Introduction to Macroeconomics Chapter Exam Questions
Course Introduction
Introduction to Macroeconomics explores the fundamental principles and concepts that govern the overall functioning of an economy. Students will learn about key topics such as national income, economic growth, inflation, unemployment, fiscal and monetary policy, and international trade. The course emphasizes the relationships between aggregate economic variables and how government policies impact economic stability and development. Through real-world examples and analytical tools, students gain a comprehensive understanding of the forces shaping economic performance on a national and global scale.
Recommended Textbook
Principles of Macroeconomics 1st Edition by N.
Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Mike has spent $800 purchasing and repairing an old motorcycle, which he expects to sell for $1,200. He discovers that he needs an additional repair, which will cost $200. He can sell the motorcycle as it is now for $400. What should he do?
A) He should take the $400.
B) He should never sell something for less than it cost.
C) He should complete the repairs and sell the motorcycle.
D) It doesn't matter which action he takes; the outcome is the same either way.
Answer: C
Q2) Which of the following is an example of a firm with market power?
A) a deli in Winnipeg
B) a bike rental company in Victoria
C) the Science Centre in Vancouver
D) a farmer in Quebec
Answer: C
Q3) Productivity is the primary determinant of a country's living standards.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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Q1) What do economists at Industry Canada do?
A) assess temporary foreign worker programs
B) give advice to overseas development projects
C) help design and enforce Canada's competition laws
D) decide which industries should be protected
Answer: D
Q2) What is a duty of Human Resources Canada?
A) to analyze data on workers
B) to design tax policy
C) to enforce the country's antitrust laws
D) to advise the Prime Minister
Answer: A
Q3) What happens in the markets for goods and services?
A) Households provide firms with savings for investment.
B) Households provide firms with labour, land, and capital.
C) Firms provide households with the output they produced.
D) The government provides firms with inputs for the production process.
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) What happens when countries specialize according to their comparative advantage?
A) It is possible to increase world output of all goods.
B) It is possible to increase world output of some goods only by reducing the output of others.
C) One country is likely to gain from trade while others lose.
D) All countries will lose from trade.
Answer: A
Q2) Refer to Figure 3-2. 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
Q3) International trade may make some individuals in a nation better off, while other individuals are made worse off.
A)True
B)False
Answer: True
Page 5
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to the Figure 4-6. What could cause the shift from D to D ?
A) an increase in price
B) a decrease in the price of a complement
C) an increase in technology
D) a decrease in the price of a substitute
Q2) Suppose that the incomes of buyers in a particular market for a normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?
A) The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.
B) The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.
C) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
D) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
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6
Chapter 5: Measuring a Nations Income
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Q1) Alcestis and her family are the only inhabitants of Elafonisos, a small island off the coast of Greece. She only produces fresh fish, which she can sell to clients from nearby islands for 2 euros per kilo. Last year, Alcestis caught 800 kg of fish; she consumed 50 kg and sold the remaining 750 kg for 1500. She used 1000 to buy food and clothing, and she used the remaining 500 for a new fishing boat that she bought from another island. Calculate the following for Elafonisos:
a) GDP, as the value of production
b) Consumption
c) Investment
d) Exports
e) Imports
f) Net Exports
g) GDP, as total expenditure
Q2) Melissa is a Canadian resident. In a typical year, she receives wages from a local employer and dividends from owning shares in some foreign companies. How do these incomes contribute to Canadian GDP? How does the income approach to GDP differ from the way GNP is calculated?
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) When does a cost-of-living allowance (COLA) automatically raise the wage rate?
A) when GDP increases
B) when the consumer price index increases
C) when taxes increase
D) when the consumer price index is announced
Q2) Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2015 for $25. If the price index was 38.8 in 1970 and 180 in 2015, what's the price of a 1970 bag of groceries in 2015 prices?
A) $25.00
B) $29.11
C) $37.11
D) $38.80
Q3) If the cost of health and personal care increases by 20 percent, then, other things the same, how much is the CPI likely to increase?
A) by about 1 percent
B) by about 2 percent
C) by about 3 percent
D) by about 4 percent
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) If a country's saving rate increases, what happens in the long run?
A) Income decreases faster.
B) Productivity increases faster.
C) Productivity decreases.
D) Income increases.
Q2) Why do birth rates tend to be lower in developed countries than in developing countries?
A) because people are older in developed countries
B) because education is more expensive in developed countries
C) because women with the opportunity to receive a good education and desirable employment tend to want fewer children
D) because government policies in developing countries reward families with children
Q3) Use the data below to find the growth of income per person (over the entire period, not an annual basis) between the two years listed.
Year Real GDP Population
1990
$5,915,600 million 240 million
2015 $10,243,800 million 295 million
Q4) Compare and contrast the population theories of Malthus and Kremer.
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9
Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of government expenditures would make national saving equal 1500?
A) 2000
B) 3000
C) 7000
D) 9000
Q2) If Parliament instituted an investment tax credit, the demand for loanable funds would shift right.
A)True
B)False
Q3) If the current market interest rate for loanable funds is above the equilibrium level, what 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) Explain why the demand for loanable funds slopes downward and the supply of loanable funds slopes upward.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Who would NOT be included in the labour force?
A) Jay, who is on temporary layoff
B) Mike, who has retired and is not looking for work
C) Jane, who does not have a job, but has applied for several in the last week
D) Joan, who has a part-time job but is looking for a full-time one
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) How do sectoral shifts in the economy affect unemployment?
A) They create structural unemployment.
B) They reduce unemployment.
C) They increase unemployment due to job search.
