Course Introduction
Macroeconomic Theory Practice Exam
Macroeconomic Theory explores the foundational principles and models used to analyze the behavior of economies at an aggregate level. The course covers key topics such as national income determination, unemployment, inflation, economic growth, and the effects of fiscal and monetary policy. Students will engage with classical, Keynesian, and modern macroeconomic frameworks, applying analytical tools to understand economic fluctuations, long-term growth trends, and policy implications. Emphasis is placed on developing theoretical models, interpreting empirical data, and examining real-world macroeconomic issues within a global context.
Recommended Textbook
Principles of Macroeconomics 9th Edition by John Sayre
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13 Chapters
2035 Verified Questions
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Page 2
Chapter 1: The Economic Problem
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Sample Questions
Q1) What do economists mean when they say that the economy faces scarcity?
A)There are fewer resources available than there were in the 1960s.
B)It is quite evident that the world is running out of resources.
C)The economy is producing far below its capacity to produce.
D)The resources available are not sufficient to produce all that everyone wants.
Answer: D
Q2) What is the controversy with economic growth?
A)Economic growth leads to higher income.
B)Economic growth leads to greater leisure time.
C)Economic growth leads to increase pollution.
D)Economic growth leads to greater job satisfaction.
Answer: C
Q3) If each country specializes in the production of what it does best,what are the gains from trade?
A)There are no gains.
B)20 bread.
C)20 figs.
D)10 bread and 10 figs.
Answer: D
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Page 3
Chapter 2: Demand and Supply: an Introduction
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Sample Questions
Q1) Refer to the above graph to answer this question.How could you describe the movement from point A to point B?
A)An increase in demand which leads to a decrease in the equilibrium price and an increase in supply.
B)An increase in supply which leads to an increase in the equilibrium price and an increase in demand.
C)An increase in demand which leads to an increase in the equilibrium price and an increase in the quantity supplied.
D)An increase in supply which leads to an increase in the equilibrium price and an increase in the quantity demanded.
E)An increase in demand which leads to an increase in supply and an increase in the equilibrium price.
Answer: C
Q2) Explain the effects of a decrease in demand.
Answer: A decrease in demand will lead to a surplus and result in price and quantity traded to fall.Prices will continue to decrease until the surplus is eliminated and a new equilibrium quantity demanded and quantity supplied is reached.
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Chapter 3: Measuring the Economy 1: GDP and Economic Growth
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Sample Questions
Q1) Refer to the information above to answer this question.What is the value of National Income?
A)$493
B)$439
C)$451
D)$460
E)$427
Answer: E
Q2) Refer to the figure above to answer this question.What are flows 4 and 5 respectively?
A)Exports and imports.
B)Exports and taxes.
C)Savings and investment.
D)Investment and savings.
Answer: C
Q3) Savings is equal to consumption minus income.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Measuring the Economy 2: Unemployment and Inflation
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Sample Questions
Q1) Which of the following is false of frictional unemployment?
A)It is an inevitable part of a market economy.
B)It is a result of the time needed to match people seeking employment with job vacancies.
C)It often involves people seeking "the right job" rather than "just a job."
D)It can be eliminated.
Q2) Which of the following statements is correct concerning unanticipated inflation?
A)It redistributes income and wealth in unpredictable and uneven ways.
B)It increases the real value of debt.
C)It increases the purchasing power of the dollar.
D)It benefits creditors at the expense of debtors.
E)It hits everyone equally hard.
Q3) Refer to the information above to answer this question.What is the value of the GDP deflator in 2015?
A)0
B)100.0
C)104.8
D)108.0
E)Cannot be determined from the information
Q4) Give two examples of the redistributive costs of inflation.
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Chapter 5: Aggregate Demand and Supply
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Sample Questions
Q1) Which of the following statements is true about Canada's annual rate of economic growth from 1997 to 2012?
A)It was positive in every year.
B)There were more negative than positive years.
C)It was 5% or above in most years.
D)It averaged 2.6 percent.
