Introduction to Macroeconomics Exam Preparation Guide
Course Introduction
Introduction to Macroeconomics explores the fundamental principles governing the overall functioning of economies at the national and global level. The course covers key topics such as economic growth, inflation, unemployment, national income accounting, fiscal and monetary policy, and the role of governments and central banks in stabilizing the economy. Students will gain an understanding of how economic indicators are measured and interpreted, the dynamics of aggregate demand and supply, and the impact of policy decisions on macroeconomic performance. Through real-world examples and practical applications, this course provides a solid foundation for analyzing contemporary economic issues and policy debates.
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 an example of an externality?
A) the impact of bad weather on the income of farmers
B) the impact of the personal income tax on a person's ability to purchase goods and services
C) the impact of pollution from a factory on the health of people in the vicinity of the factory
D) the impact of increases in health care costs on the health of individuals in society
Answer: C
Q2) In a market economy, what do prices reflect?
A) the popularity of a good in society
B) the cost to society of making the good
C) the quantity society will ultimately choose to produce
D) the level of wealth in society
Answer: B
Q3) Equity means everyone in the economy should receive an equal share of the goods and services produced.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What is a model?
A) a theoretical abstraction with very little value
B) a useful tool to only the ones who constructed it
C) a realistic and carefully constructed theory
D) a simplification of real life
Answer: D
Q2) When economists are speaking as policy advisors, which statements are they more likely to use?
A) normative statements
B) positive statements
C) objective statements
D) descriptive statements
Answer: A
Q3) In the simple circular-flow diagram, who are the decision makers?
A) individuals and government
B) households and firms
C) households and government
D) households, individuals, and foreign nations
Answer: B
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Page 4
Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) What should a country do if it has a comparative advantage in a product?
A) It should import that product.
B) It should export that product.
C) It should keep the product for domestic use since it is relatively inexpensive to produce.
D) It should lower the costs of production until realizing an absolute advantage.
Answer: B
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) Trade is based on absolute advantage.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) What type of market is a monopoly?
A) with one seller
B) with few sellers
C) with one buyer
D) with many buyers
Q2) Refer to the Figure 4-5. Which of the four graphs represents the market for school supplies in September?
A) graph A
B) graph B
C) graph C
D) graph D
Q3) If Francis receives an increase in his pay, what would we expect?
A) Francis's demand for each good he purchases to remain unchanged
B) Francis's demand for normal goods to decrease
C) Francis's demand for luxury goods to increase
D) Francis's demand for inferior goods to increase
Q4) Whenever a determinant of demand other than price changes, the demand curve shifts.
A)True
B)False
Page 6
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) What was the approximate Canadian GDP in 2014?
A) $1400 billion
B) $1600 billion
C) $1800 billion
D) $2000 billion
Q2) Suppose Nova Scotia produces only cheese and fish. Last year, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. If in the base year the price of cheese was $10 per unit and the price of fish was $75 per unit, what can we conclude?
A) Nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5
B) Nominal GDP is $500, real GDP is $800, and the GDP deflator is 160
C) Nominal GDP is $800, real GDP is $500, and the GDP deflator is 160
D) Nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5
Q3) Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. What would this change do by itself?
A) It would make GDP fall over time.
B) It would not make any change in GDP over time.
C) It would make GDP rise over time.
D) It would change GDP, but in an uncertain direction.
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?
A) 4 percent
B) 6 percent
C) 10 percent
D) 16 percent
Q2) Suppose that dairy products have risen in price less than prices in general over the past several years. Which problem in the construction of the CPI is this price increase most relevant to?
A) substitution bias
B) introduction of new goods
C) unmeasured quality change
D) income bias
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
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Page 8
Chapter 7: Production and Growth
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Sample Questions
Q1) According to Malthus's view, what is a consequence of increased population?
A) increased GDP per person
B) more people imply more ideas and more labour force, which promotes growth
C) depletion of productive resources and lower standards of living
D) increase in productivity in the food sector, which is necessary to support the increase in population
Q2) If a production function has constant returns to scale, how can output be doubled?
A) by doubling labour
B) by doubling any one of the inputs
C) by doubling all of the inputs
D) by increasing all inputs by more than double
Q3) There is some controversy concerning what the source of the Canadian productivity slowdown was in the period of 1974 to 1982. What is the most likely explanation?
A) a decrease in the growth of human capital per person
B) capital wearing out so that capital per person fell
C) changes in technological progress
D) the continued depletion of natural resources
Q4) What is the difference between human capital and technology
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Page 9
Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) If a share of stock in Skylight Chili Ltd. sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price/earnings ratio is 15.
A)True
B)False
Q2) In a closed economy, what does (Y - T - C) represent?
A) national saving
B) government tax revenue
C) public saving
D) private saving
Q3) When the government runs a budget deficit, what is most likely to happen?
A) Interest rates become lower than they would be otherwise.
B) National saving gets higher than it would be otherwise.
C) Investment gets lower than it would be otherwise.
D) Government debt decreases by the amount of the deficit.
Q4) What would NOT result from replacing the income tax with a consumption tax?
A) The interest rate would decrease.
B) Investment would decrease.
C) The standard of living would eventually rise.
D) The supply of loanable funds would shift right.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Refer to the Table 9-1. What is the adult population in Bolivar?
A) 90 million
B) 150 million
C) 160 million
D) 210million
Q2) Which of the following lists includes all the categories into which Statistics Canada divides the adult population?
A) employed, unemployed
B) discouraged workers, employed, unemployed
C) employed, unemployed, not in the labour force
D) discouraged workers, employed, not in the labour force
Q3) 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.
