Introduction to Macroeconomics Exam Review
Course Introduction
Introduction to Macroeconomics offers a foundational exploration of the economy as a whole, focusing on aggregate variables and the factors that influence national and global economic performance. The course examines core concepts such as gross domestic product (GDP), inflation, unemployment, fiscal and monetary policy, and international trade. Students will learn how governments and central banks use policy tools to steer economic growth, control inflation, and reduce unemployment, while analyzing the impact of these interventions on markets and society. The course also introduces major macroeconomic schools of thought, enabling students to critically assess real-world economic events and trends.
Recommended Textbook Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) Productivity is defined as the quantity of goods and services produced from each hour of a worker's time.
A)True
B)False
Answer: True
Q2) Why do both households and societies face many decisions?
A) Resources are scarce.
B) Populations may fluctuate over time.
C) Wages for households and therefore society fluctuate with business cycles.
D) People,by nature,tend to disagree.
Answer: A
Q3) Guns and butter represent the classic societal tradeoff between spending on which two items?
A) durable and nondurable goods
B) imports and exports
C) national defence and consumer goods
D) law enforcement and agriculture
Answer: C
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) An economic model can accurately explain how the economy is organized because it is designed to include every feature of the real world.
A)True
B)False
Answer: False
Q2) What happens when scientists make good assumptions?
A) They greatly simplify the problem without substantially affecting the answer.
B) They further complicate an already complicated subject.
C) They can leave out necessary variables that may result in incorrect answers.
D) They are capable of eliminating invalid causations.
Answer: A
Q3) Which statement best describes economic models?
A) They are based on unrealistic assumptions.
B) They accurately describe the reality.
C) They allow economists to learn how the economy works.
D) They include as many variables as possible.
Answer: C
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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 devote half of their time (20 hours)to the production of each good,what would the total production be?
A) 7 ballet slippers and 8 tap shoes
B) 8 ballet slippers and 8 tap shoes
C) 9 ballet slippers and 6 tap shoes
D) 10 ballet slippers and 8 tap shoes
Answer: A
Q2) Refer to Table 3-2.What is the opportunity cost of 1 kilogram of meat for the rancher?
A) 4 hours of labour
B) 6 hours of labour
C) 3 / 2 kilograms of potatoes
D) 2 / 3 kilogram of potatoes
Answer: D
Q3) What are imports?
A) people who work in foreign countries
B) goods produced domestically and sold abroad
C) whatever is given up to obtain some item
D) goods produced abroad and sold domestically
Answer: D
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to the Figure 4-5.Which of the four graphs shown illustrates a decrease in quantity demanded?
A) graph A
B) graph B
C) graph C
D) graph D
Q2) What does supply-and-demand analysis involve?
A) comparisons of products in different markets
B) evaluation of buyers' reluctance to pay the market price
C) comparing the old equilibrium and the new equilibrium
D) evaluating the friction that develops between buyers and sellers
Q3) Suppose you make jewellery.If the price of silver falls,what would we expect you to do?
A) be willing and able to produce less jewellery than before at each possible price
B) be willing and able to produce more jewellery than before at each possible price
C) face a greater demand for your jewellery
D) face a weaker demand for your jewellery
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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) Refer to the Table 5-2.What is the NNP for this economy?
A) $380
B) $388
C) $394
D) $405
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Chapter 6: Measuring the Cost of Living
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Q1) Canadians spend about 27 percent of their total expenditures on housing.If the price of housing increases by 10 percent,by how much does the CPI increase?
A) 0.27 percent
B) 2.7 percent
C) 27 percent
D) 270 percent
Q2) For any given year,what is the CPI?
A) the price of the basket of goods and services in the given year divided by the price of the basket in the base year,then multiplied by 100 B) the price of the basket of goods and services in the given year divided by the price of the basket in the previous year,then multiplied by 100 C) the price of the basket of goods and services in the base year divided by the price of the basket in the given year,then multiplied by 100 D) the price of the basket of goods and services in the previous year divided by the price of the basket in the given year,then multiplied by 100
Q3) 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) Which statement best explains how investment and growth rates relate across countries?
A) They are negatively related.
B) They are positively related.
C) They are negatively related for rich countries,but positively related for poor countries.
