Principles of Macroeconomics Exam
Solutions
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the workings of economies on a large scale. The course explores key topics such as national income, economic growth, unemployment, inflation, fiscal and monetary policy, and international trade. Students will learn how government policies influence economic performance and how various economic indicators are used to assess the health of an economy. Emphasis is placed on understanding the aggregate behavior of households, businesses, and governments, and on analyzing current economic events using macroeconomic frameworks.
Recommended Textbook
Exploring Macroeconomics 3rd canadian Edition by Robert L. Sexton
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15 Chapters
2208 Verified Questions
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Page 2
Chapter 1: The Role and Method of Economics
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Sample Questions
Q1) What is economics most concerned with?
A)how to reduce inflation
B)how to profit from trading in the stock market
C)studying how we allocate scarce resources to satisfy unlimited wants
D)government taxation and spending
Answer: C
Q2) "The minimum wage should be increased so that low-income workers can afford to feed their families." What is this statement an example of?
A)a positive economic statement
B)a negative economic statement
C)a normative economic statement
D)the fallacy of composition
Answer: C
Q3) What is the opportunity cost of an action equal to?
A)the highest valued alternative sacrificed as a result of the action
B)the sum of the benefits received as a result of the action
C)the monetary benefit received as a result of the action
D)the value of any alternative use of the time expended on the action
Answer: A
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Page 3
Chapter 2: Scarcity, trade-Offs, and Production Possibilities
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Sample Questions
Q1) What tends to occur in countries with high labour costs?
A)They use more labour rather than capital in the production process.
B)They use more capital rather than labour in the production process.
C)They rely on only one method for the production of goods.
D)They become relatively poor countries.
Answer: B
Q2) Refer to Figure 2-3.Which of the following movements will result in an increase in the quantity of both capital and consumption goods produced this period?
A)a movement from Point D to Point F
B)a movement from Point F to Point D
C)a movement from Point B to Point A
D)a movement from Point F to Point A
Answer: C
Q3) Which of the following best illustrates inefficiency?
A)producing outside the production possibilities curve
B)limiting economic growth by reducing capital spending
C)high levels of unemployment of labour and other resources
D)forgoing civilian goods in order to produce more military goods
Answer: C
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) If there are widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada,what is the likely economic effect on the U.S.demand curve for beef from Canada?
A)no change
B)a shift of the demand curve for beef to the right
C)a movement down along the demand curve for beef to the right
D)a shift of the demand curve for beef to the left
Answer: D
Q2) Which of the following statements about the demand curve for a typical good is the most accurate?
A)It has an inverse slope because as the price goes up, the good has more profitability.
B)It has a negative slope because consumer incomes fall as the price of the good rises.
C)It has a negative slope because some consumers switch to other goods as the price rises.
D)It has a negative slope because the good has less "snob appeal" as its price falls.
Answer: C
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Chapter 4: Bringing Supply and Demand Together
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Sample Questions
Q1) A surplus exists in the market for Barbie dolls at the prevailing price.What will eliminate the surplus?
A)A price decrease, decreasing the quantity supplied and increasing the quantity demanded.
B)A price decrease, decreasing the supply and increasing the demand.
C)A price increase, decreasing the supply and increasing the demand.
D)A price decrease, increasing the quantity supplied and increasing the quantity demanded.
Q2) A more efficient means of processing tree bark to produce an anticancer drug is discovered.How does this affect the supply curve for the drug?
A)It will shift to the right, increasing the price of the drug.
B)It will shift to the left, increasing the price of the drug.
C)It will shift to the left, decreasing the price of the drug.
D)It will shift to the right, decreasing the price of the drug.
Q3) If the market for peaches is in equilibrium at $2.99 per pound,a decrease in the supply of peaches will cause a surplus of peaches at that price.
A)True
B)False
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Chapter 5: Introduction to the Macroeconomy
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Sample Questions
Q1) Under what circumstances might the unemployment rate overestimate the true extent of unemployment?
A)if many part-time employees would like to work full-time, but are unable to get the additional work
B)if people become discouraged and stop looking for work
C)if people falsely claim that they are actively seeking work in order to receive unemployment benefits
D)if employees increases the number of hours that they work overtime
Q2) If the nominal rate of interest is 10.5 percent and the inflation rate is 4.3 percent,what is the real rate of interest?
A)3.0 percent
B)4.3 percent
C)6.2 percent
D)10.5 percent
Q3) When does deflation exist in the economy?
