Introduction to Macroeconomics Practice
Questions
Course Introduction
Introduction to Macroeconomics offers a comprehensive overview of the fundamental concepts and analytical frameworks used to understand the functioning of entire economies. Students will explore key topics such as national income accounting, economic growth, unemployment, inflation, fiscal and monetary policy, international trade, and the roles of government and central banks. Emphasis is placed on understanding how economic indicators are measured, how markets interact at the aggregate level, and how policy decisions impact economic stability and growth. The course equips learners with the tools to critically analyze current macroeconomic issues and contribute thoughtfully to discussions on economic policies.
Recommended Textbook
Macroeconomics 8th Canadian Edition by Andrew B. Abel
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1394 Verified Questions
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following is NOT true?
A)The average labour productivity in Canada has risen by a factor of six since 1921.
B)Canadian workers are working fewer hours but their real wages are higher,on average,than in the past.
C)Canadian workers are,on average,much more productive than 60 years ago.
D)Today,a typical Canadian is working longer and getting paid less in real terms.
Answer: D
Q2) The two major reasons for the tremendous growth in output in the Canadian economy over the last 125 years are
A)population growth and budget deficit.
B)population growth and increased productivity.
C)low unemployment and budget surplus.
D)low budget deficit and low trade deficits.
Answer: B
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3
Chapter 2: The Measurement and Structure of the Canadian Economy
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Sample Questions
Q1) In 2001 private saving in the country of Polity was $112 billion,investment was $114.5 billion,and the current account balance was -$26.5 billion.From the uses-of-saving identity,how much was the government of Polity saving?
A)-$24 billion
B)-$39 billion
C)$24 billion
D)$39 billion
Answer: A
Q2) If real interest is 2 percent and the expected inflation rate is 5 percent,then the nominal interest rate is
A)7 percent.
B)3 percent.
C)2.5 percent.
D)0.4 percent.
Answer: A
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Page 4
Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) Your boss wants to know if you should lay off any workers.You answer that you should lay off workers if the
A)marginal revenue product of labour is greater than the nominal wage rate.
B)marginal product of labour is greater than or equal to the real wage rate.
C)marginal revenue product of labour is equal to the nominal wage rate.
D)marginal product of labour is less than the real wage rate.
Answer: D
Q2) Which one of the following events does NOT cause a shift in the aggregate labour demand curve?
A)A rise of labour productivity
B)An increase in capital stock
C)An increase in the number of robots taking away workers' jobs
D)An increase in oil prices
Answer: D
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) A technological improvement will
A)increase the desired capital stock.
B)decrease the desired capital stock.
C)have no effect on the desired capital stock.
D)have the same effect on the desired capital stock as an increase in corporate taxes.
Q2) The Ricardian equivalence proposition is NOT supported by evidence,because
A)consumers may respond to the current tax cut by increasing their desired consumption.
B)consumers may increase their saving to respond to future tax increase.
C)consumers do not change their consumption because they expect an increase in future tax rates.
D)a cut in current tax does not affect the ultimate tax burden borne by consumers.
Q3) Explain how and why Canadians might change their consumption in response to an increase in wealth arising from a rise in stock prices and an increase in housing prices.
Q4) Using Tobin's q,explain how the central bank's policy affects a firm's decision on desired capital.
Q5) Explain why the Ricardian equivalence proposition is not supported by data.
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Page 6
Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) If a Canadian firm buys stereos from a Japanese firm and the Japanese firm uses the dollars it gets to buy Canadian Treasury bonds,what items are recorded in the Canadian balance of payments accounts?
A)credit the trade account;credit the capital account
B)credit the trade account;debit the capital account
C)debit the trade account;debit the capital account
D)debit the trade account;credit the capital account
Q2) When a temporary adverse supply shock hits a large open economy,it causes the current account to ________ and investment to ________.
A)fall;fall
B)rise;remain unchanged
C)fall;remain unchanged
D)rise;fall
Q3) The term "twin deficits" refers to a situation in which there exists
A)a budget deficit as well as a current account deficit.