D) They are positively related for rich countries,but negatively related for poor countries.
Q2) As measured by real GDP per person,approximately how much higher is average income in Canada today than it was a century ago?
A) 8 times higher
B) 10 times higher
C) 12 times higher
D) 14 times higher
Q3) Which statement best defines proprietary technology?
A) It is knowledge that is known but no longer relevant in a market.
B) It is knowledge that is known,but has only recently been discovered.
C) It is knowledge that is known widely by those in a profession.
D) It is knowledge that is known only by the company that discovers it.
Q4) Compare and contrast the population theories of Malthus and Kremer.
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Chapter 8: Saving, investment, and the Financial System
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Sample Questions
Q1) Suppose Sarah Lee Corporation stock has a P / E ratio of 10.Which statement best describes this P / E ratio?
A) The P / E ratio is low,indicating that buyers may expect earnings to rise.
B) The P / E ratio is low,indicating that buyers may expect earnings to fall.
C) The P / E ratio is high,indicating that buyers may expect earnings to rise.
D) The P / E ratio is high,indicating that buyers may expect earnings to fall.
Q2) Suppose a country repeals its investment tax credit.What is most likely to happen in the market for loanable funds?
A) The demand for and the supply of loanable funds would shift to the right.
B) The demand for and the supply of loanable funds would shift to the left.
C) The supply of loanable funds would shift to the right,and the demand for loanable funds would shift to the left.
D) The supply of loanable funds would remain unchanged,and the demand for loanable funds would shift to the left.
Q3) What is a characteristic of the bond market?
A) Some bonds have terms as short as a few months.
B) Because they are risky,bonds pay a low rate of interest.
C) Corporations buy bonds to raise funds.
D) Bonds are rarely used as financial instruments.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) According to the theory of efficiency wages,firms operate more efficiently if they can pay wages that are below the equilibrium level.
A)True
B)False
Q2) Which province has the highest percentage of unionized workers?
A) Ontario
B) Newfoundland and Labrador
C) British Columbia
D) Quebec
Q3) What might increase the natural rate of unemployment?
A) an increased access to the Internet
B) a natural increase in population
C) an aging population
D) an increase in the legal retirement age
Q4) What do the laws governing the activity of labour unions achieve?
A) They prevent unions from acting as cartels.
B) They allow workers joining a unionized firm to choose not to join the union.
C) They allow workers the right to representation and collective bargaining.
D) They limit the number of unionized organizations.
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Chapter 10: The Monetary System
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Sample Questions
Q1) Which of the following is a sterilization operation that supports the Canadian dollar?
A) The Bank of Canada sells U.S.dollars and buys government bonds.
B) The Bank of Canada buys U.S.dollars and sells government bonds.
C) The Bank of Canada sells both U.S.dollars and government bonds.
D) The Bank of Canada buys both U.S.dollars and government bonds.
Q2) If the Bank of Canada decreases reserve requirements,the money supply will increase.
A)True
B)False
Q3) What is a characteristic of paper money?
A) It has a high intrinsic value.
B) It hinders efficient allocation of resources.
C) It is valuable because it is generally accepted in trade.
D) It is valuable only because of the legal tender requirement.
Q4) What is meant by the term "lender of last resort"? In what circumstances might the Bank of Canada be a lender of last resort?
Q5) Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) In the long run,an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.
A)True
B)False
Q2) What idea does the classical dichotomy refer to?
A) The supply of money is irrelevant for understanding the determinants of nominal and real variables.
B) The supply of money determines nominal variables,but not real variables.
C) The supply of money determines real variables,but not nominal variables.
D) The supply of money is a determinant of both real and nominal variables.
Q3) How is velocity computed?
A) (P × Y) / M
B) (P × M) / Y
C) (Y × V) / P
D) (Y × M) / V
Q4) Suppose the Bank of Canada sells government bonds.Use a graph of the money market to show what this does to the value of money.
Q5) What are the costs of inflation?
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) In 2006,Canada had positive net exports.What does this fact imply?
A) Canada sold more abroad than it purchased abroad and had a trade surplus.
B) Canada sold more abroad than it purchased abroad and had a trade deficit.
C) Canada bought more abroad than it sold abroad and had a trade surplus.
D) Canada bought more abroad than it sold abroad and had a trade deficit.