A)whenever the economy experiences a contraction
B)whenever the overall price level rises
C)whenever the price of a good decreases
D)whenever the overall price level falls
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Chapter 6: Measuring Economic Performance
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Sample Questions
Q1) What does GDP NOT directly include?
A)the value of services rendered during a period
B)the value of intermediate goods sold during a period
C)the value of goods produced domestically and sold abroad
D)the value of final goods and services produced, but not sold, during a period
Q2) Which of the following are NOT included in the investment category under the expenditure approach to GDP accounting?
A)additions to inventory
B)factory buildings
C)newly constructed houses
D)stocks and bonds
Q3) What is subtracted from GDP to determine net domestic income?
A)transfer payments and net exports
B)inventory accumulation and depreciation
C)net indirect taxes and depreciation
D)net exports and net indirect taxes
Q4) The formula for calculating real GDP = (price index/nominal GDP)x 100.
A)True
B)False
Q5) How do pollution and crime affect GDP?
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Chapter 7: Economic Growth in the Global Economy
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Sample Questions
Q1) What is needed for a low-income country to develop into a high-income country?
A)high interest rates
B)sustained economic growth
C)high rates of inflation
D)restrictions on international trade
Q2) What will cause the standard of living to increase?
A)if the nominal GDP grows at a slower rate than real GDP
B)if the rate of population growth is less than the rate of growth of real GDP
C)if the rate of population growth exceeds the rate of growth of real GDP
D)if the nominal GDP grows at a faster rate than real GDP
Q3) In the long run,what is the most important determinant of a nation's standard of living?
A)its ability to export cheap labour
B)its rate of productivity growth
C)its ability to control the nation's money supply
D)its endowment of natural resources
Q4) If the educational attainment of a nation's population increases,the economy's production possibilities curve shifts inward.
A)True
B)False
Page 9
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Chapter 8: Aggregate Demand
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Sample Questions
Q1) In adding the nation's total output,which of the following best describes net exports?
A)They always total to a positive figure.
B)They would include purchases of Canadian automobiles by foreigners plus purchases of foreign automobiles by Canadian citizens.
C)They are a positive number when the value of exports from Canada exceeds the value of imports into Canada.
D)They represent exports of final goods and services plus imports of final goods and services.
Q2) What will an economic bust or severe downturn in the Japanese economy likely result in?
A)A decrease in Canadian imports and Canadian aggregate demand.
B)An increase in Canadian exports and Canadian aggregate demand.
C)An increase in Canadian imports and Canadian aggregate demand.
D)A decrease in Canadian exports and Canadian aggregate demand.
Q3) A trade deficit means that net exports are positive.
A)True
B)False
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Chapter 9: Aggregate Supply and Macroeconomic Equilibrium
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Sample Questions
Q1) Refer to Figure 9-3.This graph depicts a shift of aggregate demand from AD to AD .Which of the following has NOT occurred in this situation?
A)The real gross domestic product has decreased.
B)The economy represented here is in recession.
C)The new, short-run equilibrium is at point E0.
D)The price level has decreased.
Q2) When does cost-push inflation occur?
A)when the aggregate demand curve shifts rightward and aggregate supply is fixed
B)when the short-run aggregate supply curve shifts leftward while aggregate demand is fixed
C)when the short-run aggregate supply curve shifts rightward
D)when the aggregate demand curve shifts leftward at a faster rate than short-run aggregate supply
Q3) If wheat prices rose by 12 percent when producers thought other prices were rising by 15 percent,what is the effect on wheat output?
A)We could not predict the likely change in wheat output that would result.
B)It would tend to rise as a result.
C)It would tend to remain unchanged as a result.
D)It would tend to fall as a result.
Page 11
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Chapter 10: Fiscal Policy
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Sample Questions
Q1) How does the multiplier work and what might government use it for?
Q2) In a short run,which of the following would a decrease in transfer payments NOT do?
A)reduce unemployment
B)decrease any budget deficit or increase any budget surplus
C)reduce the price level
D)reduce consumption purchases
Q3) When do budget surpluses exist?
A)when government spending equals its tax revenues
B)when expansionary fiscal policies increase real GDP and the price level
C)when government tax revenues exceed its spending
D)when government spending exceeds its tax revenues
Q4) What is the largest single component of federal expenditures?
A)foreign aid
B)defence spending
C)social services
D)interest on the national debt
Q5) Describe the difference between a regressive and a progressive tax.
Q6) What are the component parts of fiscal policy and how do they affect aggregate demand?
