Intermediate Macroeconomics
Textbook Exam Questions
Course Introduction
Intermediate Macroeconomics explores the core concepts, models, and analytical tools used to understand the functioning of the overall economy. Building on introductory macroeconomics, this course delves into topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, and international trade and finance. Students will engage with models like the IS-LM framework, the AD-AS model, and the Solow growth model, applying them to real-world economic issues and policy debates. The course also emphasizes the role of expectations and dynamics in macroeconomic analysis, helping students develop a deeper understanding of how economic variables interact and respond to policy interventions.
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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Q1) Henry decides to spend two hours playing golf rather than working at his job,which pays $8 per hour.What is Henry's tradeoff?
A)the $16 he could have earned working for two hours
B)nothing, because he enjoys playing golf more than working
C)the increase in skill he obtains from playing golf for those two hours
D)nothing, because he spent $16 for green fees to play golf
Answer: A
Q2) What is the opportunity cost of going to university?
A)the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses
B)the value of the best opportunity a student gives up to attend university
C)zero for students who are fortunate enough to have all of their college expenses paid by someone else
D)zero, since a college education will allow a student to earn a larger income after graduation
Answer: B
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Chapter 2: Thinking Like an Economist
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Q1) Refer to Figure 2-1.Which arrow shows the flow of goods and services?
A)arrow A
B)arrow B
C)arrow C
D)arrow D
Answer: B
Q2) What two broad subfields is the field of economics traditionally divided into?
A)national economics and international economics
B)consumer economics and producer economics
C)private sector economics and public sector economics
D)microeconomics and macroeconomics
Answer: D
Q3) What is another term for factors of production?
A)inputs
B)outputs
C)goods
D)services
Answer: A
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Chapter 3: Interdependence and the Gains from Trade
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Q1) Refer to Figure 3-1.What do the two producers have an absolute advantage in?
A)Paul has an absolute advantage in both wheat and corn.
B)Paul has an absolute advantage in wheat, and Cliff has an absolute advantage in corn.
C)Cliff has an absolute advantage in wheat, and Paul has an absolute advantage in corn.
D)Cliff has an absolute advantage in both wheat and corn.
Answer: A
Q2) Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.Who has a comparative advantage in which product?
A)Mike in chairs, Sandy in tables
B)both Mike and Sandy in tables
C)both Mike and Sandy in chairs
D)Mike in tables, Sandy in chairs
Answer: A
Q3) Some countries win in international trade,while other countries lose.
A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) Workers at a bicycle assembly plant currently make minimum wage.If the provincial government increases the minimum wage by $1.00 an hour,what will likely happen?
A)Demand for bicycle assembly workers will increase.
B)Supply of bicycles will shift to the right.
C)Supply of bicycles will shift to the left.
D)The firm must increase output to maintain profit levels.
Q2) What happens when there is a surplus in a market?
A)There is upward pressure on price.
B)There is downward pressure on price.
C)The market could still be in equilibrium.
D)There are too many buyers chasing too few goods.
Q3) If goods A and B are complements,what will result from an increase in the price of A?
A)more A and more B is sold
B)more A and less B is sold
C)less A and more B is sold
D)less A and less B is sold
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) The behaviour of buyers and sellers drives markets toward equilibrium.
A)True
B)False
Q2) What is one reason that government taxes on cigarettes reduce smoking?
A)Cigarette companies are successful in passing much of the tax on to consumers.
B)Cigarette companies do not pass much of the tax on to consumers.
C)There are many good substitutes for cigarettes.
D)Higher prices suggest less harmful cigarettes.
Q3) A reduction in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way.
A)True
B)False
Q4) How is a market supply curve constructed?
A)by vertically summing individual supply curves
B)by horizontally summing individual supply curves
C)by finding the average quantity supplied of the market's individual supply curves
D)by summing a consumer's demands for all goods
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Chapter 5: Measuring a Nation's Income
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Q1) Ryan is a Canadian resident who lives with his family in Victoria,Canada,but works for a small donut cafe in Seattle,U.S.,where he commutes every day.On a typical day,Ryan produces 400 donuts that sell for $1 apiece.Of the revenue from selling the donuts,Ryan is paid $200 per day.The remaining $200 revenue is distributed as follows: $50 pays for inputs such as water,flour,sugar,butter,and energy,$100 is rent for using the facilities and interest for an initial loan to start the business,and $50 goes to salary to the manager and profit to the owner of the café.
a)How much is the increase in U.S.GDP and GNP generated by the production of the 400 donuts?
b)How much is the increase in Canada's GDP and GNP generated by the production of the 400 donuts?
c)How much is Ryan's contribution to the creation of the $400 value of donuts? Explain your answer.
d)Since Ryan takes his income home to Canada,should the U.S.allow foreign workers such as Ryan to take jobs that might otherwise go to American workers?
