Introduction to Macroeconomics Final
Exam Questions
Course Introduction
Introduction to Macroeconomics provides a foundational understanding of how entire economies operate, focusing on key concepts such as gross domestic product (GDP), inflation, unemployment, and economic growth. Students will explore the roles of government policy, fiscal and monetary tools, and international trade in shaping national and global economic outcomes. Through the examination of real-world case studies and economic models, the course equips learners with the analytical skills to interpret economic indicators, understand business cycles, and assess policy impacts on the economy as a whole.
Recommended Textbook
Macroeconomics 8th Canadian Edition by Andrew B. Abel
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) An open economy is a national economy that
A)has good relations with its neighbouring countries.
B)has a stock market that is open to traders from anywhere in the world.
C)has extensive trading and financial relationships with other national economies.
D)has established diplomatic relations with most other nations.
Answer: C
Q2) A theoretical analysis of the effect of an oil shock on inflation is an example of A)the Classical model.
B)the Keynesian model.
C)why economists disagree.
D)a comparative static experiment.
Answer: D
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Chapter 2: The Measurement and Structure of the Canadian Economy
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Q1) Citizens of the country of Heehaw produce hay and provide entertainment services (banjo playing).In 1998 they produced $15 million worth of hay,with $11 million consumed domestically and the other $4 million sold to neighbouring countries.They provided $7 million worth of banjo-playing services,$5 million in Heehaw and $2 million in neighbouring countries.They purchased $6 million worth of soda pop from neighbouring countries.Calculate the magnitudes of GNP,GDP,net factor payments from abroad,net exports,and the current account balance.
Answer: GNP is output by citizens,which equals $15 million + $7 million = $22 million.GDP is output produced in the country,which equals $15 million (hay)+ $5 million (domestic banjo playing)= $20 million.Net factor payments from abroad represent the difference between GNP and GDP;this is the $2 million paid for banjo playing in other countries.Net exports are $4 million (hay sold abroad)minus $6 million (soda pop imports)= -$2 million.(Note that banjo playing abroad is not part of GDP,so it is not part of net exports either. )The current account balance is net exports + net factor payments = -$2 million + $2 million = 0.
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Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) An individual's labour supply curve might shift to the right because
A)an increase in the future real wage leads to a decrease in the amount of labour supplied.
B)a decrease in wealth leads to an increase in the amount of labour supplied.
C)a decrease in the future real wage leads to a decrease in the amount of labour supplied.
D)an increase in wealth leads to a decrease in the amount of labour supplied.
Answer: B
Q2) Which of the following represents a supply shock?
A)Hurricane Irma in Texas
B)Government subsidies on renewable energy investments
C)An innovation that allows a safe transportation of oil overseas
D)All the above
Answer: D
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) Most people would prefer
A)higher current consumption relative to future consumption.
B)higher future consumption relative to current consumption.
C)to smooth consumption over their lifetime.
D)to match current consumption to current income.
Q2) You have just purchased a home that cost $250 thousand.The nominal mortgage interest rate is 8% per annum,mortgage interest payments are tax deductible,and you are in a 30% tax bracket.The expected inflation rate is 4%.Maintenance and other expenses are 8% of the initial value of the house.What is the real user cost of your house?
A)$20 thousand
B)$24 thousand
C)$27 thousand
D)$30 thousand
Q3) The after-tax real interest rate
A)can only be positive.
B)increases with expected inflation rates.
C)decreases with nominal interest rate.
D)can be negative.
Q4) Explain why the Ricardian equivalence proposition is not supported by data.
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Chapter 5: Saving and Investment in the Open Economy
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Q1) The current account balance consists of
A)the trade balance plus the services balance.
B)net exports of goods and services,minus net unilateral transfers.
C)net exports of goods and services,plus investment income from abroad,plus net unilateral transfers.
D)net exports of goods and services,plus investment income from abroad,plus net unilateral transfers,minus the capital account balance.
