Macroeconomic Theory Test
Questions
Course Introduction
Macroeconomic Theory explores the fundamental principles and models used to analyze the behavior of economies at an aggregate level. This course examines key topics such as national income determination, economic growth, unemployment, inflation, fiscal and monetary policy, and the interplay between different sectors within an economy. Students will develop a strong theoretical understanding of how economic policies impact overall economic performance and the factors that drive fluctuations in output and employment. Emphasis is placed on both classical and contemporary macroeconomic frameworks, providing students with analytical tools to interpret real-world economic issues and policy debates.
Recommended Textbook Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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3510 Verified Questions
3510 Flashcards
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Which of the following is NOT a major area of study for economists?
A)how people make decisions
B)how countries choose national leaders
C)how people interact with each other
D)how forces and trends affect the overall economy
Answer: B
Q2) What is market power?
A)the power of a single person or group to influence market prices
B)the ability of a person or group of people to successfully market new products
C)the power of the government to regulate a market
D)the relative importance of a market to the overall economy
Answer: A
Q3) Trade allows each person to specialize in the activities he or she does best,thus increasing each individual's productivity.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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235 Flashcards
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Sample Questions
Q1) Why do economists use models?
A)to learn how the economy works
B)to make their profession appear more precise
C)to make economics accessible to the public
D)to make sure that all of the details of the economy are included in their analysis
Answer: A
Q2) What are tariffs and quotas?
A)policies that restrict trade among nations
B)instruments implemented to increase trade efficiency
C)measures endorsed by almost all economists
D)policies meant to improve the well-being of consumers
Answer: A
Q3) What does evaluating a positive statement involve?
A)evaluating values as well as facts
B)examining evidence
C)views on ethics and religion
D)consideration of the government's policy goals
Answer: B
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4
Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Refer to Table 3-3.What does each of the two producers have a comparative or absolute advantage in?
A)Helen has an absolute advantage in dresses, and Carolyn has a comparative advantage in quilts.
B)Helen has an absolute advantage in both goods, and Carolyn has a comparative advantage in dresses.
C)Helen has an absolute advantage in quilts, and Carolyn has a comparative advantage in quilts.
D)Helen has an absolute advantage in both goods, and Carolyn has a comparative advantage in quilts.
Answer: B
Q2) Refer to Figure 3-5.What should Fred and Ginger produce?
A)Fred should produce tap shoes, and Ginger should produce ballet slippers.
B)Fred should produce tap shoes and ballet slippers, and Ginger should produce ballet slippers.
C)Fred should produce tap shoes, and Ginger should produce ballet slippers and tap shoes.
D)Fred should produce ballet slippers, and Ginger should produce tap shoes.
Answer: A
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Page 5
Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) Refer to the Figure 4-6.What could cause the shift from D to D ?
A)an increase in price
B)a decrease in the price of a complement
C)an increase in technology
D)a decrease in the price of a substitute
Q2) What happens in a market economy?
A)Demand is determined by supply.
B)Supply is determined by demand.
C)Price is determined by quantity.
D)Quantity is determined by price.
Q3) Market demand is given as Qd = 60 - P.Market supply is given as Qs = 3P.In a perfectly competitive equilibrium,what will be price and quantity traded in the market?
A)price will be $20 and quantity will be 40
B)price will be $45 and quantity will be 15
C)price will be $40 and quantity will be 20
D)price will be $15 and quantity will be 45
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) What is the side of the market that deals with the willingness and ability to produce and sell?
A)demand
B)competition
C)supply
D)a monopoly
Q2) A dress manufacturer is expecting higher prices for dresses in the near future.What would we expect?
A)the dress manufacturer to supply more dresses now
B)the dress manufacturer to supply fewer dresses now
C)the demand for this manufacturer's dresses to fall
D)no change in the dress manufacturer's current supply
Q3) An increase in the price of pizza will shift the demand curve for pizza to the left.
A)True
B)False
Q4) A local cable TV company might be a monopolist.
A)True
B)False
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) Which of the following examples would be included in Canadian consumption?
A)A Canadian resident buys a car manufactured in Brazil.
B)A French resident buys a new house in Canada
C)Beverly buys a newly issued share in a Canadian corporation
D)Samantha produces some artwork to decorate her house.
Q2) A firm produces consumer goods and adds some to inventory in the third quarter.In the fourth quarter,the firm sells the goods at a retail outlet.As a result of these actions,what happens to the consumption and investment components of GDP in the fourth quarter?
A)investment decreases, consumption does not change
B)investment increases, consumption decreases
C)investment decreases, consumption increases
D)investment does not change, consumption increases
Q3) In an economy consisting of only households and firms,how can GDP be computed?
