Macroeconomic Theory
Exam Materials
Course Introduction
Macroeconomic Theory examines the behavior and performance of economies as a whole, focusing on broad aggregates such as national income, output, employment, inflation, and economic growth. The course introduces students to key theoretical models and frameworks used to analyze fiscal and monetary policy, GDP determination, business cycles, and the role of government and central banks in influencing economic activity. Students will engage with both classical and modern macroeconomic theories, critically evaluate policy implications, and apply quantitative tools to real-world macroeconomic issues.
Recommended Textbook
Macroeconomics 3rd Edition Canadian by Paul Krugman Robin Wells
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19 Chapters
5325 Verified Questions
5325 Flashcards
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Page 2
Chapter 1: First Principles
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198 Verified Questions
198 Flashcards
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Sample Questions
Q1) As long as individuals know that they can find the goods and services they want in the market,they are willing to forgo being self-sufficient and are willing to specialize.
A)True
B)False
Answer: True
Q2) You are analyzing a trade-off when you compare the _____ and _____ of doing something.
A) direct costs;opportunity costs
B) marginal benefits;total benefits
C) costs;benefits
D) direct costs;total costs
Answer: C
Q3) Increases in total output realized when individuals specialize in particular tasks and trade are known as:
A) the gains from trade.
B) the profits obtained from sales of a good or service.
C) marginal analysis.
D) a trade-off.
Answer: A
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Page 3
Chapter 2: Economic Models: Trade-Offs and Trade
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296 Flashcards
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Sample Questions
Q1) Which statement(s)reflect(s)a normative view?
I.New Brunswick should increase the minimum wage to $15 per hour.
II.There is a provincial minimum wage in Canada.
III.The provincial minimum wage in Canada is less than $18 per hour,depending on the province.
A) I,II,and III
B) None is normative.
C) I and II
D) I
Answer: D
Q2) (Figure: Guns and Butter)Use Figure: Guns and Butter.On this figure,points A,B,E,and F:
A) indicate combinations of guns and butter that society can produce using all of its factors efficiently.
B) indicate increasing opportunity costs for guns but decreasing opportunity costs for butter.
C) indicate that society wants butter more than it wants guns.
D) indicate constant opportunity costs for guns and increasing costs for butter.
Answer: A
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4
Chapter 3: Supply and Demand
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264 Flashcards
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Sample Questions
Q1) (Table: Competitive Market for Good Z)Use Table: Competitive Market for Good Z.If the supply curve for good Z is linear,it can be expressed as:
A) Q<sub>s</sub> = 3P.
B) Q<sub>s</sub> = 50 - 2P.
C) Q<sub>s</sub> = 100 - 2P.
D) Q<sub>s</sub> = Q<sub>d</sub>
Answer: A
Q2) When a market is in equilibrium,the quantity:
A) demanded is equal to zero.
B) demanded is equal to the quantity supplied.
C) demanded is greater than the quantity supplied.
D) supplied is zero.
Answer: B
Q3) The law of demand states that,other things equal,as the price:
A) increases,the quantity demanded will increase.
B) decreases,the demand curve will shift to the right.
C) increases,demand will decrease.
D) increases,the quantity demanded will decrease.
Answer: D
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Page 5
Chapter 4: Price Controls and Quotas: Meddling With Markets
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200 Flashcards
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Sample Questions
Q1) (Figure: The Market for Economics Textbooks)Use Figure: The Market for Economics Textbooks.Suppose that the government believes textbooks are too expensive and it wants to make sure textbooks are affordable to more students.This type of price control is called a price _____,and one possible binding price control would be _____.
A) floor;$100
B) floor;$40
C) ceiling;$40
D) ceiling;$100
Q2) A price floor or a price ceiling is an example of:
A) a quantity control.
B) a price control.
C) market equilibrium price.
D) a quota.
Q3) The likely result of a binding price floor is a _____ of the good at a price _____ the equilibrium price.
