Introduction to Macroeconomics Exam Review
Course Introduction
Introduction to Macroeconomics explores the fundamental principles and concepts that underpin the functioning of national and global economies. The course covers key topics including gross domestic product (GDP), inflation, unemployment, fiscal and monetary policy, and international trade. Students will learn how to analyze economic indicators, understand the roles of government and central banks, and evaluate the impact of economic policies on growth, stability, and development. By integrating theoretical frameworks with real-world examples, the course equips students with the skills to critically assess economic issues and policy debates affecting society at large.
Recommended Textbook Principles of Macroeconomics 1st Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) What is a marginal change?
A) a long-term trend
B) a large, significant adjustment
C) a change for the worse, and so is usually short term
D) a small incremental adjustment
Answer: D
Q2) Who coined the term "invisible hand"?
A) Adam Smith
B) David Ricardo
C) John Maynard Keynes
D) Milton Friedman
Answer: A
Q3) According to Adam Smith, what is the success of decentralized market economies primarily due to?
A) the basic benevolence of society
B) society's justice (legal) system
C) individuals' self-interest
D) basic human survival instincts
Answer: C
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Page 3
Chapter 2: Thinking Like an Economist
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239 Flashcards
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Sample Questions
Q1) The field of economics is divided into two subfields:microeconomics and macroeconomics.
A)True
B)False
Answer: True
Q2) Why do economists make assumptions?
A) to diminish the chance of wrong answers
B) to make the world easier to understand
C) because all scientists make assumptions
D) to make certain that all necessary variables are included
Answer: B
Q3) What is a characteristic of a good theory?
A) It is a widely accepted theory.
B) It is a theory that starts from realistic assumptions.
C) It is a theory that helps us understand how the world works.
D) It is a theory based on original predictions.
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) What is David Ricardo's contribution?
A) He wrote books opposing the ideas of Adam Smith.
B) He was the founder of modern economics.
C) He argued in favour of Britain following a free-trade policy.
D) He wrote An Inquiry into the Nature and Causes of the Wealth of Nations.
Answer: C
Q2) Using all available resources, if a farmer can produce either 65 cantaloupes or 70 watermelons, what is the opportunity cost of 1 cantaloupe to the farmer?
A) 0.82 watermelons
B) 1.08 watermelons
C) 1.50 watermelons
D) 2.00 watermelons
Answer: B
Q3) What are exports?
A) limits placed on the quantity of goods brought into a country
B) goods produced abroad and sold domestically
C) a country's ability to produce a good
D) goods produced domestically and sold abroad
Answer: D
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Holding the other determinants of supply constant, what would a change in price do?
A) result in a change in supply
B) have no effect on the quantity supplied
C) result in a shift of demand
D) result in a movement along a stable supply curve
Q2) Smart phones are normal goods. What will happen to the equilibrium price and quantity of smart phones if phone plans become more expensive, fewer firms produce smart phones, and smart phone users experience a decrease 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
Q3) Refer to the Figure 4-9. Which graph could be used to show the result of 5 percent of the country's smokers deciding to stop smoking?
A) graph a
B) graph b
C) graph c
D) both a and c could be used to show the result
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6
Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) Suppose that over the past 25 years a country's nominal GDP grew to three times its former size. In the meantime, population grew 50 percent and prices rose 100 percent. What happened to real GDP per person?
A) It more than doubled.
B) It rose, but less than doubled.
C) It did not change.
D) It fell.
Q2) A country reported a nominal GDP of $100 billion in 2015 and $75 billion in 2014 and reported a GDP deflator of 125 in 2015 and 120 in 2014. What happened to real output and prices from 2014 to 2015?
A) Real output and prices both rose.
B) Real output rose and prices fell.
C) Real output fell and prices rose.
D) Real output and prices both fell.
Q3) According to the simple circular-flow model, what do firms buy from households?
A) natural resources, such as oil and minerals
B) goods and services
C) inventions and innovations
D) labour
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) In 1964 in London, Ontario, one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55. Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?
A) 60 in 1964 and 141.6 today
B) 75 in 1964 and 126.4 today
C) 80 in 1964 and 112.0 today
D) 90 in 1964 and 250.0 today
Q2) Refer to the Table 6-5. Using 2013 as the base year, what is the consumer price index?
A) 100 in 2013, 135 in 2014, and 155 in 2015
B) 100 in 2013, 270 in 2014, and 310 in 2015
C) 200 in 2013, 270 in 2014, and 310 in 2015
D) 200 in 2013, 540 in 2014, and 620 in 2015
Q3) If the real interest rate is 9 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?