Q2) Income exceeds production.
A)True
B)False
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Which of the following best describes the relationship between inflation and interest rates?
A)There is no relationship between inflation and interest rates.
B)The interest rate is determined by the rate of inflation.
C)In order to fully understand inflation, we need to know how to correct for the effects of interest rates.
D)In order to fully understand interest rates, we need to know how to correct for the effects of inflation.
Q2) Suppose the price of a carton of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50.If the CPI rises from 150 to 200,what will people likely buy?
A)more ice cream and more coffee
B)more ice cream and less coffee
C)less ice cream and more coffee
D)less ice cream and less coffee
Q3) Which of the following is the consumer price index used for?
A)to track changes in the level of wholesale prices in the economy
B)to monitor changes in the cost of living
C)to monitor changes in the level of real GDP
D)to track changes in the stock market
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Chapter 7: Production and Growth
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Sample Questions
Q1) International data on the history of real GDP growth rates show that the rich countries get richer and the poor countries get poorer.
A)True
B)False
Q2) Productivity can be found as number of hours worked divided by output.
A)True
B)False
Q3) If there are constant returns to scale,how is the production function written?
A)xY = 2 x A F(L, K, H, N)
B)Y/L = A F(xL, xK, xH, xN)
C)Y/L = A F( 1, K/L, H/L, N/L)
D)L = A F(Y, K, H, N)
Q4) Which of the following statements best explains the importance of real GDP per person?
A)It is a useful measure of economic growth.
B)It is a useful measure of a country's wealth.
C)It is a useful measure of the cost of living.
D)It is a useful measure of well-being.
Q5) What is the difference between human capital and technology?
Q6) How do inward-oriented policies affect a nation's growth?
Page 10
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Chapter 8: Saving,Investment,and the Financial System
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Q1) How does the supply of loanable funds curve slope?
A)upward because an increase in the interest rate induces people to save more
B)downward because an increase in the interest rate induces people to save less
C)downward because an increase in the interest rate induces people to invest less
D)upward because an increase in the interest rate induces people to invest more
Q2) You have two sets of estimates of national account numbers for a closed economy for next year.In the first set,government expenditures will be $30 billion,transfer payments will be $10 billion,and taxes will be $45 billion.Under the second set,GDP will be $200 billion,taxes will be $50 billion,transfer payments will be $20 billion,consumption will be $120 billion,and investment will be $40 billion.Based on these numbers,what are the respective estimated results?
A)$15 billion surplus and a $10 billion surplus
B)$15 billion surplus and a $10 billion deficit
C)$5 billion surplus and a $10 billion surplus
D)$5 billion surplus and a $10 billion deficit
Q3) What are the basic differences between bonds and stocks?
Q4) Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.
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Chapter 9: Unemployment and Its Natural Rate
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Questions
Q1) Which of the following best explains how unemployment relates to business cycles?
A)Unemployment can be completely eliminated through economic policies when the economy grows at normal rates.
B)Unemployment only exists during periods of economic slowdown.
C)Cyclical unemployment is inversely related to short-run economic fluctuations.
D)Unemployment is unrelated to short-run economic fluctuations.
Q2) What was the labour-force participation rate of men just after World War II?
A)about 84%
B)about 75%
C)about 70%
D)about 63%
Q3) Refer to the Table 9-1.What is the adult female labour-force participation rate in Dan?
A)4.76 percent
B)37.03 percent
C)38.10 percent
D)66.67 percent
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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Sample Questions
Q1) Which of the following is included in M1+?
A)personal cheques
B)debit cards
C)currency
D)nonpersonal demand deposits
Q2) 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.
Q3) How can the Bank of Canada directly protect a bank during a bank run?
A)by increasing reserve requirements
B)by selling government bonds to the bank
C)by lending reserves to the bank
D)by penalizing the bank in trouble
Q4) What is the difference between the reserve ratio and the reserve requirement? Which is generally larger?
Q5) What is the difference between money and wealth?
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Chapter 11: Money Growth and Inflation
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Q1) Which of the following best describes the effect of printing money to finance government expenditures on the economy?
A)Printing money causes the value of money to rise.
B)Printing money imposes a tax on everyone who holds money.
C)Printing money imposes a tax on net borrowers.
D)Printing money causes the nominal interest rate to decrease.
Q2) When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following best describes the effects of an increase in money supply?
A)The equilibrium value and equilibrium quantity of money both increase.
B)The equilibrium value and equilibrium quantity of money both decrease.
C)The equilibrium value increases, while the equilibrium quantity of money decreases.
D)The equilibrium value decreases, while the equilibrium quantity of money increases.
Q3) How can inflation be measured?
