Macroeconomic Theory Exam Bank
Course Introduction
Macroeconomic Theory explores the behavior and performance of entire economies, focusing on aggregate indicators such as GDP, unemployment, inflation, and economic growth. The course examines the underlying models and analytical tools used to understand how the overall economy operates, including the role of fiscal and monetary policy, determinants of national income, consumption, investment, and government spending. Students will analyze both classical and modern theories, investigate the causes of economic fluctuations, and discuss policy responses to major macroeconomic challenges. Theoretical frameworks are supported by empirical evidence and real-world case studies to link economic models with practical outcomes.
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 does efficiency mean?
A) Society is conserving resources in order to save them for the future.
B) Society's goods and services are distributed fairly among society's members.
C) Society has lessened its dependence on non-renewable energy sources.
D) Society is getting the most it can from its scarce resources.
Answer: D
Q2) What will be the probable outcome if Japan chooses to engage in trade?
A) It will only benefit if it trades with countries that produce goods it cannot produce.
B) It cannot benefit if it trades with less developed countries.
C) It will only benefit if it trades with countries that are geographically close Japan.
D) It can benefit by trading with any other country.
Answer: D
Q3) What does economics study?
A) finance
B) how society manages its scarce resources
C) central planning
D) government regulation
Answer: B
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) Refer to Figure 2-11. Points A, B, and D represent feasible or attainable outcomes for society.
A)True
B)False
Answer: True
Q2) Which of the following is a difficulty economists face that some other scientists do not?
A) Unlike other sciences, economic studies must include the largest economic player, the government.
B) Economists, unfortunately, receive less government funding than other scientists.
C) Corporations are reluctant to disclose necessary information for economic research.
D) Experiments are often difficult to conduct in economics.
Answer: D
Q3) The field of economics is divided into two subfields:microeconomics and macroeconomics.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Figure 3-1. Assume that Cliff and Paul were both producing wheat and corn, and each was dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in and trade 3 bushels of wheat for 3 bushels of corn. What would Cliff now be able to consume?
A) 4 bushels of wheat and 3 bushels of corn
B) 3 bushels of wheat and 4 bushels of corn
C) 3 bushels of wheat and 3 bushels of corn
D) 2 bushels of wheat and 3 bushels of corn
Answer: C
Q2) It takes Barbara 3 hours to make a pie and 4 hours to make a shirt. It takes Gary 2 hours to make a pie and 5 hours to make a shirt. Barbara should specialize in making shirts and Gary should specialize in making pies, then they should trade.
A)True
B)False
Answer: True
Q3) Some countries win in international trade, while other countries lose.
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) Market demand is Qd = 200 - 6P. Market supply is Qs = 4P. In a perfectly competitive equilibrium, what will be the price?
A) $150
B) $120
C) $30
D) $20
Q2) If a shortage exists in a market, what do we know?
A) The actual price is below equilibrium price, and quantity demanded is greater than quantity supplied.
B) The actual price is above equilibrium price, and quantity demanded is greater than quantity supplied.
C) The actual price is above equilibrium price, and quantity supplied is greater than quantity demanded.
D) The actual price is below equilibrium price, and quantity supplied is greater than quantity demanded.
Q3) The behaviour of buyers and sellers drives markets toward equilibrium. A)True B)False
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Chapter 5: Measuring a Nations Income
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Q1) What does personal income include and exclude?
A) It includes retained earnings, corporate income taxes, and social insurance contributions, and excludes interest and transfer payments received by households from government.
B) It excludes retained earnings, corporate income taxes, social insurance contributions, and interest, and includes transfer payments received by households from government.
C) It excludes retained earnings, corporate income taxes, and social insurance contributions, and includes interest and transfer payments received by households from government.
D) It includes retained earnings, corporate income taxes, social insurance contributions, and interest, and excludes transfer payments received by households from government.
Q2) In Canada in 2014, what percentage of GDP was consumption?
A) 46
B) 54
C) 68
D) 79
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Refer to the Scenario 6-1. What was the approximate ratio of Grant's real income to Lisa's real income?
A) 1:2
B) 3:5
C) 7:10
D) 7.5:10
Q2) In 1954, Canadian Prime Minister Louis Stephen St. Laurent was paid a salary of $15,000. Stephen Harper, the Prime Minister in 2014, was paid $157,731. The price index for 1954 is 14.1 and the price index for 2014 is 121.7. What is, approximately, Prime Minister St. Laurent's salary equivalent in 2014 dollars?
A) $110,500
B) $114,500
C) $129,500
D) $211,500
Q3) What does the CPI measure?