A) surplus;above
B) shortage;below C) surplus;below D) shortage;above
6
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Chapter 5: International Trade
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Sample Questions
Q1) (Figure: The Domestic Supply and Demand for SUVs in Canada)Use Figure: The Domestic Supply and Demand for SUVs in Canada.Suppose that the world price equals $50 000 and there is free trade.Calculate the loss of consumer surplus.
A) $41 250 million
B) $30 000 million
C) $52 500 million
D) $22 250 million
Q2) (Figure: The Market for iPhones)Use Figure: The Market for iPhones.Assume that P<sub>A</sub> is the autarky price,P<sub>W</sub> is the world price,and D and S represent domestic demand and supply,respectively.Consumer surplus in free trade equals the area:
A) A.
B) A + B + C.
C) A + B + C + D.
D) A + B.
Q3) The Heckscher-Ohlin model cannot explain Canada-Mexico trade since Canada has less labour and more land than Mexico.
A)True
B)False
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Page 7
Chapter 6: Macroeconomics: the Big Picture
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Use of monetary policy entails changes in:
A) government spending.
B) tax receipts.
C) the quantity of money.
D) tax rates.
Q2) Fiscal policy can be used to reduce the severity of recessions.
A)True
B)False
Q3) If the economy grew at 3% this year and average prices increased _____,people would be better off this year than the last year.
A) by 3%
B) faster than 3%
C) less than 3%
D) faster than 10%
Q4) An increase in the nation's _____ is generally accepted as a long-run indicator of a rising standard of living.
A) output per person
B) unemployment rate
C) inflation rate
D) trade deficit
Page 8
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Chapter 7: Gdp and the Cpi: Tracking the Macroeconomy
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321 Verified Questions
321 Flashcards
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Sample Questions
Q1) _____ is considered to be an IOU.
A) A tock
B) A bond
C) Interest
D) A dividend
Q2) (Figure 7-2: Expanded Circular-Flow Model)Use Figure 7-2: Expanded Circular-Flow Model.How much is total government spending?
A) $20
B) $220
C) $370
D) $200
Q3) Spending on food is the largest portion of the consumer price index.
A)True
B)False
Q4) The base period for the consumer price index is 1982-1984. A)True
B)False
Q5) The GDP deflator is another name for the consumer price index. A)True
B)False
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Chapter 8: Unemployment and Inflation
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332 Flashcards
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Sample Questions
Q1) The natural rate of unemployment changes when:
A) the cyclical unemployment changes.
B) the actual rate of unemployment changes.
C) labour market institutions change.
D) government policies remain the same.
Q2) You are a university student and NOT working or looking for work.You are:
A) unemployed.
B) in the labour force but not employed.
C) not part of the labour force.
D) counted in the labour force as underemployed.
Q3) Which example is a LIKELY response to inflation?
A) People choose to carry higher money balances.
B) People tend to make fewer transactions.
C) People tend to make more transactions.
D) People tend to hold on to fewer interest-bearing assets.
Q4) A worker classified as frictionally unemployed is one who is:
A) laid off during a recession.
B) discouraged and has dropped out of the labour force.
C) unemployed while looking for a job that demands his or her skills.
D) working part time but would prefer to work full time.
Page 10
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Chapter 9: Long-Run Economic Growth
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298 Flashcards
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Sample Questions
Q1) Based on historical economic growth,economists have noted that the estimated aggregate production function:
A) exhibits constant returns to physical capital.
B) shows that when holding the amount of human capital and the state of technology fixed,successive increases in the amount of physical capital per worker lead to smaller increases in productivity.
C) depends primarily on physical capital and technology advances.
D) shows the negative relationship between physical capital and productivity.
Q2) The economy has grown by 4% per year over the past 30 years.During the same period,the labour force has grown by 1% per year and the quantity of physical capital has grown by 5% per year.Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%.Assume that human capital has not changed during the past 30 years.How much has growing physical capital per worker contributed to productivity growth?