Q2) Refer to the graph above to answer this question.If the economy was initially at point
A,what would a movement to point B suggest?
A)The movement could be the result of an increase in aggregate demand.
B)The movement could be the result of an increase in prices.
C)The movement could be the result of an increase in nominal wages.
D)The movement could be the result of increased government spending.
E)The movement could be the result of a decrease in the costs of production.
Q3) What happens if the aggregate demand curve shifts to the right?
A)The price level will rise.
B)Real GDP will increase.
C)Both A and B will occur.
D)Aggregate supply will also rise.
Q4) Why is the aggregate supply curve upward sloping?
Q5) What are the five determinants of investment spending?
Page 7
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Chapter 6: Aggregate Expenditures
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Sample Questions
Q1) Refer to the above table to answer this question.What is the value of the marginal leakage rate?
A)0
B)0.4
C)0.6
D)1.67
E)2.5
Q2) Refer to the information above to answer this question.What is the value of equilibrium income?
A)600.
B)800.
C)1,000.
D)1,500.
E)2,000.
Q3) Which of the following will result in an increase in investment spending?
A)A higher real interest rate,if the nominal interest rate has decreased.
B)New,higher-quality existing stock of capital.
C)Less government red-tape.
D)Newer consumer durables.
E)Higher installation price for capital goods.
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Chapter 7: Fiscal Policy
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Sample Questions
Q1) Refer to the graph above to answer this question.What does this graph indicate?
A)That Y1,Y2 and Y3 could all be equilibrium levels of real GDP.
B)That Y2 is the equilibrium level of real GDP.
C)That government spending and the size of the budget surplus or deficit are unrelated.
D)That net tax revenues depend on tax rates but not on the level of real GDP.
E)That the budget line is unrelated to NTR.
Q2) Which of the following statements best illustrates a cyclically balanced-budget fiscal policy?
A)The budget should be balanced each budget year.
B)The budget should always balance.
C)The life of the business cycle is the appropriate time period to attempt to balance the budget.
D)Fiscal policy really has nothing to do with the budget.
E)A balanced budget is the only appropriate fiscal policy.
Q3) What are the three schools of thought on fiscal policy?
Q4) What is the primary goal of counter-cyclical fiscal policy? What are three criticisms of it?
Q5) What are the major expenses for the Government of Canada?
Q6) What is meant by cyclically balanced budget fiscal policy?
Page 9
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Chapter 8: Money and Banking
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Sample Questions
Q1) Distinguish between M1 and M2.
Q2) "Credit cards make a difference in how much money people hold,but they are not money." Explain this statement.
Q3) Refer to the information above to answer this question.Assume the target reserve ratio is 8 percent.If the bank lends out its excess reserves,and a cheque clears against the bank for this amount,what will be the amount of the bank's excess reserves?
A)$0.
B)$4,800.
C)$24,000.
D)$19,200.
E)$7,000.
Q4) What is the result if banks maintain 100 percent reserves?
A)The money multiplier would have a value of zero.
B)Banks would be less profitable.
C)The money multiplier would be infinite.
D)The money supply would be larger.
Q5) List five types of money used throughout history.
Q6) Explain why a bank would not like to hold excess reserves.
Q7) List some of the potential problems of using gold coins as money.
Page 10
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Chapter 9: The Money Market and Monetary Policy
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Sample Questions
Q1) Assume the money supply is $1,000,the velocity of money is 12,and the price level is $4.Using the quantity theory of money:
(a)Determine the level of real output.
(b)Determine the level of nominal output.
(c)Assuming velocity remains constant and that the economy is at full-employment equilibrium,what will happen if the money supply rises by 10%?
Q2) Why is the money supply curve a vertical line?
Q3) Which of the following is one of the important routine functions of the Bank of Canada?
A)To help new commercial banks sell securities.
B)To supply the economy with currency.
C)To advise commercial banks as to the most profitable ways of reinvesting profits.
D)To help commercial banks establish good financial arrangements with foreign banks.
E)All of these.
Q4) What is the Keynesian transmission process?