A) the overall price of inputs purchased by a typical producer
B) the overall price of goods and services bought by a typical consumer
C) the overall price of goods and services produced in the economy
D) the overall price of shares on the Toronto Stock Exchange
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Page 8
Chapter 7: Production and Growth
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Sample Questions
Q1) Which terms refers to the relationship between the quantity of output created and the quantity of inputs needed to create it?
A) the capital accumulation function
B) technological knowledge
C) the production function
D) human capital
Q2) Why would the opening of a new Canadian-owned factory in Egypt tend to increase Egypt's GDP more than it increases Egypt's GNP?
A) Some of the income from the factory accrues to people who live in Egypt.
B) GDP is income earned by residents only, whereas GNP is income earned by residents and nonresidents.
C) All of the income from the factory is included in Egypt's GDP, but not all is included in GNP.
D) Foreign direct investment is part of GDP, but it is not part of GNP.
Q3) Using the production function and notation in the text, what does K/L measure?
A) average wages per worker
B) human capital per worker
C) output per worker
D) physical capital per worker
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Page 9
Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) In a closed economy, what does (T - G) represent?
A) national saving
B) investment
C) private saving
D) public saving
Q2) What are the basic differences between bonds and stocks
Q3) Suppose that investment rises and interest rates fall. Which statement best explains these changes?
A) The government has replaced the consumption tax with an income tax.
B) The government instituted an investment tax credit.
C) The government reduced the tax rate on savings.
D) The government repealed an investment tax credit.
Q4) In the language of macroeconomics, what is considered "investment"?
A) the purchase of an annual pass to the gym
B) the purchase of new tools and machinery
C) the purchase of stocks, bonds, or mutual funds
D) the purchase of durable goods
Q5) In a closed economy GDP = $1300, private saving = $125, government budget deficit = $5, and government spending =$15 (all numbers are in billions). Calculate national saving, taxes, and consumption.
Page 10
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Chapter 9: Unemployment and Its Natural Rate
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Q1) According to most economists, what would be an effect of eliminating unemployment insurance?
A) It would cause an increase in unemployment because people would quit jobs they thought were not secure.
B) It would cause an increase in unemployment because if the government didn't provide unemployment insurance, private firms would offer superior insurance.
C) It would cause a decrease in unemployment and an improvement in economic well-being.
D) It would cause a decrease in unemployment, but economists disagree about whether economic well-being would be enhanced by such a change.
Q2) In Sweden and Denmark, what percentage of the workers belong to unions?
A) almost zero
B) about the same as in Canada
C) a bit greater than in Canada
D) much greater than in Canada
Q3) Unemployment due to job search is best classified as structural unemployment.
A)True
B)False
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Chapter 10: The Monetary System
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Sample Questions
Q1) 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
Q2) Which statement best describes bank runs today?
A) Bank runs are uncommon because of the high required reserve ratio.
B) Bank runs are uncommon because of CDIC deposit insurance.
C) Bank runs are common because of the low required reserve ratio.
D) Bank runs are common because the CDIC is inefficient.
Q3) What is a characteristic of paper money?
A) It has a high intrinsic value.
B) Ithinders 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) Who owns the Bank of Canada?
A) private individuals
B) the Queen
C) the chartered banks
D) the federal government of Canada
Page 12
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Chapter 11: Money Growth and Inflation
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Q1) According to the classical dichotomy theory, when the money supply doubles, what also doubles?
A) the price level
B) the real interest rate
C) the inflation rate
D) the real income
Q2) Refer to the Figure 11-1. What happens when the money supply curve shifts from MS1 to MS2?
A) The demand for goods and services decreases.
B) The economy's ability to produce goods and services increases.
C) The equilibrium price level increases.
D) The equilibrium value of money increases.
Q3) Refer to the Figure 11-1. If the money supply is MS2 and the value of money is 2, how much is the excess demand or supply?
A) There is an excess demand equal to the distance between A and C.
B) There is an excess demand equal to the distance between A and B.
C) There is an excess supply equal to the distance between A and C.
D) There is an excess supply equal to the distance between A and B.
Q4) Explain how inflation affects savings.
Q5) List and define any two of the costs of high inflation.
Page 13
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Q1) Suppose the price level in Canada (P) and the nominal exchange rate (e) between the Canadian dollar and the foreign currency remain the same, while the price level abroad increases from P * to P *. Let the real exchange rate be X. What is the percentage change in the real exchange rate?
Q2) Ivan, a Russian citizen, sells several hundred cases of Russian caviar to a Canadian hotel chain. Which statement best identifies the effects of this transaction?