B)a budget deficit as well as a capital account deficit.
C)a budget deficit as well as a balance of payment deficit.
D)a current account deficit as well as a capital account deficit.
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Suppose the current level of output is 5000.If the elasticities of output with respect to capital and labour are 0.3 and 0.7 respectively,a 10% increase in capital combined with a 5% increase in labour would increase the current level of output to A)5015.
B)5325.
C)5600.
D)5650.
Q2) The computerization of police departments throughout the country has greatly reduced the crime rate.What macroeconomic variable is likely to be directly affected by this change?
A)productivity
B)inflation
C)the real interest rate
D)the trade deficit
Q3) If k = 10,y = 30,and s = 0.2,what is c (consumption)?
A)24
B)20
C)18
D)12
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Page 8
Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) Velocity is defined as
A)nominal money stock/nominal GDP.
B)nominal GDP/nominal money stock.
C)real money stock/real GDP.
D)E = mc².
Q2) If nominal GDP is $500 billion,real GDP is $250 billion,and the nominal money stock is $100 billion,then velocity is A)2.
B)2.5.
C)5.
D)10.
Q3) A system in which people trade goods they don't want to consume for goods they do want to consume is called
A)an indirect exchange economy.
B)a commodity money system.
C)a barter system.
D)a flat money system.
Q4) Explain how growth in the money supply and inflation are related.
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Chapter 8: Business Cycles
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Sample Questions
Q1) When aggregate economic activity is declining,the economy is said to be in A)a contraction.
B)an expansion.
C)a trough.
D)a turning point.
Q2) Some economists contend that the economywide average real wage may NOT be a good indicator of the real wage because
A)when previously unemployed workers enter the work force,the average real wage could decline even if all workers' wages have increased.
B)it fails to reflect productivity changes.
C)it fails to reflect qualitative changes in goods.
D)data used to calculate the average real wage is not collected from all sectors of the economy.
Q3) A variable that tends to move at the same time as aggregate economic activity is called
A)a leading variable.
B)a coincident variable.
C)a lagging variable.
D)an acyclical variable.
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Page 10
Chapter 9: The Is-Lm-Fe Model: a General Framework for
Macroeconomic Analysis
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Sample Questions
Q1) The full-employment (FE)line shifts right if
A)unemployment declines.
B)technology advances.
C)net exports increase.
D)GDP rises.
Q2) The main reason for the IS curve having a downward slope is
A)higher output raises saving,which leads to a lower market-clearing interest rate.
B)higher output raises saving,which leads to a higher market-clearing interest rate.
C)higher output decreases saving,which leads to a lower market-clearing interest rate.
D)higher output decreases saving,which leads to a higher market-clearing interest rate.
Q3) Which of the following would shift the FE line to the right?
A)an adverse supply shock
B)a decrease in labour supply
C)an increase in the capital stock
D)an increase in the future marginal productivity of capital
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Chapter 10: Exchange Rates, business Cycles, and Macroeconomic Policy
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Sample Questions
Q1) According to the "beachhead effect," in order to undo the effects of a strong-dollar period,the real value of the dollar
A)must fall to at least half of its value before appreciation of the dollar began.
B)must fall to the value it had before appreciation of the dollar began.
C)must fall to a much lower level than it had before appreciation of the dollar began.
D)must actually appreciate before it depreciates to undo the effects of a strong-dollar period.
Q2) A fall in the real exchange rate is called
A)a real depreciation.
B)a real appreciation.
C)a real revaluation.
D)a real devaluation.
Q3) The exchange rate is
A)the price of one currency in terms of another.
B)the price of domestic goods relative to foreign goods.
C)the quantity of gold that can be purchased by one unit of currency.
D)the difference in interest rates between two countries.
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) According to classical economists,the government should increase government purchases when
A)the benefits of the spending exceed the costs.
B)the economy is in a recession.
C)the economy is likely to go into a recession in the next six months to a year.
D)inflation is lower than its targeted level.
Q2) The Solow residual is
A)the waste from the production process.
B)the most common measure of productivity shocks.
C)a measure of the efficiency of the production process.