Q2) Suppose the government of a large open economy announces a major expansion of government spending to dig a tunnel to the earth's core,to be financed entirely by borrowing.What effect does this have on the world real interest rate,national saving,investment,and the current account balance in equilibrium?
Q3) For a small open economy,an increase in the world real interest rate would necessarily
A)increase net foreign lending.
B)decrease net exports.
C)decrease the current account balance.
D)worsen the balance of payments.
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Chapter 6: Long-Run Economic Growth
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Q1) One effect of the Gulf War was the destruction of a good portion of Kuwait's capital stock.How would you expect this to affect Kuwait's capital-labour ratio in the long run? There would be
A)a rightward movement along the saving-per-worker curve and an increase in the capital-labour ratio.
B)no change in the long-run capital-labour ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labour ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labour ratio.
Q2) One can predict that the rapid growth in the East Asian countries will run out of steam,because
A)the growth cannot sustain over the very long term by increasing inputs alone.
B)the primary source of growth in those countries has been rapid increase in labour and capital,not productivity.
C)the long-run growth can only be sustained by increases in total factor productivity.
D)all of the above.
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Page 8
Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) M2 includes
A)large-denomination time deposits.
B)institutional MMMFs.
C)commercial paper.
D)M1.
Q2) Which of the following measures is the best measure of money as a medium of exchange?
A)M1
B)M2
C)M3
D)L
Q3) The asset market equilibrium condition indicates that
A)the price level in an economy is determined by the ratio of money supply to the real demand for money.
B)the price level in an economy is determined by the ratio of the real demand for money to money supply.
C)the price level in an economy is determined by the ratio real demand for money to interest rates.
D)the price level in an economy is determined by the ratio of money supply to real GDP.
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Page 9
Chapter 8: Business Cycles
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Sample Questions
Q1) Which of the following variables is procyclical?
A)unemployment
B)nominal interest rate
C)real interest rate
D)real wage
Q2) Describe briefly what are the major differences between the classical economists and the Keynesian economists with regard to causes of business cycles,long-run adjustments to shock,and the government policies in restoring the full employment.
Q3) Industries that are extremely sensitive to the business cycle are the
A)durable goods and service sectors.
B)nondurable goods and service sectors.
C)capital goods and nondurable goods sectors.
D)capital goods and durable goods sectors.
Q4) One of the reasons for less volatility in the economy is
A)better monetary policy.
B)increasing financial market activities.
C)higher productivity.
D)advances in technology.
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Chapter 9: The Is-Lm-Fe Model: a General Framework for
Macroeconomic Analysis
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Sample Questions
Q1) A rise in expected future output that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.
A)down;is unchanged
B)down;right
C)up;is unchanged
D)up;right
Q2) Suppose the economy is initially in long-run equilibrium.For each of the shocks listed below,explain the long-run effects on output and the price level.
a.Labour supply decreases.
b.Productivity increases.
Q3) A decline in wealth that doesn't affect labour supply would shift the IS curve ________ and the FE line ________.
A)down;is unchanged
B)down;left
C)up;is unchanged D)up;left
Q4) Describe the effects,in both the short run and the long run,of a decline in the money supply.Explain what happens to real output and the price level.
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Chapter 10: Exchange Rates, business Cycles, and Macroeconomic Policy
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Sample Questions
Q1) Which of the following is true when the foreign GDP rises,assuming everything else remains constant?
A)The net exports decline,and exchange rate rises.
B)The net exports increase,and exchange rate rises.
C)The net exports decline,and exchange rate falls.
D)The net exports increase,and exchange rate falls.
Q2) In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.
A)rise;rise
B)rise;fall
C)fall;rise
D)fall;fall
Q3) Currency unions are rare because
A)they're to no one's advantage.
B)countries are reluctant to give up having their own currencies.
C)having flexible exchange rates has the same benefits and none of the costs.
D)speculative attacks are likely to occur.
Q4) Describe the pros and cons of the fixed exchange rate system.