A)by adding up the total expenditures of households and subtracting savings
B)by adding up the income paid by firms only in exchange for labour
C)by adding up either total income paid by firms or total expenditures of households, but not both
D)by adding up both the total expenditures of households and the total income paid by firms
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) For the CPI,what is the base year?
A)It is the benchmark against which other years are compared, and it changes each year.
B)It is the benchmark against which other years are compared, and it changes occasionally.
C)It is the year the CPI first appeared.
D)It is the year before the year for which the CPI is calculated.
Q2) What does "substitution bias" in the consumer price index refer to?
A)replacing old goods with new goods in consumer purchases
B)replacing low-quality goods with high-quality goods in consumer purchases
C)replacing expensive goods with cheaper goods in consumer purchases
D)replacing old-design goods with technologically advanced goods in consumer purchases
Q3) When the overall level of prices in the economy is increasing,what is the economy experiencing?
A)economic growth
B)inflation
C)unemployment
D)deflation
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Chapter 7: Production and Growth
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Sample Questions
Q1) The annual population growth rate in developed countries is about 1 percent,while the growth rate in developing countries is about 3 percent.
A)True
B)False
Q2) Which of the following is one of the consequences of accumulating capital?
A)Accumulating capital requires that society sacrifice consumption in the present.
B)Accumulating capital allows society to consume more in the present.
C)Accumulating capital decreases saving rates.
D)Accumulating capital increases income inequality.
Q3) How do inward-oriented policies affect a nation's growth?
Q4) Which of the following is an important fact about population growth?
A)There are no substantial differences between rates of growth in population among countries.
B)In developed countries, population tends to grow slower than in developing countries.
C)Higher rate of growth in population implies higher productivity.
D)Economists generally believe that a country that increases its population growth rate will increase its economic growth rate.
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) Which of the following is both a store of value and a common medium of exchange?
A)corporate bonds
B)mutual funds
C)chequing account balances
D)a pension plan
Q2) Suppose a country repeals its investment tax credit.Which of the following is most likely to happen in the market for loanable funds?
A)The demand for and the supply of loanable funds would shift to the right.
B)The demand for and the supply of loanable funds would shift to the left.
C)The supply of loanable funds would shift to the right, and the demand for loanable funds would shift to the left.
D)The supply of loanable funds would remain unchanged, and the demand for loanable funds would shift to the left.
Q3) Draw and label a graph showing equilibrium in the market for loanable funds.
Q4) Other things the same,the higher the rate of saving and investment in a country,the higher the standard of living will be.
A)True
B)False
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Page 11
Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) The City of Burnaby,B.C.,would like to assess the impact of next year's immigration on the labour market for taxi driving.Suppose the city estimates the demand and supply equations for taxi drivers as follows: LD = 400 - 20w and LS = 60 + 20w.Based on immigration data,the city estimates that about 60 new drivers will enter the taxi driving sector next year.At the same time,immigration increases the demand for taxi services,but only for about 40 new drivers.
a)Calculate the equilibrium wage and employment in the labour market for taxi driving in Burnaby,B.C.,before the new wave of immigration.
b)Re-calculate the equilibrium wage and employment after immigration.
c)How many workers leave the labour force in the taxi driving sector after the new equilibrium would have been reached? Are these locals,or immigrants?
d)Draw a graph to show the effect of immigration.
Q2) According to economists,how should the reported unemployment rate be viewed?
A)as a useful but imperfect measure of joblessness
B)as clearly smaller than the true unemployment rate
C)as clearly larger than the true unemployment rate
D)as being very close to the true unemployment rate
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Chapter 10: The Monetary System
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Sample Questions
Q1) If you deposit $5000 into First Hawkeye Bank,what will the bank most likely do?
A)It will eventually increase its required reserves by the reserve ratio times $5000.
B)It will be able to lend out $5000 times the reserve ratio.
C)It will initially see reserves increase by $5000 divided by the reserve ratio.
D)It will be able to lend out $5000.
Q2) Which of the following lists 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
Q3) Draw a simple T-account for First National Bank of Me,which has $5000 of deposits,a reserve ratio of 10 percent,and excess reserves of $300.
Q4) Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?
Q5) What does the text mean by,and how does it answer the question,"Where is all the currency?"
Q6) What is the difference between money and wealth?
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Chapter 11: Money Growth and Inflation
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198 Flashcards
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Sample Questions
Q1) Trent bought a parcel of land for $20 000 in 1960 when the price index was 100;he sold it in 2013,when the price index was 600,for $100 000.If Trent must pay 20 percent of any capital gain in taxes,what is his after-tax real capital gain (in 2013 dollars)?