A) 6%
B) 5.4%
C) 2%
D) 1.6%
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Chapter 10: Savings, Investment Spending, and the Financial System
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385 Verified Questions
385 Flashcards
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Sample Questions
Q1) If a country's capital inflow exceeds outflow,then foreigners are contributing to the domestic country's investment spending.
A)True
B)False
Q2) If the government increases its borrowing,then at every interest rate there is a(n)_____ funds.
A) additional supply of B) additional demand for C) decrease in the supply of D) increase in the supply of
Q3) Which statement describes a serious challenge to the efficient markets hypothesis?
A) Stock prices fluctuate more than can be explained by news about fundamentals.
B) Individual investors behave in systematically irrational ways.
C) Stock prices follow a random walk.
D) Stock prices fluctuate more than can be explained by news about fundamentals,and individual investors behave in systematically irrational ways.
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Page 12
Chapter 11: Income and Expenditure
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Sample Questions
Q1) When Julie Ann's disposable income is $10 000,she spends $10 000,and when her disposable income is $15 000,her spending is $12 500.Julie Ann's autonomous consumption is _____ and her marginal propensity to consume is 0.5.
A) $5 000
B) $10 000
C) $15 000
D) $0
Q2) In the income-expenditure model,inventories are:
A) fixed and therefore provide little insight into the direction of the economy.
B) a long-run event that aids forecasters in understanding where long-run real GDP is.
C) constantly changing and provide insight into the future of the economy.
D) often positive,suggesting that additions to inventory stocks are a long-run goal.
Q3) If unplanned inventory investment is positive,probably:
A) the economy is growing rapidly.
B) planned aggregate expenditures on goods and services are less than forecast.
C) the economy is doing the same,since inventory changes do not affect the economy.
D) the stock of inventories is declining.
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Page 13
Chapter 12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) (Figure: The Multiplier)Refer to Figure: The Multiplier.If this economy is at Y<sub>1</sub> and the price level decreases:
A) AD<sub>1 </sub>will shift to the left,reflecting a multiplied decrease in real GDP at every price level.
B) AD<sub>1</sub> will shift to the right,reflecting a multiplied increase in real GDP at every price level.
C) an upward movement along the AD<sub>1</sub> will take place,reflecting an increase in the price level.
D) a downward movement along the AD<sub>1</sub> will take place,reflecting a decrease in the price level.
Q2) When the aggregate price level falls,the purchasing power of assets rises,which leads to:
A) an increase in the quantity of aggregate output demanded.
B) a decrease in the quantity of aggregate output demanded.
C) a shift in the AD curve to the right.
D) a shift in the AD curve to the left.
Q3) Between 1929 and 1933,real GDP increased by a large amount.
A)True
B)False
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Chapter 13: Fiscal Policy
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346 Flashcards
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Sample Questions
Q1) If the government were required to balance the budget during a recession,it would have to increase taxes and decrease government spending.
A)True
B)False
Q2) Transfer payments are payments that:
A) governments make to households although the government did not receive a good or service from the household.
B) governments make to households when the government receives a good or service.
C) erode the purchasing power of the economy.
D) are essentially tax refunds.
Q3) Government tax revenue rises and falls with the business cycle as:
A) the multiplier effect of taxes and government transfers.
B) a discretionary fiscal policy.
C) the multiplier effect of government purchases.
D) an automatic stabilizer.
Q4) The effect of automatic stabilizers is to increase the size of the multiplier.
A)True
B)False
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Page 15
Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) If the Bank of Canada conducts an open-market sale,bank reserves _____ and the money supply is likely to _____.
A) increase;increase
B) increase;decrease
C) decrease;increase
D) decrease;decrease
Q2) Which of the following about bank runs is false?
A) They may start as a result of a rumour that a bank is in financial trouble.
B) Many banks' depositors try to withdraw their funds because they fear a bank failure.
C) Bank runs typically happen only to small banks with few financial assets.
D) Bank runs often lead to a loss of faith in other banks,causing additional bank runs.
