Introduction to Macroeconomics Pre-Test
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Course Introduction
Introduction to Macroeconomics provides students with a foundational understanding of the economy as a whole, exploring key concepts such as national income, gross domestic product (GDP), inflation, unemployment, and economic growth. The course examines the roles of government fiscal and monetary policy, the impact of international trade, and how macroeconomic indicators are used to assess economic performance. By analyzing real-world issues and economic events, students gain insight into how policy decisions influence overall economic stability and growth, preparing them to critically evaluate economic information in both domestic and global contexts.
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Macroeconomics 1st Canadian Edition by R. Glenn Hubbard
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Chapter 1: Introduction to Macroeconomics and the Great Recession
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Q1) What is monetary policy?
Answer: Monetary policy refers to the actions that the Bank of Canada takes to manage the money supply and interest rates to pursue macroeconomic policy objectives.
Q2) The quantity of goods and services that can be produced by one worker or by one hour of work is known as
A) per-capita GDP.
B) labour productivity.
C) real domestic output.
D) the labour force participation rate.
Answer: B
Q3) Which of the following statements about economic analysis is true?
A) Unlike positive economic analysis, normative economic analysis can be tested.
B) Neither positive nor normative analysis can be tested.
C) Positive economic analysis is concerned with "what is," whereas normative economic analysis is concerned with "what ought to be."
D) Economics is primarily about normative analysis, which measures the costs and benefits of different courses of action.
Answer: C
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Chapter 2: Measuring the Macroeconomy
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Q1) Suppose you borrow $2000 for one year and at the end of the year you repay the $2000 plus $110 of interest.If the expected inflation rate was 2.2% at the time you took out the loan,what was the real interest rate you paid?
A) 2.2%
B) 3.3%
C) 5.5%
D) 7.7%
Answer: B
Q2) Suppose the working-age population of a fictional economy falls into the following categories: 30 are retired; 45 are stay-at-home parents; 120 are employed full time; 40 are employed part time; 25 are unemployed but are actively looking for employment; 15 are unemployed and are not actively looking for employment.The official unemployment rate as calculated by Statistics Canada would be A) 9.62%.
B) 13.51%.
C) 14.55%.
D) 20.0%.
Answer: B
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Chapter 3: The Canadian Financial System
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Q1) Janie convinces her Uncle Seymour that she is on the Dean's list each semester and asks him to lend her $5000 to help pay for her university tuition for the upcoming year,assuring him that she will be able to pay him back as soon as she graduates and gets a job.In reality,Janie has flunked out of university,has spent all her savings on food for her 40 ferrets,and wants to use the money to bail her boyfriend out of jail.Not being honest with her uncle when asking for the loan is an example of ________,and spending the borrowed money to pay her boyfriend's bail is an example of ________.
A) moral hazard; asymmetric information
B) moral hazard; the principal-agent problem
C) adverse selection; moral hazard
D) the principal-agent problem; adverse selection
Answer: C
Q2) A financial asset is considered a security if
A) its value increases after it is sold in a primary market.
B) it guarantees to repay its owner a fixed amount of money at maturity.
C) it represents financial ownership in a corporation.
D) it can be sold in a secondary market.
Answer: D
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Page 5
Chapter 4: Money and Inflation
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Q1) Which of the following best represents the money supply?
A) Money supply = Monetary base
B) Money supply = Monetary base / Money multiplier
C) Money supply = Money multiplier ( Currency in circulation + Reserves)
D) Money supply = (Currency in circulation + Reserves) / Money multiplier
Q2) Suppose the annual growth rate of real GDP for the nation of Svengali is 5% and the growth rate of velocity is 0%.If the money supply growth rate decreases from 4% to 2%,what is the new rate of inflation in Svengali?
A) -3%
B) -1%
C) 3%
D) 7%
Q3) The government's profit from issuing fiat money is known as A) seigniorage.
B) menu costs.
C) commodity profit.
D) tax distortions.
Q4) Explain why gold,despite its value,is difficult to use as a medium of exchange.
Q5) Explain how inflation can be costly even if it is expected.
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Chapter 5: The Global Financial System and Exchange Rates
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Q1) <b>Refer to Figure 5.2</b>In which scenario does the interest parity condition hold?
A) A
B) B
C) C
D) D
Q2) The part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country is the
A) capital account.
B) current account.
C) financial account.
D) statistical discrepancy account.
Q3) When determining interest rates,the loanable funds model is more useful when we are concerned with the determinants of the ________,and the money market model is more useful when we are concerned with the determinants of the ________.