D) Overall, they leave unemployment unchanged.
Q4) What is the theory of efficiency wages? Give a couple of explanations for how efficiency wages might work.
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Page 11
Chapter 10: The Monetary System
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Sample
Questions
Q1) Assume that banks do not hold excess reserves. The banking system has $20 million in reserves and has a reserve requirement of 20 percent. The public holds $10 million in currency. Then the public decides to withdraw $5 million in currency from the banking system. If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement, then what will the new reserve requirement be?
A) 16 percent
B) 18.2 percent
C) 20 percent
D) 25 percent
Q2) When was the Bank of Canada Act first enacted?
A) 1867
B) 1934
C) 1935
D) 1984
Q3) Which list contains only actions that increase the money supply?
A) raising the bank rate; making open-market purchases
B) raising the bank rate; making open-market sales
C) lowering the bank rate; making open-market purchases
D) lowering the bank rate; making open-market sales
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Page 12
Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How does this change your nominal and real wages?
A) This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
B) This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
C) This increase in pay makes your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
D) This increase in pay makes your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.
Q2) The money supply curve shifts to the left when the Bank of Canada buys government bonds.
A)True
B)False
Q3) List and define any two of the costs of high inflation.
Q4) Explain how inflation affects savings.
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Page 13
Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Q1) Canadian exports make up less than 20 percent of GDP.
A)True
B)False
Q2) Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run.
A)True
B)False
Q3) Which of the following would be Canadian foreign direct investment?
A) A Swedish car manufacturer opens a plant in Sherbrooke, Quebec.
B) A Dutch citizen buys shares of stock in a Canadian company.
C) Lululemon, a Canadian company, opens an athleticwear store in Jamaica.
D) A Canadian citizen buys shares of stock in companies located in Japan.
Q4) As an open economy, Canadian national saving can be less than Canadian investment.
A)True
B)False
Q5) Suppose a lobster supper in Nova Scotia costs fewer dollars than a lobster supper in Moscow. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist.
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Q1) Which of the following is included in the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?
A) A retail outlet in Afghanistan wants to buy watches from a Canadian manufacturer.
B) A Canadian bank loans dollars to Blair, a Canadian resident, who wants to purchase a new car made in Canada.
C) A Canadian-based mutual fund wants to purchase stock issued by a Polish company.
D) A Canadian resident imports a car made in Japan.
Q2) The 1998 default by the Russian government had results that were predictable using the textbook model. Which statement best describes what happened?
A) The event increased Russian interest rates and net exports.
B) The event reduced Russian interest rates and net exports.
C) The event increased Russian interest rates and reduced Russian net exports.
D) The event reduced Russian interest rates and increased Russian net exports.
Q3) How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?
Q4) Explain why saving need not equal domestic investment in an open economy.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these pairs. Which pair of GDP growth rates and unemployment rates is most realistic?
A) -3 percent, 2 percent
B) -1 percent, 20 percent
C) 1 percent, 7 percent
D) 6 percent, 0 percent
Q2) Which statement best describes what happens when the price level falls?
A) Households increase foreign bond purchases, and the supply of dollars increases.
B) Households increase foreign bond purchases, and the supply of dollars decreases.
C) Households decrease foreign bond purchases, and the supply of dollars increases.
D) Households decrease foreign bond purchases, and the supply of dollars decreases.
Q3) Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.
A)True
B)False
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16
Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?
A) interest rate
B) exchange rate
C) quantity of output
D) price level
Q2) Suppose the closed economy is in long-run equilibrium. Pessimism on the part of investors then shifts the aggregate-demand curve $50 billion to the left. The government wants to increase spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.9, by how much do government purchases have to rise?
A) $10 billion
B) $20 billion
C) $50 billion
D) $100 billion
Q3) If inflation is zero, then the nominal and real interest rates are the same.
A)True
B)False
Q4) Explain how unemployment insurance acts as an automatic stabilizer.
Page 17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Q1) What would cause the price level to rise and output to fall in the short run?
A) an increase in the money supply
B) a decrease in the money supply
C) an adverse supply shock
D) a favourable supply shock
Q2) Suppose an economy with high inflation decides to decrease the money supply growth rate. Which of the following best describes the results?
A) Initially unemployment rises. Eventually the short-run Phillips curve shifts right.
B) Initially unemployment rises. Eventually the short-run Phillips curve shifts left.
C) Initially unemployment falls. Eventually the short-run Phillips curve shifts right.
D) Initially unemployment falls. Eventually the short-run Phillips curve shifts left.
Q3) Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain.
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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18
Chapter 17: Five Debates Over Macroeconomic Policy
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Q1) Economists agree that if a monetary policy rule is to be used, the best one is one that makes the growth rate of the money supply constant.
A)True
B)False
Q2) What could the government do to decrease the costs of inflation without lowering the inflation rate?
A) avoid unexpected changes in the inflation rate
B) rewrite the tax laws so that nominal gains were taxed instead of real gains
C) make policy that would discourage firms from issuing indexed bonds
D) pass legislation to discourage inflation-adjusted work contracts
Q3) The Bank of Canada raised interest rates in 1999 and 2000. By doing this, what did the Bank of Canada do to the money supply and why?
A) It increased the money supply because it was concerned about unemployment.
B) It increased the money supply because it was concerned about inflation.
C) It decreased the money supply because it was concerned about unemployment.
D) It decreased the money supply because it was concerned about inflation.
Q4) Why do many economists advocate a consumption tax rather than an income tax?
Q5) Explain the time inconsistency of monetary policy.
Q6) Explain why policy lags could make stabilization policies counterproductive.
Page 19
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