A) It increases Canadian net exports and has no effect on Russian net exports.
B) It increases Canadian net exports and decreases Russian net exports.
C) It decreases Canadian net exports and has no effect on Russian net exports.
D) It decreases Canadian net exports and increases Russian net exports.
Q3) Which of the following shows that any trade transaction must have a financial counterpart?
A) NCO = NX
B) NCO + I = NX
C) NX + NCO = Y
D) Y = NCO - I
Q4) Suppose that a Canadian dollar buys more gold in Australia than it buys in Burkina Faso. What does purchasing-power parity imply should happen?
Page 14
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Q1) If Morocco experienced capital flight, which statement would best explain the effects?
A) The supply of Moroccan dirham curve would shift left, which would make the real exchange rate of the Moroccan dirham appreciate.
B) The supply of Moroccan dirham curve would shift left, which would make the real exchange rate of the Moroccan dirham depreciate.
C) The supply of Moroccan dirham curve would shift right, which would make the real exchange rate of the Moroccan dirham appreciate.
D) The supply of Moroccan dirham curve would shift right, which would make the real exchange rate of the Moroccan dirham depreciate.
Q2) What would make the equilibrium interest rate increase and the equilibrium quantity of funds decrease?
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) Why do higher real interest rates lead to lower net capital outflow?
Q4) Explain why saving need not equal domestic investment in an open economy.
Page 15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Q1) When would the long-run aggregate-supply curve shift right?
A) when immigration increases or the government makes a substantial increase in the minimum wage
B) when immigration decreases or the government abolishes the minimum wage
C) when immigration increases or the government abolishes the minimum wage
D) when immigration decreases or the government makes a substantial increase in the minimum wage
Q2) An increase in the price level makes consumers feel less wealthy. How is this situation represented?
A) Aggregate demand shifts right.
B) Aggregate demand shifts left.
C) There is a movement to right along a given aggregate-demand curve.
D) There is a movement to the left along a given aggregate-demand curve.
Q3) Which of the following measures the overall price level?
A) the price of some particular commodity or service
B) the rate of inflation
C) the consumer price index
D) the nominal GDP
Q4) Make a list of things that would shift the long-run aggregate-supply curve to the right.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) According to liquidity-preference theory, if the quantity of money supplied is greater than the quantity demanded, what will happen to the interest rate and the quantity of money demanded?
A) The interest rate will increase, and the quantity of money demanded will decrease.
B) The interest rate will increase, and the quantity of money demanded will increase.
C) The interest rate will decrease, and the quantity of money demanded will decrease.
D) The interest rate will decrease, and the quantity of money demanded will increase.
Q2) The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?
A) the multiplier effect
B) the crowding-out effect
C) the marginal propensity to consume effect
D) the investment accelerator effect
Q3) Why and in what way are fiscal policy lags different from monetary policy lags?
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Q1) According to Samuelson and Solow, when aggregate demand is high, how are unemployment, wages, and prices affected?
A) Unemployment is low, so there is upward pressure on wages and prices.
B) Unemployment is low, so there is downward pressure on wages and prices.
C) Unemployment is high, so there is upward pressure on wages and prices.
D) Unemployment is high, so there is downward pressure on wages and prices.
Q2) Milton Friedman argued that a central bank's control over the money supply could be used to peg which of the following?
A) the level or growth rate of a nominal variable, but not the level or growth rate of a real variable
B) the level of a nominal or real variable, but not the growth rate of a real or nominal variable
C) the level or growth rate of a real variable, but not the level or growth rate of a nominal variable
D) both levels and growth rates of both real and nominal variables
Q3) Although monetary policy cannot reduce the natural rate of unemployment, other types of policies can.
A)True
B)False
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Q1) Which of the following are both policies that are consistent with trying to stabilize output when prices and output rise?
A) decrease the money supply and decrease taxes
B) increase the money supply and decrease taxes
C) decrease the money supply and increase taxes
D) increase the money supply and increase taxes
Q2) What would those who desire that policymakers stabilize the economy advocate when aggregate demand is insufficient to ensure full employment?
A) decreasing the money supply
B) decreasing taxes
C) decreasing government expenditures
D) decreasing government deficit
Q3) Proponents of zero inflation argue that reducing inflation implies which of the following?
A) that reducing inflation eventually reduces inflation expectations
B) that reducing inflation eventually raises real interest rates
C) that reducing inflation permanently decreases output
D) that reducing inflation permanently raises unemployment
Q4) Explain how it is possible for the government debt to grow forever.
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