D)a measure of the proportion of involuntarily unemployed workers.
Q3) Classical economists would cite all of the following as reasons why the government cannot smooth out the business cycle except that
A)only productivity shocks can cause real fluctuations in the business cycle.
B)the government has imperfect knowledge of the economy.
C)political constraints on policy actions prevent the government from carrying out effective policies.
D)time lags between the onset of a recession and the implementation of effective countermeasures make anti-recessionary macroeconomic policies impractical.
Page 13
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Chapter 12: Keynesian Business Cycle Analysis: Non Market
Clearing Macroeconomics
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Sample Questions
Q1) Describe the effects of an oil price shock in a Keynesian model;why are such supply shocks difficult to handle using macroeconomic stabilization policies?
Q2) The upward-sloping short-run aggregate supply curve implies that
A)money is neutral in the short run but has a real effect in the long run.
B)money is neutral in the long run but has a real effect in the short run.
C)money is neutral in both the short run and the long run.
D)money has real effects in both the short run and the long run.
Q3) According to the Classical model,an anticipated fiscal policy
A)cannot affect output and employment.
B)can affect output and employment in the short run.
C)can effect output and employment in the long run.
D)changes labour supply and therefore full-employment level of output.
Q4) In the Keynesian model,a decrease in the money supply would cause prices to ________ in the short run and ________ in the long run.
A)remain unchanged;remain unchanged.
B)remain unchanged;decrease
C)decrease;remain unchanged
D)decrease;decrease
Page 14
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Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) Which of the following best explains economic theory behind the Phillips curve?
A)If inflation rate is lower than expected inflation rate,real money balance will increase leading to a lower interest rate and a higher aggregate demand and output.
B)If inflation rate is lower than expected inflation rate,real money balance will decrease leading to a higher interest rate and a lower aggregate demand and output.
C)If there is an unanticipated inflation rate,real wage will increase leading to a lower output and employment.
D)If there is an unanticipated inflation rate,real wage will decrease leading to a lower output and employment.
Q2) Which of the following best describes the original Phillips curve?
A)In the original Phillips curve,the inflation expectation is constant.
B)In the original Phillips curve,the inflation expectation is not constant.
C)In the original Phillips curve,the natural rate of unemployment is constant.
D)Both A and C are correct.
Q3) Describe the major costs of inflation,being sure to distinguish between anticipated and unanticipated inflation.
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Chapter 14: Monetary Policy and the Bank of Canada
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Sample Questions
Q1) Consider an economy with the following data on its banking system: currency outside banks (CU)= $56 billion,bank reserves (RES)= $42 billion,and total deposits (DEP)= $600 billion.
a.How much is the monetary base?
b.How much is the money supply?
c.What is the reserve-deposit ratio?
d.What is the currency-deposit ratio?
e.What is the money multiplier?
f.If the monetary base rises by $2 billion,by how much will the money supply increase?
Q2) The liabilities of the Central Bank that are usable as money are called
A)the demand deposits.
B)M2.
C)high-power money.
D)M1.
Q3) The monetary base
A)is the liabilities of the Central Bank that are usable as money.
B)is also called high-power money.
C)is equal to the money supply in an all-currency economy.
D)All of the above.
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) The marginal tax rate is
A)the fraction of an additional dollar of income that must be paid in taxes.
B)the total amount of taxes paid divided by after-tax income.
C)the total amount of taxes paid divided by before-tax income.
D)the average amount of government spending that is financed by taxes.
Q2) An increased government deficit created by a lump-sum tax cut will reduce national saving if
A)the value of government bonds outstanding grows faster than the public's wealth.
B)it causes consumption to rise.
C)the government runs a primary deficit as a result.
D)the real interest rate is greater than the growth rate of real GNP.
Q3) Which one of the following is NOT considered as an automatic stabilizer?
A)employment insurance program
B)the income tax system
C)the transfer payments.
D)the stock market
Q4) How is real seignorage revenue related to inflation? How does the quantity of real seignorage revenue change as inflation rises from zero to a positive level,to still higher levels?
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