inflation.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) If the Canadian dollar gets weaker relative to the Japanese yen,which of the following might happen?
A)Canadian trade surplus will fall.
B)Canadian trade deficit will fall.
C)Japanese trade surplus will rise.
D)Japanese trade deficit will fall.
Q2) The country of Sylvania has a GDP of $4000,investment of $500,government purchases of $400,and net capital outflow of negative $300.What is consumption?
A)$600
B)$700
C)$3400
D)$3700
Q3) Which of the following does a trade deficit imply?
A)saving is greater than domestic investment and Y > C + I + G
B)saving is greater than domestic investment and Y < C + I + G
C)saving is less than domestic investment and Y > C + I + G
D)saving is less than domestic investment and Y < C + I + G
Q4) How do we find the real exchange rate from the nominal exchange rate?
Q5) What is the logic behind the theory of purchasing-power parity?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Q1) What is net capital outflow equal to?
A)national saving minus the trade balance
B)domestic investment plus national saving
C)national saving minus domestic investment
D)domestic investment minus national saving
Q2) If the government started with a budget deficit and moved to a surplus,which of the following best describes the effects of these changes?
A)Domestic investment would rise, and the trade balance would move towards surplus.
B)Domestic investment would rise, and the trade balance would move towards deficit.
C)Domestic investment would fall, and the trade balance would move towards surplus.
D)Domestic investment would fall, and the trade balance would move towards deficit.
Q3) Which of the following is consistent with capital flight from Mexico?
A)The Mexican capital outflow decreases.
B)The real exchange rate of the peso depreciates.
C)The Mexican real interest rate decreases.
D)The Mexican demand for loanable funds increases.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Q1) Economists mostly agree that the Great Depression was the result of a very large adverse supply shock.
A)True
B)False
Q2) Suppose there is a decrease in the availability of an important major resource,such as oil.Which of the following shifts would most likely occur?
A)The aggregate supply would shift right.
B)The aggregate supply would shift left.
C)The aggregate demand would shift right.
D)The aggregate demand would shift left.
Q3) What are the effects of an increase in the price level?
A)People hold less money, so they lend less, and the interest rate rises.
B)People hold less money, so they lend more, and the interest rate falls.
C)People hold more money, so they lend more, and the interest rate falls.
D)People hold more money, so they lend less, and the interest rate rises.
Q4) Suppose that a decrease in the demand for goods and services pushes the economy into recession.What happens to the price level? If the government does nothing,what ensures that the economy still eventually gets back to the natural rate of output?
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) According to liquidity-preference theory,when would the money-supply curve shift right?
A)if the money-demand curve shifted right
B)only if the Bank of Canada chose to increase the money supply
C)if the interest rate increased
D)if the price level fell or the interest rate decreased
Q2) When the interest rate decreases,what happens to the opportunity cost of holding money and the quantity of money demanded?
A)The opportunity cost of holding money increases, so the quantity of money demanded increases.
B)The opportunity cost of holding money increases, so the quantity of money demanded decreases.
C)The opportunity cost of holding money decreases, so the quantity of money demanded increases.
D)The opportunity cost of holding money decreases, so the quantity of money demanded decreases.
Q3) If inflation is zero,then the nominal and real interest rates are the same.
A)True
B)False
Page 18
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Q1) Refer to the Figure 16-3.Starting from c and 3,in the long run,where does an increase in money supply growth move the economy to?
A)a and 1
B)e and 4
C)d and 4
D)e and 5
Q2) Refer to the Figure 16-4e.If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy,then the economy will move to which of the following points in the short run?
A)point a
B)point b
C)point c
D)point m
Q3) According to the Friedman-Phelps analysis,in the long run,actual inflation equals expected inflation,and unemployment is at its natural rate.
A)True
B)False
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 17: Five Debates over Macroeconomic Policy
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Q1) A reduction in the tax rate on income from saving would do which of the following?
A)It would most directly benefit the poor in the short run.
B)It would increase real wages over time.
C)It would decrease the capital stock over time.
D)It would decrease productivity over time.
Q2) Let d be the percentage change in government debt,g the rate of growth in real GDP,RGDP the real GDP,NGDP the nominal GDP,P the price level,and p the inflation rate.Let G[X] denote the growth rate in variable X,which is the same thing as the percentage change in X;thus,G[X] = (X2 - X1)/X1 ×100% for small changes in X.Here are two properties of the growth rate operator G: (i)G[X×Y] = G[X] + G[Y],and (ii)G[X/Y] = G[X] - G[Y].
a.Show that the growth rate in NGDP is equal to g + p, where g is the real GDP growth rate and p is the inflation rate.
b.Show that d is equal to (Deficit/Debt) × 100%.
c.Show that the percentage change in the Debt/NGDP ratio is equal to d - (g + p).
d.Show that the condition for the Debt to NGDP ratio not to increase is d = g + p.
Q3) Why do many economists advocate a consumption tax rather than an income tax?
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