A) 7 percent more dollars, which will purchase 7 percent more goods
B) 7 percent more dollars, which will purchase 9 percent more goods
C) 11 percent more dollars, which will purchase 7 percent more goods
D) 11 percent more dollars, which will purchase 9 percent more goods
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Page 8
Chapter 7: Production and Growth
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Sample Questions
Q1) How large was the growth rate of Japan over the period 1890-2010?
A) 1.5 percent
B) 1.75 percent
C) 2.40 percent
D) 2.65 percent
Q2) According to the traditional view of the production process, how does output per worker change when capital per worker increases?
A) It increases. This increase is larger at larger values of capital per worker.
B) It increases. This increase is smaller at larger values of capital per worker.
C) It increases. This increase is the same at all values of capital per worker.
D) It decreases. This decrease is larger at larger values of capital per worker.
Q3) The annual population growth rate in developed countries is about 1 percent, while the growth rate in developing countries is about 3 percent.
A)True
B)False
Q4) Why are property rights important for the growth of a nation's standard of living
Q5) Compare and contrast the population theories of Malthus and Kremer.
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Page 9
Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) In a closed economy, what does (Y - T - C) represent?
A) national saving
B) government tax revenue
C) public saving
D) private saving
Q2) You are required to testify before Parliament concerning the effects of an increase in the government surplus. What is the best thing for you to say?
A) The debt and interest rates will rise.
B) The debt and interest rates will fall.
C) The debt will rise, and interest rates will fall.
D) The debt will fall, and interest rates will rise.
Q3) Suppose a developing country decides to institute an investment tax credit. As a result, what is most likely to happen?
A) Interest rates would rise, and investment would fall.
B) Interest rates would fall, and investment would rise.
C) Both interest rates and investment would fall.
D) Both interest rates and investment would rise.
Q4) What are the basic differences between bonds and stocks
Q5) Draw and label a graph showing equilibrium in the market for loanable funds.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Aaron is the owner of a firm that produces wind power in southern Alberta. There are many such firms in the area. Aaron decides that if he pays his workers a wage higher than the going market wage, his profits will increase. What is a likely explanation for his decision?
A) The higher the wage, the less often his workers will choose to leave his firm.
B) The higher the wage, the lower will be the cost of obtaining needed supplies.
C) The higher the wage, the more he can charge for his wind power.
D) The higher the wage, the less competition will be in the industry.
Q2) When a union bargains successfully with employers, what happens to quantity of labour supplied and demanded in that industry?
A) Both the quantity of labour supplied and the quantity of labour demanded increase.
B) Both the quantity of labour supplied and the quantity of labour demanded decrease.
C) The quantity of labour supplied increases and the quantity of labour demanded decreases.
D) The quantity of labour supplied decreases the quantity of labour demanded increases.
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11
Chapter 10: The Monetary System
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Sample Questions
Q1) Which statement best defines reserve requirements?
A) They are regulations concerning the amount banks are allowed to borrow from the central bank.
B) They are regulations concerning the amount of reserves banks must hold against deposits.
C) They are regulations concerning reserves banks must hold based on the number and type of loans they make.
D) They are regulations concerning the interest rate at which banks can borrow from the central bank.
Q2) What does the text mean by, and how does it answer the question, "Where is all the currency?"
Q3) When the Bank of Canada conducts open-market purchases, how do commercial banks' assets most likely change?
A) Reserves increase, and banks increase lending.
B) Reserves increase, and banks decrease lending.
C) Reserves decrease, and banks increase lending.
D) Reserves decrease, and banks decrease lending.
Q4) If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Given a nominal interest rate of 12 percent, when would you earn the highest after-tax real interest rate?
A) Inflation is 2 percent, and the tax rate is 50 percent.
B) Inflation is 3 percent, and the tax rate is 30 percent.
C) Inflation is 5 percent, and the tax rate is 20 percent.
D) Inflation is 6 percent, and the tax rate is 40 percent.
Q2) Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.
A)True
B)False
Q3) Last year, Tealandia produced 60,000 bags of green tea, which sold at 10 units each of Tealandia's currency-the leaf. Tealandia's money supply was 15,000. What was the velocity of money in Tealandia?
A) 1/30
B) 5/6
C) 30
D) 40
Q4) What are the costs of inflation?
Q5) Define each of the symbols and explain the meaning of M × V = P × Y.
Q6) Explain how inflation affects savings.
Page 13
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Suppose Paul, a Romanian citizen, builds a telescope factory in Israel. What are the effects of these expenditures?