A) long-term real interest rate; short-term nominal interest rate
B) short-term real interest rate; long-term nominal interest rate
C) short-term real interest rate; short-term nominal interest rate
D) long-term real interest rate; long-term nominal interest rate
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Chapter 6: The Labour Market
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Q1) ________ arises from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs.
A) Structural unemployment
B) Frictional unemployment
C) Natural unemployment
D) Cyclical unemployment
Q2) Workers who are unemployed for long periods of time are more likely to be unemployed for ________ reasons than for ________ reasons.
A) cyclical; frictional or structural
B) frictional; structural or cyclical
C) structural; frictional or cyclical
D) frictional or structural; cyclical
Q3) Luke was earning $60 per hour and working 40 hours per week.Luke's wage rose to $70 per hour,and as a result,he now works 50 hours per week.What can you conclude from this information about the substitution and income effects of a wage increase for Luke?
Q4) Explain what causes the three types of unemployment.What advice for finding a job would be appropriate for someone in each type of unemployment?
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Chapter 7: The Standard of Living Over Time and Across Countries
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Q1) The per worker production function shows the relationship between A) the labour force and the capital stock.
B) the supply of labour and the population.
C) the hours worked and the number of workers.
D) real GDP per worker and capital per worker.
Q2) <b>Refer to Figure 7.1</b>.All else equal,an increase in the capital stock will cause a A) shift from PF to PF .
B) shift from PF to PF .
C) movement up and to the right along PF .
D) movement down and to the left along PF .
Q3) Suppose that the production function for the economy is Y = AK¹/ ³/ .Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.Total factor productivity for this economy is
A) 16.50
B) 1016.52
C) 2083.33
D) 2933.65
Q4) What is human capital? How do workers acquire human capital?
Page 9
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Chapter 8: Long-Run Economic Growth
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Q1) In the two-sector growth models,endogenous growth arises from A) increased saving.
B) the research sector.
C) increased capital.
D) the manufacturing sector.
Q2) According to the AK growth model,budget surpluses ________ the national saving rate and ________ the steady-state growth rate.
A) increase; increase
B) reduce; reduce
C) increase; do not change
D) reduce; do not change
Q3) In the production function for new ideas and technology in ________,a decrease in the labour force will ________ the growth rate of technological change.
A) the AK growth models; decrease
B) the AK growth models; increase
C) the two-sector growth model; decrease
D) the two-sector growth model; increase
Q4) What is the difference between real GDP per worker and real GDP per effective worker?
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Chapter 9: Business Cycles
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Q1) Suppose the average price of gasoline in Canada doubled.Accompanying the increase in gas prices was a decrease in new automobile sales.Other things equal,if this trend continued,real GDP would likely ________ and the output gap would become
A) rise; more negative
B) rise; less negative
C) fall; more negative
D) fall; less negative
Q2) <b>Refer to Figure 9.1.</b>Using the simple definition given in the text,in which quarter did Gigantica first enter into a recession during the years 2010-2012.
A) 2010 Q4.
B) 2011 Q2.
C) 2011 Q4
D) Gigantica did not enter a recession from the years 2010-2012.
Q3) Since the 1950s,
A) Canada's business cycle fluctuations have not changed.
B) Canada's business cycle fluctuations have become milder.
C) Canada's business cycle fluctuations have become more severe.
D) Canada has experienced more economic recessions than expansions.
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Chapter 10: Explaining Aggregate Demand: the Is-Mp Model
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Q1) If the MPC = 0.80,the government purchases multiplier is A) 2.
B) 4.
C) 5.
D) 8.
Q2) An increase in the price level causes a ________ the IS curve and a ________ the aggregate demand curve.
A) movement up along; movement down along B) shift to the right of; movement down along C) movement up along; movement up along D) shift to the left of; movement up along
Q3) Equilibrium in the goods market occurs where A) real GDP equals nominal GDP.
B) aggregate expenditure equals autonomous consumption.
C) autonomous consumption equals induced consumption. D) aggregate expenditure equals real GDP.
Q4) Explain how the AD curve can be derived from the IS-MP model.
Q5) Using the IS-MP model,explain what happens to output and the real interest rate when the IS curve shifts to the right and when it shifts to the left,and when the MP curve shifts up and when it shifts down.
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Chapter 11: The Is-Mp Model: Adding Inflation and the Open Economy
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Q1) <b>Refer to Figure 11.1.</b>..Assume the economy is in equilibrium at = 0.Other things equal,a negative demand shock such as the Great Recession would result in a movement from point ________ to point ________.
