Intermediate Microeconomics
Midterm Exam
Course Introduction
Intermediate Microeconomics explores the theoretical foundations and practical applications of microeconomic analysis beyond the introductory level. The course delves into consumer and producer behavior, market structures such as perfect competition, monopoly, and oligopoly, and the mechanisms of price determination. Additional topics include welfare analysis, general equilibrium, game theory, externalities, and public goods. Through mathematical models and real-world case studies, students will develop rigorous analytical skills to examine how individuals and firms make decisions, how markets function, and how various factors influence resource allocation and efficiency.
Recommended Textbook
Microeconomics 2nd Canadian Edition by Glenn Hubbard
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15 Chapters
4098 Verified Questions
4098 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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148 Flashcards
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Sample Questions
Q1) ________ is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Y that caused a change in variable X.
A)The omitted variable
B)The positive-to-negative relationship
C)Reverse causality
D)Nonlinear slope
Answer: C
Q2) Refer to Table 1.1.Using marginal analysis, determine how many hours should Lydia extend her nail salon's hours of operations?
A)2 hours
B)3 hours
C)4 hours
D)5 hours
E)6 hours
Answer: D
Q3) What is a centrally planned economy?
Answer: A centrally planned economy is an economy in which the government decides how economic resources will be allocated.
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2.1.At point A the opportunity cost of producing more SUVs is A)0 roadsters.
B)0 SUVs.
C)2.5 roadsters per SUV.
D)impossible to determine.
Answer: A
Q2) Refer to Table 2.12.What is Finland's opportunity cost of producing one cell phone?
A)0.25 cubic metres of lumber
B)4 cubic metres of lumber
C)12 cubic metres of lumber
D)16 cubic metres of lumber
Answer: B
Q3) Comparative advantage means the ability to produce a good or service
A)at a lower selling price than any other producer.
B)at a lower opportunity cost than any other producer.
C)of a higher quality than any other producer.
D)at a higher profit level than any other producer.
Answer: B
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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Sample Questions
Q1) Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.
A)True
B)False
Answer: False
Q2) Suppose that a recent study finds that stricter alcohol policies, such as raising the price of alcohol or banning the sale of alcohol close to university campuses, decrease the number of students who use marijuana.On the basis of this information, how would you describe alcohol and marijuana?
A)The two goods are substitutes in consumption.
B)There is no relationship between the two goods.
C)The two goods are complements in consumption.
D)They are both luxury goods.
Answer: C
Q3) When all else equal, as the price of a product falls, the quantity supplied decreases.
A)True
B)False
Answer: True
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Chapter 4: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Disposable household income equals household income
A)minus personal tax payments.
B)plus government transfer payments.
C)minus personal tax payments plus government transfer payments.
D)minus government transfer payments plus personal tax payments.
E)plus interest payments.
Q2) Refer to Table 4.30.Based on the table above, what is the net national income for this economy?
A)$4,700 billion
B)$4,000 billion
C)$3,150 billion
D)$2,450 billion
E)$1,850 billion
Q3) Investment, as defined by economists, would not include which of the following? Ford
A)buys a new robotic machine (from a plant in Ontario)to assemble cars.
B)adds 1,000 new cars to inventories.
C)builds another assembly plant in Oakville, Ontario.
D)buys Canadian government bonds.
E)buys new computers for its human resources department.
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Chapter 5: Unemployment and Inflation
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Sample Questions
Q1) Refer to Table 5.3.Assume the market basket for the consumer price index has three products - Cokes, hamburgers, and CDs - with the above values in 2002 and 2014 for price and quantity.The Consumer Price Index for 2014 equals
A)75.
B)93.
C)108.
D)121.
E)132.
Q2) If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?
A)1%
B)5%
C)6%
D)9%
E)12%
Q3) Why would a firm pay efficiency wages?
Q4) Describe the three types of unemployment.
Q5) Explain how the CPI is constructed.
Q6) How could a growing labour force lead to an increase in the unemployment rate?
Page 7
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Chapter 6: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) If technological change increases the profitability of new investment for firms, then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.
A)supply; right; fall
B)supply; left; rise
C)demand; right; rise
D)demand; left; fall
E)supply; left; fall
Q2) The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as
A)technology.
B)labour productivity.
C)real GDP.
D)human capital.
E)unit efficiency.
Q3) The commonly accepted definition of a recession is at least two consecutive quarters of falling real GDP.
A)True
B)False
Page 8
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Chapter 7: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) Political stability is not a prerequisite to economic growth.
A)True
B)False
Q2) Employees who are employed for longer periods tend to have greater skills, greater productivity and higher wages.American workers tend to retire later and have fewer spells of long unemployment.This is due to
A)less generous payments for unemployment.
B)fewer regulations around firms' abilities to fire workers.
C)fewer restrictions around implementation of new technology.
D)relatively little corruption.
E)all of the above
Q3) Is knowledge capital subject to the law of diminishing returns? Explain.
Q4) Significant economic growth did not begin in the world until
A)1000 CE.
B)1750 CE.
C)1820 CE.
D)the 20th century CE.
E)1500 CE.
Page 9
Q5) List four types of government policies that can aid economic growth.
Q6) Describe the process of "creative destruction" using a specific example.
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Page 10
Chapter 8: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) Net exports usually ________ when the Canadian economy is in a recession and ________ when the Canadian economy is expanding, all else equal.
A)increase; increase
B)decrease; increase
C)increase; decrease
D)decrease; decrease
Q2) At macroeconomic equilibrium
A)total investment equals total inventories.