Q4) Why have labour-force participation rates for women in Canada increased since World War II while labour-force participation rates for men have decreased?
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Chapter 10: The Monetary System
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Sample Questions
Q1) At one time, the country of Sylvania had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Sylvania now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Sylvania now hold?
A) $2 million
B) $5 million
C) $9 million
D) $12 million
Q2) Which list contains only actions that increase the money supply?
A) making open-market purchases; raising the reserve requirement ratio
B) making open-market purchases; lowering the reserve requirement ratio
C) making open-market sales; raising the reserve requirement ratio
D) making open-market sales; lowering the reserve requirement ratio
Q3) What is one of the functions of the Bank of Canada?
A) to maximize profits on behalf of its shareholders
B) to issue currency
C) to convert currency into gold
D) to bail out troubled commercial banks
Q4) What is the difference between money and wealth?
Page 12
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Chapter 11: Money Growth and Inflation
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Q1) When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?
A) if either money demand or money supply shifts right
B) if either money demand or money supply shifts left
C) if money demand shifts right or money supply shifts left
D) if money demand shifts left or money supply shifts right
Q2) 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.
Q3) What does the quantity theory of money try to explain?
A) how inflation determines economic growth
B) the relationship between the quantity of money and the price level
C) the determinants of relative prices in the economy
D) the relationship between inflation and unemployment
Q4) If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?
A) 3 percent
B) 5 percent
C) 8 percent
D) 11 percent
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) For an economy as a whole, net exports must equal minus one times net capital outflow.
A)True
B)False
Q2) Suppose the price level in Canada was P = 124 last year; it is up by 3 points this year. In the U.S., the price level was 112 last year; it is up by 2 points this year. The exchange rate was US$0.96 per C$1 last year. (For part a, approximate all results to two decimals.)
a) Compare the rate of change in the exchange rate with the difference between the foreign and domestic inflation rates. Are they equal?
b) In theory, the rate of change in the nominal exchange rate should be about the same as the inflation difference. Redo the calculations from part a, retaining this time at least four decimals in your intermediate results. Does your answer to the question in part a change?
c) What have you learned from this exercise?
Q3) How do we find the real exchange rate from the nominal exchange rate?
Q4) 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) Suppose that Canada imposed an import quota on beef. Which statement identifies the most likely results?
A) Sales of Canadian beef would rise; exports of other industries would increase.
B) Sales of Canadian beef would rise; exports of other industries would decline.
C) Sales of Canadian beef would not change; exports of other industries would increase.
D) Sales of Canadian beef would not change; exports of other industries would decline.
Q2) How does the supply or demand for loanable funds shift when a country increases its budget deficit?
A) The supply of loanable funds shifts right.
B) The supply of loanable funds shifts left.
C) The demand for loanable funds shifts right.
D) The demand for loanable funds shifts left.
Q3) How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?
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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Q1) How do prices change due to an economic contraction that is caused by a shift in aggregate demand?
A) They rise in the short run and rise even more in the long run.
B) They rise in the short run and fall back to their original level in the long run.
C) They fall in the short run and fall even more in the long run.
D) They fall in the short run and rise back to their original level in the long run.
Q2) What happens to sales and profit during recessions?
A) sales and profits fall
B) sales and profits rise
C) sales rise and profits fall
D) profits fall and sales rise
Q3) How does the aggregate demand and aggregate supply model reflect a rise in wage rates?
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.
Q4) Discuss what economists believe is different about the long and short run.
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Page 16
Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) Let us derive an aggregate-demand curve starting from some money demand and money supply equations. Assume the money-demand curve is MD=150 - 15r + Y, the price level depends on r according to the equation P = 100 - 10r, and the money supply is MS = 100. Find a relationship between the price level P and output Y and show that the relation that you have found is an aggregate demand function.
Q2) The theory of liquidity preference assumes that the nominal supply of money is determined by which of the following?
A) the level of real GDP
B) the rate of inflation
C) government spending
D) the central bank
Q3) What do supply-side economists focus more on than other economists?
A) how fiscal policy affects consumption
B) the multiplier effect of fiscal policy
C) how fiscal policy affects aggregate supply
D) the accelerator and exchange-rate effects
Q4) An increase in the money supply shifts the aggregate-supply curve right.
A)True
B)False
Page 17
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Refer to the Figure 16-4. At point m, how do actual and expected inflation rates and unemployment rates compare?
A) The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment.
B) The actual inflation rate exceeds the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.
C) The actual inflation rate is less than the expected inflation rate and the actual unemployment rate exceeds the natural rate of unemployment.
D) The actual inflation rate is less than the expected inflation rate and the actual unemployment rate is less than the natural rate of unemployment.
Q2) In the long run, the inflation rate depends primarily on money supply growth. A)True B)False
Q3) How could we transform the AD-AS model such that, instead of the price level and output it would show the relationship between the inflation rate (ð) and the rate of output growth (g)?
Q4) 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) Which statement is an argument against a tax system that encourages savings?
A) that individuals know better that the government how much to save
B) that saving is not an important determinant of a nation's ability to produce output
C) that rich people would bear the burden of such a tax system
D) that such a tax system would increase inequality
Q2) A reduction in the marginal tax rate includes a substitution effect that tends to increase savings.
A)True
B)False
Q3) Suppose that a country has an inflation rate of about 5 percent per year and a real GDP growth rate of about 2 percent per year. What is the highest deficit the government can afford without raising the debt-to-income ratio?
A) about 2 percent of GDP
B) about 7 percent of GDP
C) about 9 percent of GDP
D) about 12 percent of GDP
Q4) Why do many economists advocate a consumption tax rather than an income tax?
Q5) Identify three of the five costs of inflation.
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