Q3) A vicious cycle of deleveraging occurs when sales of assets to cover losses produce positive balance sheet effects on other firms,causing creditors to call and extend further loans,which forces further sales of assets and further decreases in prices.
A)True
B)False
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Page 16
Chapter 15: Monetary Policy
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Sample Questions
Q1) If the AD curve shifts to the right,in the short run there will be a(n)_____ in aggregate output and a(n)_____ in the price level.
A) increase;increase
B) increase;decrease
C) decrease;decrease
D) decrease;increase
Q2) If the actual interest rate is below the target rate,the Bank of Canada should decrease the money supply.
A)True
B)False
Q3) A rise in interest rates due to a decrease in the money supply will _____ aggregate demand.
A) reduce B) not change
C) increase
D) cause random fluctuations in
Q4) Expansionary monetary policy may increase consumer spending.
A)True
B)False
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Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) Expecting the inflation rate to be 3%,Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year.If the actual inflation rate is _____,it can be argued that _____ is/are better off.
A) below 3%;Adrianna B) exactly 5%;both the bond issuer and Adrianna C) above 3%;Adrianna D) below 3%;the bond issuer
Q2) Disinflation:
A) entails eliminating inflation in an economy.
B) policy may plunge the economy into a recession.
C) occurs as a result of policy makers' attempts to correct a major recession.
D) results in a fall in the unemployment rate.
Q3) Deflation leads to winners and losers;for example:
A) mortgage holders lose,but banks awaiting mortgage payments benefit.
B) landlords lose,but people paying rent gain.
C) savings account holders lose,but the banks gain.
D) bond and stock holders lose,but the brokerage company gains.
Q4) People can avoid the inflation tax by reducing their real money balances.
A)True
B)False
Page 18
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Chapter 17: Macroeconomics: Events and Ideas
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Sample Questions
Q1) Which school of thought believes that fiscal policy should have the central role in fighting recessions?
I.classical macroeconomics
II.Keynesian macroeconomics
III.monetarism
A) I only
B) II only
C) III only
D) I,II,and III
Q2) Monetarism suggests that:
A) money should be backed by gold.
B) the economy is unstable.
C) monetary policy should be used to offset economic fluctuations.
D) discretionary monetary policy does more harm than good.
Q3) Monetarists argue that discretionary monetary policy does more harm than good.
A)True
B)False
Q4) A stimulus is an expansionary fiscal policy.
A)True
B)False
Page 19
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Chapter 18: International Macroeconomics
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441 Flashcards
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Sample Questions
Q1) (Scenario: Purchasing Power Parity)Refer To Scenario: Purchasing Power Parity.For there to be purchasing power parity,the nominal exchange rate for the dollar must be:
A) £2.
B) £1.25.
C) £1.
D) £0.40.
Q2) Which method would NOT maintain a fixed exchange rate?
A) trading currency in the foreign exchange market
B) changing monetary policy to shift the supply and demand curves for its own currency
C) implementing foreign exchange controls
D) passing a law requiring that the exchange rate remain fixed
Q3) Included in the financial account is the income Canadian residents earn on assets owned in other countries.
A)True
B)False
Q4) A devaluation can help reduce an inflationary gap.
A)True
B)False
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Chapter 19: Graphs in Economics
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Sample Questions
Q1) (Table: Price,Quantity Demanded,and Quantity Supplied)Use Table: Price,Quantity Demanded,and Quantity Supplied.The data in the figure suggest a non-linear relation between:
A) price and quantity demanded.
B) price and quantity supplied.
C) price and quantity demanded,as well as price and quantity supplied.
D) The table does not show a non-linear relation.
Q2) (Figure: Good X and Good Y)Use Figure: Good X and Good Y.If we move from point C to point B in the figure,the x-variable has _____ units and the y-variable has _____ units.
A) decreased by 2;increased by 15
B) increased by 2;decreased by 15
C) decreased by 15;increased by 2
D) increased by 15;decreased by 2
Q3) The relation between two variables that move in opposite directions is said to be:
A) independent.
B) positive.
C) direct.
D) negative.
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Page 21