A)-$64 000
B)-$36 000
C)-$16 667
D)-$3333
Q2) Which of the following does the Fisher effect imply?
A)The nominal interest rate adjusts one for one with the inflation rate.
B)The growth rate of the money supply determines the inflation rate.
C)Real variables are heavily influenced by the monetary system.
D)The real interest rate adjusts one for one with the inflation rate.
Q3) In the long run,when money is neutral,which of the following increases when the money supply growth rate increases?
A)real output growth
B)real interest rates
C)nominal interest rates
D)the money supply divided by the price level
Q4) Define each of the symbols and explain the meaning of M × V = P × Y.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) The country of Sylvania has a GDP of $4000,investment of $500,government purchases of $400,and net capital outflow of negative $300.What is consumption?
A)$600
B)$700
C)$3400
D)$3700
Q2) Which of the following is the most likely effect of an appreciation of the Canadian real exchange rate on the quantity of Alberta beef demanded by French citizens?
A)French citizens will buy less of Alberta beef.
B)French citizens will buy more of Alberta beef.
C)The quantity of Alberta beef demanded by French citizens will not change because the nominal exchange rate has not changed.
D)The quantity of Alberta beef demanded by French citizens will not change because it is the French real interest rate that matters for French citizens.
Q3) What is the logic behind the theory of purchasing-power parity?
Q4) What does purchasing-power parity imply about the real exchange rate?
Q5) Why are net exports and net capital outflow always equal?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) Refer to the FigurE 3-1.In the figure shown,if the real interest rate is 6 percent,what is the result?
A)surplus of $4000
B)surplus of $2000
C)shortage of $4000
D)shortage of $2000
Q2) If there is capital flight from Canada,how does the open-economy macroeconomic model change?
A)Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift right.
B)Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift left.
C)The supply of loanable funds shifts left, while the supply of dollars shifts right.
D)The supply of loanable funds shifts right, while the supply of dollars shifts left.
Q3) Explain why saving need not equal domestic investment in an open economy.
Q4) How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.
A)True
B)False
Q2) Which of the following situations would induce a shift of the aggregate demand to the right?
A)The price level and government expenditures decreased.
B)The price level decreased, and the government instituted an investment tax credit.
C)Government expenditures and the money supply increased.
D)The bank rate increased, and the dollar appreciated.
Q3) How does real GDP change over time?
A)It moves in the same direction as unemployment.
B)It moves in the same direction as inflation.
C)It has a long-term upward trend.
D)It is approximately constant because it is measured in constant dollars.
Q4) Compare the effects of an aggregate-demand-induced recession with an aggregate-supply-induced recession.How would you recognize that a recession is induced by demand or supply? What policies would be appropriate in the first case and what in the second?
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) According to the crowding-out effect,how does a decrease in government spending affect the interest rate and investment spending?
A)It increases the interest rate and so increases investment spending.
B)It increases the interest rate and so decreases investment spending.
C)It decreases the interest rate and so increases investment spending.
D)It decreases the interest rate and so decreases investment spending.
Q2) According to the theory of liquidity preference,how is the money supply affected by the interest rate?
A)positively
B)negatively
C)not affected
D)directly
Q3) Assume that the MPC is 0.8.Assume that the total crowding-out effect is $25 billion.How will an increase in government purchases of $9 billion shift the AD curve?
A)It will shift the AD curve right by $25 billion.
B)It will shift the AD curve left by $25 billion.
C)It will shift the AD curve right by $20 billion.
D)It will shift the AD curve left by $20 billion
Q4) What is the difference between monetary policy and fiscal policy?
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Sample Questions
Q1) Suppose an economy with high inflation decides to decrease the money supply growth rate.Which of the following best describes the results?
A)Initially unemployment rises. Eventually the short-run Phillips curve shifts right.
B)Initially unemployment rises. Eventually the short-run Phillips curve shifts left.
C)Initially unemployment falls. Eventually the short-run Phillips curve shifts right.
D)Initially unemployment falls. Eventually the short-run Phillips curve shifts left.
Q2) Which of the following is the misery index supposed to measure?
A)the extent of poverty in an economy
B)the health of the economy
C)the degree of inequality
D)the standard of living
Q3) Refer to the Figure 16-4.Along LRPC,what is the expected rate of inflation?
A)0 percent
B)the actual rate of inflation
C)3 percent
D)the natural rate of inflation
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy.
A)True
B)False
Q2) Suppose that at the start of fiscal year 2013 the government had a debt of $6800 billion.Suppose that during fiscal year 2013,real GDP grew by about 5 percent and inflation was about 3 percent.What is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A)about $544 billion
B)about $375 billion
C)about $245 billion
D)about $184 billion
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 why policy lags could make stabilization policies counterproductive.
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