A) A; B
B) B; A
C) A; C
D) A; D
Q2) Negative demand shocks have a tendency to ________ real GDP relative to potential GDP and ________ the inflation rate.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) Assume the expected inflation for this year was 2%,but the actual inflation turned to be 6%.What are the implications of this unanticipated inflation on:
a) your salary?
b) your student loan?
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Chapter 12: Monetary Policy in the Short Run
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Q1) When the Bank of Canada makes an open market purchase,long-term real interest rates will ________,which will ________ GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q2) Although initially a ________ institution,the Bank of Canada is now a ________ corporation.
A) private; public
B) private; Crown
C) Crown; private
D) public; private
Q3) Why does the Bank of Canada attempt to achieve a low,stable rate of inflation rather than an inflation rate of 0%?
Q4) Suppose the economy is initially above potential GDP,and the actual inflation rate is greater than the expected inflation rate.Use the IS-MP model and the Phillips curve to explain what happens if the Bank of Canada adjusts the interest rate to achieve the goal of price stability.
Q5) Briefly explain the primary goal of the Bank of Canada.
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Chapter 13: Fiscal Policy in the Short Run
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Questions
Q1) Assume the economy is initially in equilibrium with real GDP equal to potential GDP.Other things equal,if the economy enters a recession and there are automatic stabilizers,the initial decrease in investment expenditure resulting from the recession is ________ what the decrease would be without automatic stabilizers,and the multiplier is ________ what the multiplier would be without automatic stabilizers.
A) less than; smaller than B) greater than; larger than C) equal to; smaller than D) equal to; greater than
Q2) An increasing federal budget deficit will ________ the federal government debt as this will ________ the total value of Canadian government bonds outstanding. A) increase; increase B) increase; decrease C) not impact; not change D) not impact; be offset by
Q3) What is the goal of fiscal policy,and what tools have policymakers traditionally used to conduct fiscal policy?
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Chapter 14: Aggregate Demand, aggregate Supply, and Monetary Policy
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Q1) Suppose the Bank of Canada has a target inflation rate of 3%,always hits its target,and the inflation rate has been 3% for several years.Furthermore,assume Amazon sets the price of its Kindle Fire at $140 in 2012 and wants to keep the real price of the Kindle constant in order to maximize profits.Now suppose that the Bank of Canada announces on January 1,2013 that it will decrease its target rate for inflation to 1%.If Amazon has rational expectations,it will set its price for the Kindle in 2013 at
A) $137.20.
B) $140.00.
C) $141.40.
D) $144.20.
Q2) Other things equal,a decrease in the price level will
A) shift the AS curve to the left.
B) shift the AS curve to the right.
C) cause a movement up the AS curve.
D) cause a movement down the AS curve.
Q3) What are the primary arguments in favour of a rules approach,and what are the primary arguments in favour of a discretionary approach?
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Chapter 15: Fiscal Policy and the Government Budget in the Long Run
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Q1) What is necessary for fiscal policy to be sustainable? Why is fiscal policy in countries like Greece,Ireland,Spain,Italy,and Portugal not considered sustainable?
Q2) The Canadian federal government obtains most of its revenues primarily through four main taxes.Which of the following is not one of the main sources of federal revenue?
A) corporate income taxes
B) social insurance contributions
C) excise taxes
D) individual income taxes
Q3) Of the primary tax sources of revenue for the Canadian federal government,which have trended downward as a percentage of GDP since 1981?
A) corporate income and individual income taxes
B) social insurance and corporate income taxes
C) sales and social insurance taxes
D) individual income and sales taxes
Q4) List the three possible ways the government can make adjustments to an increase in the government's budget deficit.
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Chapter 16: Consumption and Investment
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Q1) Household consumption as a percentage of GDP in Canada is A) less than that in other high-income countries.
B) greater than that in low-income countries.
C) equal to that in middle-income countries.
D) about average compared to countries around the world.
Q2) <b>Refer to Figure 16.1.</b>A decrease in the depreciation rate is best represented by a movement from
A) point A to point B.
B) point B to point A.
C) point A to point C.
D) point C to point A.
Q3) The tendency for households to consume an equal amount over time is called A) the savings-consumption constraint.
B) intertemporal consumption.
C) consumption equality.
D) consumption smoothing.
Q4) Explain the permanent-income hypothesis and the life-cycle hypothesis.How are these hypotheses similar?
Q5) What do economists mean when they characterize households and firms as forward looking?
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