A)by the change in the consumer price index
B)by the percentage change in the consumer price index
C)by the percentage change in the price of a specific commodity
D)by the change in the price of a specific commodity
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Q1) If a country has business opportunities that become relatively attractive to other countries,which of the following best predicts the effects of this change?
A)Both net exports and net capital outflow increase.
B)Both net exports and net capital outflow decrease.
C)Net exports increase, but net capital outflow decreases.
D)Net exports decrease, but net capital outflow increases.
Q2) Suppose the price level in Canada (P)and the nominal exchange rate (e)between the Canadian dollar and the foreign currency remain the same,while the price level abroad increases from P * to P *.Let the real exchange rate be X.What is the percentage change in the real exchange rate?
Q3) About what percentage of GDP are Canadian imports?
A)less than 13 percent
B)about 14 percent
C)about 37 percent
D)about 67 percent
Q4) If the exchange rate is 10 pesos per dollar,it is also 0.10 dollars per peso.
A)True
B)False
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) Which of the following is consistent with positive net exports?
A)Exports are greater than imports.
B)Net capital outflow is negative.
C)Exports are less than imports.
D)Net capital outflow is zero.
Q2) Using the macroeconomic model of a foreign-currency exchange market,(a)analyze the situation in which a government imposes a fixed exchange rate,and (b)determine what that government should do in order to maintain the fixed exchange.
Q3) According to the open-economy macroeconomic model,which of the following would NOT be a consequence of an increase in the Canadian government budget deficit?
A)Canadian trade balance rises.
B)Canadian net capital outflow falls.
C)Canadian investment abroad decreases.
D)The real exchange rate of the Canadian dollar appreciates.
Q4) In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.
Page 16
A)True
B)False
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Chapter 14: Aggregate Demand and Aggregate Supply
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Q1) Which of the following government actions will shift the aggregate demand right?
A)a rise in personal income taxes
B)an increase in the money supply
C)a repeal of an investment tax credit
D)closing up a military facility to reduce costs
Q2) How does the aggregate demand and aggregate supply model reflect a rise in production costs?
A)The short-run aggregate-supply curve shifts to the right.
B)The short-run aggregate-supply curve shifts to the left.
C)The aggregate-demand curve shifts to the right.
D)The aggregate-demand curve shifts to the left.
Q3) What changes are likely to happen in an economy when production costs rise?
A)Output and prices rise.
B)Output rises and prices fall.
C)Output falls and prices rise.
D)Output and prices fall.
Q4) Compare the effects of an aggregate-demand-induced recession with an aggregate-supply-induced recession.How would you recognize that a recession is induced by demand or supply? What policies would be appropriate in the first case and what in the second?
Page 17
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) According to supply-side theories,which of the following happens if the government cuts the tax rate?
A)Workers keep less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
B)Workers keep less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
C)Workers keep more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
D)Workers keep more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
Q2) According to liquidity-preference theory,other things being equal,a higher price level leads households to do which of the following in the short run?
A)increase consumption
B)decrease the amount of cash they want to hold
C)buy bonds
D)decrease consumption
Q3) Use the money market to explain why the aggregate demand curve slopes downward.
Q4) Why and in what way are fiscal policy lags different from monetary policy lags?
Page 18
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Q1) Suppose the minimum wage decreased.At any given rate of inflation,what would happen to output and employment?
A)Both output and employment would be higher.
B)Both output and employment would be lower.
C)Output would be higher and unemployment would be lower.
D)Unemployment would be lower and output would be higher.
Q2) Refer to the Figure 16-2.What is Curve 2?
A)the long-run Phillips curve
B)the short-run Phillips curve
C)the long-run aggregate-demand curve
D)the short-run aggregate-demand curve
Q3) Economists generally agree that there is a short-run Phillips curve.However,some economists believe that the short-run Phillips curve is steep and that inflation expectations adjust quickly so the long run is short-lived.What do such beliefs imply about the benefits of using policy to reduce unemployment? What do such beliefs imply about the costs of using policy to reduce inflation?
Q4) Discuss the factors determining the slope of the short-run Phillips curve.Is the linear shape appropriate? Why,or why not?
Q5) 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) Suppose the budget deficit is rising 2 percent per year and nominal GDP is rising 7 percent per year.Which of the following best describes the debt created by these continuing deficits?
A)sustainable, but the future burden on your children cannot be offset
B)not sustainable, and the future burden on your children cannot be offset
C)not sustainable, but the future burden on your children can be offset if you save for them
D)sustainable, and the future burden on your children can be offset if you save for them
Q2) Explain the main argument in favour of economic stabilization.
Q3) Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment?
A)decreasing the money supply
B)decreasing taxes
C)decreasing government expenditures
D)decreasing government deficit
Q4) Identify three of the five costs of inflation.
Q5) Explain the time inconsistency of monetary policy.
Q6) Explain why policy lags could make stabilization policies counterproductive.
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