B)total spending equals total production.
C)total consumption equals total production.
D)total taxes equal total transfers.
E)total exports equal total imports.
Q3) If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is
A)1.20.
B)0.80.
C)0.70.
D)0.20.
E)0.10.
11
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Chapter 9: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Explain how the aggregate demand and aggregate supply model can be made more dynamic.
Q2) A negative supply shock in the short run causes
A)the aggregate supply curve to shift to the left.
B)the price level to fall.
C)unemployment to fall.
D)equilibrium real GDP to rise.
E)potential GDP to rise.
Q3) On the long-run aggregate supply curve,
A)an increase in the price level increases the aggregate quantity of GDP supplied.
B)an increase in the price level reduces the aggregate quantity of GDP supplied.
C)an increase in the price level has no effect on the aggregate quantity of GDP supplied.
D)an increase in the price level increases the level of potential GDP.
E)an increase in the price level increases the aggregate quantity GDP demanded.
Q4) A decrease in disposable income will shift the aggregate demand curve to the left.
A)True
B)False
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Chapter 10: Money, Banks, and the Bank of Canada
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Sample Questions
Q1) The largest liability on the balance sheet of most banks is their A)loans.
B)holdings of securities.
C)deposits with the Bank of Canada.
D)chequing account and savings account deposits of their customers.
E)vault cash.
Q2) In 1933, a Royal Commission recommended establishing the Bank of Canada to be responsible for Canada's A)banking system.
B)unemployment rates.
C)printing of currency and minting of coins.
D)monetary policy.
E)fiscal policy.
Q3) The simple deposit multiplier is the ratio of the amount of A)new reserves created by the banks to the amount of deposits.
B)new reserves created by the banks to the amount of loans.
C)deposits created by the banks to the amount of new reserves.
D)deposits created by the banks.
E)new economic activity to the amount of new reserves.
Q4) How do open market operations work?
Page 13
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Chapter 11: Monetary Policy
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Sample Questions
Q1) The Bank of Canada's two main ________ are the money supply and the interest rate.
A)monetary policy targets
B)policy tools
C)fiscal policy targets
D)fiscal tools
E)monetary policy goals
Q2) To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S.Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac
A)sell mortgages to investors and use the funds to purchase bonds from banks.
B)sell bonds to investors and use the funds to purchase mortgages from banks.
C)sell bonds to banks and use the funds to purchase mortgages from investors.
D)sell mortgages to banks and use the funds to purchase bonds from investors.
E)use government tax revenue to insure mortgage issuers against defaults.
Q3) Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?
Q4) What problems can high inflation rates cause for the economy?
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) Which of the following would be considered an active fiscal policy?
A)The Bank of Canada increases the money supply.
B)Tax incentives are offered to encourage the purchase of fuel-efficient cars.
C)Spending on military missions in Afghanistan is increased to promote national security.
D)A tax cut is implemented to stimulate spending during a recession.
E)The province of Ontario building new hockey rinks to encourage healthier living.
Q2) Refer to Figure 12.5.In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the federal government would most likely pursue
A)expansionary fiscal policy.
B)contractionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.
E)contractionary automatic stabilizers.
Q3) Contractionary fiscal policy involves decreasing government purchases or increasing taxes.
A)True
B)False
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Page 15
Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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Sample Questions
Q1) In the aftermath of the global financial crisis, it is generally accepted that record ________ on Wall Street played a significant role.
A)high levels of leverage
B)low levels of leverage
C)high levels of liabilities
D)low levels of liabilities
E)government intervention
Q2) A relationship that depends on the basic behaviour of consumers and firms and remains unchanged over long periods is called a ________ relationship.
A)frictional
B)structural
C)cyclical
D)dynamic
E)transitory
Q3) A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.
A)True
B)False
Q4) What lead some observers to declare there was a "crisis in monetary policy"?
Page 16
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) Why is the balance of payments always zero?
Q2) A federal budget deficit ________ interest rates, which ________ exchange rates (foreign currency per domestic currency)and ________ the balance of trade. A)raises; raises; reduces B)reduces; raises; reduces C)raises; reduces; reduces D)reduces; reduces; raises E)raises; raises; raises
Q3) Why does continued foreign investment in U.S.stocks and bonds, and foreign companies continuing to build factories in the United States, result in a current account deficit in the United States?
Q4) Explain why economies with financial account surpluses usually have current account deficits.
Q5) Expansionary fiscal policy crowds out both domestic investment and net exports. A)True B)False
Q6) Does the saving and investment equation imply that a country's national saving must always equal its domestic investment? Explain.
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Chapter 15: The International Financial System
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Sample Questions
Q1) When the value of a currency is determined mostly by demand and supply, but with occasional government intervention, the exchange rate system is defined as
A)fixed.
B)floating.
C)managed float.
D)Bretton Woods.
E)mixed economy.
Q2) The currency adopted by most countries in ________ is referred to as the euro.
A)Western Europe
B)Eastern Europe
C)Europe and Asia
D)Southern Europe and Northern Africa
E)Scandinavian Europe
Q3) Explain why international capital markets have expanded since the 1980s.
Q4) Refer to Table 15.1.Fill in the missing values in the above table.Assume the Big Mac is selling for $4.07 in Canada.Explain whether the Canadian dollar is overvalued or undervalued relative to each of the other currencies and predict what will happen in the future to each exchange rate.
Q5) What does it mean when one currency is "pegged" against another currency?
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