Q2) A Canadian firm opens a factory that produces climbing equipment in Austria.What are the effects of this transaction?
A) Canadian net capital outflow increases,and Albanian net capital outflow decreases. B) Canadian net capital outflow decreases,and Albanian net capital outflow increases.
C) Only Canadian net capital outflow increases.
D) Only Albanian net capital outflow increases.
Q3) Suppose that a country has $120 billion of national saving and $80 billion of domestic investment.Is this possible? Where did the other $40 billion of national saving go?
Q4) What is the logic behind the theory of purchasing-power parity?
Q5) A country with no imports necessarily has zero net exports. A)True B)False
Page 14
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Q1) Refer to the Figure13-2.Suppose that these diagrams refer to Canada.Which shift shows the effect of a voluntary export restriction by the Swiss government?
A) a shift from D1 to D2
B) a shift from D0 to D1
C) a shift from D0 to D2
D) a shift from D1 to D0
Q2) Which of the following would do the most to reduce a trade deficit?
A) increasing domestic saving
B) increasing political stability and respect for property rights
C) negotiating with other countries to get them to reduce their trade restrictions
D) imposing higher tariffs on imported goods
Q3) Suppose a prime ministerial candidate promises to increase the government budget surplus and claims that doing so will stop Canadian citizens from investing in foreign companies and increase the value of the dollar.Evaluate this promise.
Q4) Suppose the Canadian government institutes a "Buy Canadian" campaign,in order to encourage spending on domestic goods.What effect will this have on the Canadian trade balance?
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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) Why is the aggregate demand curve downward sloping?
A) because the more people buy,the fewer additional purchases they need
B) because people buy something else when the price goes up
C) because people feel poorer and buy less when prices go up
D) because the more people wish to consume,the lower the price is
Q3) Stagflation would result from the aggregate-supply curve shifting left.
A)True
B)False
Q4) Which of the following best defines business cycles?
A) long-term trends in economic activity
B) regular,predictable fluctuations in GDP
C) the rise and fall of multinational companies
D) fluctuations in the economy
Page 16
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) The wealth effect helps explain the downward slope of the aggregate-demand curve.How important is this effect and why?
A) It is relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth.
B) It is relatively important in Canada because consumption spending is a large part of GDP.
C) It is relatively unimportant in Canada because money holdings are a small part of consumer wealth.
D) It is relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates.
Q2) In a small open economy with perfect capital mobility,if exchange rates are fixed,how could aggregate demand be increased?
A) by increasing government expenditures
B) by increasing tax rates
C) by increasing the money supply
D) by decreasing the money supply
Q3) Why and in what way are fiscal policy lags different from monetary policy lags?
Q4) What is the difference between monetary policy and fiscal policy?
Page 17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Q1) What did Friedman and Phelps argue about inflation and unemployment?
A) that in the long run,monetary growth did not influence those factors that determine the unemployment rate
B) that the Phillips curve could be exploited in the long run by using monetary,but not fiscal policy
C) that the short-run Phillips curve was very steep but the long-run curve was very flat
D) that there was neither a short-run nor long-run tradeoff between inflation and unemployment
Q2) Suppose the central bank wants to permanently reduce the inflation rate.What are the possible ways of doing so,and what are the consequences?
Q3) If macroeconomic policy expands aggregate demand,unemployment will fall and inflation will rise in the short run.
A)True
B)False
Q4) Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?
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Chapter 17: Five Debates Over Macroeconomic Policy
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Q1) There are ways that policymakers could reduce the costs of inflation without reducing inflation.
A)True
B)False
Q2) Why should the central bank aim for a moderate rate,instead of a zero rate,of inflation?
A) to keep the natural rate of unemployment low
B) because the social costs of moderate inflation are high
C) because it is very difficult to maintain a zero rate of inflation in the long run
D) the benefits of zero inflation are small but the costs of reaching zero inflation are large.
Q3) The laws governing the activity of the Bank of Canada give some specific recommendations about what goals it should pursue,so it has little discretion in making policy.
A)True
B)False
Q4) Identify three of the five costs of inflation.
Q5) Why do many economists advocate a consumption tax rather than an income tax?
Q6) Explain why policy lags could make stabilization policies counterproductive.
Page 19
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