Q5) Using the interest rate effect,explain why the AD is downward sloping.
Q6) What are the advantages and disadvantages of money as a form of wealth holdings?
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Chapter 10: International Trade
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Sample Questions
Q1) Explain why consumers lose and producers win if a tariff is imposed.
Q2) Refer to Figure 10.10 to answer this question.If Smith Island introduced an import quota of 20,what would be the new price of cloth in Smith Island?
A)$55.
B)$60.
C)$70.
D)$90.
Q3) What is a tariff?
A)A restriction placed on the importation of foreign products.
B)A maximum or minimum price placed on a product by government regulation.
C)A limit imposed on the production or sale of a product.
D)A tax or duty levied on imports.
Q4) Explain the theory of comparative advantage.How does it differ from the theory of absolute advantage?
Q5) If a country's trading possibilities curve lies to the right of its production possibilities curve,there are no gains from trade.
A)True
B)False
Q6) What are Canada's main exports?
Page 12
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Chapter 11: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) What does the quantity supplied of Canadian dollars equal?
A)The quantity demanded of foreign currencies by foreigners.
B)The quantity demanded of foreign currencies by Canadians.
C)The quantity supplied of foreign currencies by Canadians.
D)The quantity supplied of foreign currencies by foreigners.
Q2) What will be the result of a change in exchange rates if fewer Mexican pesos are needed to buy a Canadian dollar?
A)Canadians will buy more Mexican goods and services.
B)Mexicans will buy fewer Canadian goods and services.
C)Canadians will buy fewer Mexican goods and services.
D)Mexicans will buy more Mexican goods.
Q3) Refer to the graph above to answer this question.Assume that the demand for the U.S.dollar was to shift from D1 to D2 and that exchange rates were flexible.What would result?
A)The value of the U.S.dollar in Canadian terms would increase to OC.
B)A problem of rationing a shortage of U.S.dollars would arise in Canada.
C)The value of the Canadian dollar in U.S.terms would rise from 1/OB U.S.dollars equals Can $1,to 1/OA U.S.dollars equals Can $1.
D)The demand for the Canadian dollar would fall by a similar amount.
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Page 13
Chapter 12: Macroeconomic Policy Revisited
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Sample Questions
Q1) If Canadian policy-makers wish to maintain the value of the dollar relative to the U.S.dollar,what should they do?
A)Keep the money supply constant
B)Continually adjust the money supply to keep interest rates in line with American rates
C)Increase the money supply whenever the U.S.dollar starts to appreciate against the Canadian dollar
D)Purchase American dollars
Q2) Why would Canadian monetary policy be ineffective if we fixed the value of our dollar to that of the U.S.dollar?
A)Expanding the money supply in Canada would crowd out investment spending.
B)Contracting the money supply in Canada would crowd out investment spending.
C)Expanding the money supply in Canada would cause a rise in interest rates and an outflow of Canadian dollars and thereby frustrate the money expansion.
D)Expanding the money supply in Canada would cause a fall in interest rates and an outflow of Canadian dollars and thereby frustrate the money\expansion.
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14
Chapter 13: A Walk Through the Twentieth Century and Beyond
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Sample Questions
Q1) Aggregate demand policies are effective in curing the problems of stagflation. A)True
B)False
Q2) An inevitable result of recession is a budget deficit.Explain the reason a deficit occurs.
Q3) According to Say's Law,states that supply creates its own demand. What does this mean?
Q4) With which of the following events are derivatives,hedge funds,and sub-prime mortgages all associated?
A)The Great Depression
B)The post-World War II economic boom period
C)The financial crisis of 2008-2010
D)The stagflation years of the 1970s
Q5) What characterized the decades of the 1950s and 1960s?
A)Low growth and high unemployment
B)Low unemployment and high inflation
C)Stagflation
D)Economic stability with reasonably low unemployment and inflation
Page 15
Q6) Explain the foundation of Keynes's disagreement with neoclassical economists with respect to the inflexibility of prices.
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Page 16