A) They increase Romanian and Israeli net capital outflow.
B) They increase Romanian net capital outflow, but decrease Israeli net capital outflow.
C) They decrease Romanian net capital outflow, but increase Israeli net capital outflow.
D) They increase Romanian net capital outflow, but Israeli net capital outflow remains unchanged.
Q2) List the factors that might influence a country's exports, imports, and trade balance.
Q3) What does a trade surplus 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) Suppose a bottle of wine costs 25 euros in France and $20 in Canada. If the exchange rate is 1.25 euros per dollar, what is the real exchange rate?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) If there is capital flight from Canada, how does the open-economy macroeconomic model change?
A) Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift right.
B) Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift left.
C) The supply of loanable funds shifts left, while the supply of dollars shifts right.
D) The supply of loanable funds shifts right, while the supply of dollars shifts left.
Q2) In an open economy, the supply of loanable funds comes from national saving.
A)True
B)False
Q3) What are the effects of an increase in the supply of loanable funds?
A) Net capital outflow and the real exchange rate both increase.
B) Net capital outflow and the real exchange rate both decrease.
C) Net capital outflow increases, and the real exchange rate decreases.
D) Net capital outflow decreases, and the real exchange rate increases.
Q4) Why do higher real interest rates lead to lower net capital outflow?
Q5) 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) According to the sticky-price theory, which statement is consistent with an unexpected fall in the price level?
A) Some firms' prices are lower than desired, which increases their sales.
B) Some firms' prices are lower than desired, which depresses their sales.
C) Some firms' prices are higher than desired, which increases their sales.
D) Some firms' prices are higher than desired, which depresses their sales.
Q2) Refer to the Figure 14-1. How would an increase in the money supply move the economy in the short and long run?
A) from C to B in the short run and the long run
B) from C to D in the short run and the long run
C) from C to B in the short run and to A in the long run
D) from C to D in the short run and back to C in the long run
Q3) Because we understand what things change GDP, we can predict recessions with a fair amount of accuracy.
A)True
B)False
Q4) When output rises, unemployment falls.
A)True
B)False
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) What does fiscal policy primarily affect in the short run?
A) growth
B) investment
C) aggregate demand
D) aggregate supply
Q2) What effects do supply-side economists believe that lowering taxes have?
A) It lowers aggregate demand and increases aggregate supply.
B) It lowers both aggregate demand and aggregate supply.
C) It increases both aggregate demand and aggregate supply.
D) It increases aggregate demand and decreases aggregate supply.
Q3) According to liquidity-preference theory, how does a decrease in the price level affect the interest rate and output demanded, respectively?
A) The interest rate increases, and output demanded increases.
B) The interest rate increases, and output demanded decreases.
C) The interest rate decreases, and output demanded increases.
D) The interest rate decreases, and output demanded decreases.
Q4) Describe the process in the money market by which the interest rate reaches its equilibrium value if it starts above equilibrium.
Q5) What is the difference between monetary policy and fiscal policy?
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) What do the data for the period of 1968 through 1973 demonstrate?
A) that there is a short-run tradeoff between inflation and unemployment
B) that a supply shock can disrupt the short-run tradeoff between inflation and unemployment
C) that there is a long-run tradeoff between inflation and unemployment
D) that a demand shock can disrupt the short-run tradeoff between inflation and unemployment
Q2) If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?
A) Both the long-run Phillips curve and the long-run aggregate-supply curve would shift right.
B) Both the long-run Phillips curve and the long-run aggregate-supply curve would shift left.
C) The long-run Phillips curve would shift right, and the long-run aggregate-supply curve would shift left.
D) The long-run Phillips curve would shift left, and the long-run aggregate-supply curve would shift right.
Q3) 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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Sample Questions
Q1) Suppose the economy goes into recession. Which of the following is a list of things policymakers could do to try to end the recession?
A) increase the money supply, increase taxes, and increase government spending
B) increase the money supply, increase taxes, and decrease government spending
C) increase the money supply, decrease taxes, and increase government spending
D) decrease the money supply, increase taxes, and decrease government spending
Q2) In the aggregate demand and aggregate supply model, which pair of simultaneous events causes a decrease in output and employment?
A) lower demand and lower supply
B) lower demand and higher supply
C) higher demand and higher supply
D) higher demand and lower supply
Q3) Identify three of the five costs of inflation.
Q4) Suppose a country has had a high and relatively stable inflation rate for a long time. How might this affect the costs and benefits of inflation reduction?
Q5) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?
Q6) Explain how it is possible for the government debt to grow forever.
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