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Chapter 11: Money and the Banking System
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Sample Questions
Q1) What impact will a decrease in the excess reserves banks want to hold,together with people taking currency out of their demand deposit accounts,have on the money supply?
A)It would leave the money supply unchanged.
B)It would decrease the money supply.
C)It would have an indeterminate effect on the money supply.
D)It would increase the money supply.
Q2) Refer to Scenario 11-2.If the desired reserve ratio is 40 percent,what is the level of the bank's excess reserves?
A)Excess reserves are $500 000.
B)Excess reserves are zero.
C)The bank has insufficient reserves to meet its reserve requirements.
D)Excess reserves are $200 000.
Q3) What does fractional reserve banking take its name from?
A)the fact that banks reserve only a fraction of their activity for lending
B)the fact that banks lend only a fraction of their total reserves to customers
C)the fact that banks hold only a fraction of their reserves at the bank itself
D)the fact that banks keep only a fraction of total deposits on reserve
Q4) How could the rumour of a bank failure actually turn into a bank failing? Is the bank really without assets?
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Chapter 12: The Bank of Canada
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Sample Questions
Q1) Under what circumstances can real GDP rise at the same time money supply falls?
A)if the price level remains constant
B)if the price level rises rapidly enough
C)if velocity falls rapidly enough
D)if velocity rises rapidly enough
Q2) According to the equation of exchange,what would result from a change in the money supply of 6.5 percent,holding velocity constant?
A)a 6.5 percent change in nominal GDP
B)a 6.5 percent change in aggregate supply
C)a 6.5 percent change in real GDP
D)a 6.5 percent change in velocity
Q3) What is most frequently used when the Bank of Canada is attempting to adjust the money supply?
A)taxation
B)open market operations
C)deposit switching
D)moral suasion
Q4) If money supply increases,P will rise as long as V and Q remain constant.
A)True
B)False
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Chapter 13: Monetary Policy
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Sample Questions
Q1) Starting from an initial equilibrium with a recessionary gap,what effect would a shift to more expansionary monetary policy tend to have?
A)Increased prices and unemployment in the long run.
B)Increased real output in both the long run and the short run.
C)Increased real output in the long run but not the short run.
D)Increased real output in the short run but not in the long run.
Q2) If the unemployment rate and the inflation rate both increase simultaneously,what curve will shift right?
A)the Phillips curve
B)the SRAS
C)the LRAS
D)the AD
Q3) What will a decrease in the bank rate when the SRAS is relatively flat likely lead to?
A)a large increase in the price level and an increase in unemployment
B)a large increase in the price level and an increase in real GDP
C)a small increase in the price level and a decrease in real GDP
D)a small increase in the price level and a decrease in unemployment
Q4) What affects the demand for money?
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Page 15
Chapter 14: International Trade
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Sample Questions
Q1) Which of the following is NOT a short-run impact of imposing quotas on the Canadian industries they seek to protect?
A)prices of the goods produced by protected industries increase
B)consumers' real incomes decrease
C)domestic production and sales by the protected industries increase
D)government tax revenues increase
Q2) Which of the following is the best example of a quota?
A)a subsidy from the Canadian government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits
B)a $100-per-car fee imposed on all small cars imported
C)a limit imposed on the number of men's suits that can be imported from a foreign country
D)a tax placed on all small cars sold in the domestic market
Q3) What impact will raising an existing tariff on grapes from Chile have?
A)It will increase Canadian consumption of domestically produced grapes.
B)It will increase Canadian imports of Chilean grapes.
C)It will increase Canadian consumption of Chilean grapes.
D)It will increase total Canadian consumption of grapes.
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Page 16
Chapter 15: International Finance
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Sample Questions
Q1) If real interest rates in Canada rose and real interest rates in England fell,we would expect people to:
A)buy relatively more Canadian assets
B)increase their demand for British pounds
C)borrow more from Canadian sources
D)buy relatively more British assets
Q2) If a Japanese pension fund decides to purchase Canadian government bonds,what is the effect in the exchange market?
A)It will decrease the supply of Canadian dollars.
B)It will decrease the demand for Canadian dollars.
C)It will increase the demand for Canadian dollars.
D)It will increase the supply of Canadian dollars.
Q3) Which of the following statements about the exchange rate is the most accurate?
A)It states the price of one currency in terms of another currency.
B)It is closely related to the concept of absolute advantage.
C)It is closely related to the concept of comparative advantage.
D)It is the rate at which one country's money is flowing to a second country.
Q4) The exchange rate is the price of one currency in terms of a second currency.
A)True
B)False
Page 17
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