Page 12
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Chapter 11: Classical Business Cycle Analysis:
Market-Clearing Macroeconomics
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Sample Questions
Q1) If the utilization rates of capital and labour are procyclical,then
A)output will rise in recessions and decline in expansions.
B)measured productivity will be constant.
C)the Solow residual will be procyclical.
D)prices will be countercyclical.
Q2) The argument that an increase in government purchases increases labour supply relies on the assumption that
A)government purchases are substitutes for consumer purchases.
B)government purchases decrease the interest rate.
C)government purchases decrease the wealth of individuals.
D)government purchases are neutral.
Q3) According to the misperceptions theory,when the price level falls below the expected price level,
A)the economy's SRAS curve shifts to the left.
B)the economy moves along its AD curve.
C)the economy moves along its LRAS curve.
D)the economy moves along its SRAS curve.
Q4) Why doesn't stabilization policy work,according to economists using the misperceptions theory?
Page 13
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Chapter 12: Keynesian Business Cycle Analysis: Non Market
Clearing Macroeconomics
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Sample Questions
Q1) The effort of a firm's workers depends on their real wage according to the following schedule:
\[\begin{array} { c c }
\text { Real wage } & \text { Effort } ( E ) \\
\hline 16 & 10 \\
17 & 13 \\
18 & 18 \\
19 & 22 \\
20 & 25 \\
21 & 26
\end{array}\]
The marginal product of labour is MPN = E(400 - 4N)/30.
a.What is the efficiency wage?
b.How many workers will the firm hire?
c.Suppose an adverse productivity shock reduces the marginal product of labour to ?MPN = E(360 - 4N)/30.How would your answers to parts (a)and (b)change?
Q2) Explain how the Keynesian model of business cycles is consistent with the business cycles facts.
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Which one of the following statements is true about the Phillips curve?
A)The short-run Phillips curve is positively sloped while the long-run Phillips curve is vertical.
B)There is no empirical evidence to support the Phillips curve.
C)The short-run Phillips curve is negatively sloped while the long-run Phillips curve is vertical.
D)The Phillips curve is consistent with the Keynesian model but not the Classical model.
Q2) The Lucas critique is an objection to the assumption that A)inflation is always and everywhere a monetary phenomenon.
B)there is a negative relationship between inflation and unemployment.
C)historical relationships between macroeconomic variables will continue to hold after new policies are in place.
D)people form expectations rationally.
Q3) Keynesians prefer a disinflation policy of A)cold turkey.
B)stabilization.
C)gradualism.
D)aggregate demand management.
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) The Bank of Canada's largest asset is
A)foreign currency deposits.
B)advances to members of the CPA.
C)notes in circulation.
D)Treasury bills.
Q2) Suppose the Bank of Canada decides to reduce the interest rate.Which of the following actions will produce the desired outcome?
A)The Bank sells treasury bills in the open-market operations.
B)The Bank reduces the Bank rate.
C)The Bank buys treasury bills in the open-market operations.
D)The Bank increases the desired reserve ratio.
Q3) If currency-deposit ratio 0.6 and money multiplier is 2,what is the reserve-deposit ratio?
Q4) If you could determine the goals of the Bank of Canada,what goals would you choose? Should the Bank's policy be activist? Discuss the pros and cons.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Which of the following is NOT included in the government transfer payments?
A)Old age security payments
B)Foreign aids
C)Employment insurance benefits
D)Intergovernmental payments
Q2) Since the 1950s,the share of GDP devoted to government purchases on average in the OECD countries has
A)steadily increased.
B)steadily decreased.
C)remained fairly steady.
D)increased,but only after recessions.
Q3) In an economy with a 10 percent inflation rate and a $560 billion real money supply,the real inflation tax revenue is equal to
A)$56 billion.
B)$17.857 million.
C)$5600 billion.
D)$5600 million.
Q4) What are the main reasons (give at least three)that Ricardian equivalence might not hold?
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