Principles of Macroeconomics Final Exam
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical frameworks used to understand the economy as a whole. The course explores key topics such as national income, economic growth, inflation, unemployment, fiscal and monetary policy, and international trade. Emphasis is placed on how government policy and external factors influence economic performance, and how macroeconomic indicators are measured and interpreted. Through real-world examples and data analysis, students develop a strong foundation in macroeconomic theory and its practical applications in today's globalized economy.
Recommended Textbook
Principles of Macroeconomics 9th Edition by John Sayre
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Page 2
Chapter 1: The Economic Problem
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Sample Questions
Q1) Refer to the table above to answer this question.If Aipotu produces 60 beans,how much rice can it produce?
A)20 rice
B)100 rice
C)130 rice
D)280 rice
Answer: D
Q2) Refer to Figure 1.13 to answer this question.What is the opportunity cost of one more tonne of butter as output changes from point b to a?
A)2 guns.
B)4 guns.
C)10 guns.
D)6 guns.
Answer: B
Q3) What is the difference between productive and allocative efficiency?
Answer: Productive efficiency refers to 'the production of an output at the lowest average cost.'
Allocative efficiency refers to 'the production of the combination of products that best satisfies consumer's demand'.
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Page 3
Chapter 2: Demand and Supply: an Introduction
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Q1) Refer to Table 2.11 to answer this question.What will happen if the price of the product is $3?
A)There would be a surplus of 18,which would lead to a decrease in price.
B)There would be a shortage of 18,which would lead to an increase in price.
C)There would be a shortage of 18,which would lead to a decrease in price.
D)There would be a surplus of 18,which would lead to an increase in price.
E)There would be neither a surplus nor a shortage.
Answer: B
Q2) Refer to the graph above to answer this question.What would be the new equilibrium price and quantity if supply decreased by 120?
A)Supply would be zero.
B)$1,400 and 80.
C)$1,000 and 40.
D)$800 and 80.
Answer: B
Q3) An increase in the price of a product leads to an increase in the supply.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Measuring the Economy 1: GDP and Economic Growth
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Sample Questions
Q1) Describe in your own words the difference between a stock and a flow.For each of the following activities,determine whether it is a stock concept or a flow concept:
(a)Sue earns $5.75 per hour working at the Burger Barn.
(b)On his way home from work,Sam finds a ten-dollar bill.
(c)Upon graduation,John accepts a job with a salary of $2,000 per month.
(d)Jennifer saves 10% of her monthly income.
(e)In 2004,Canada's production of pig-iron was 2,000 metric tonnes.
(f)Japan has a capital to labour ratio of 10 whereas China has a capital to labour ratio of 2.
A stock concept is a measure of something at a particular point in time. A flow concept is a measure of something during a specific time period. Answer: (a)Flow.
(b)Stock.
(c)Flow
(d)Flow.
(e)Flow.
(f)Stock.
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Chapter 4: Measuring the Economy 2: Unemployment and Inflation
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Sample Questions
Q1) Which of the following would lead to wage-push inflation?
A)The economy experiences a trend of wage increases below labour productivity increases.
B)The economy experiences an inflationary gap.
C)Producers are able to pass a wage increase on to the consumer in the form of higher prices.
D)Aggregate demand increases significantly.
Q2) According to the official Statistics Canada definition,what is the minimum amount of time a person must have worked in the previous week in order to be counted as employed?
A)15 minutes.
B)60 minutes.
C)5 hours.
D)30 hours.
E)40 hours.
Q3) Which of the following are included in the consumer price index?
A)Capital goods.
B)Government spending.
C)Imports.
D)Exports.
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Chapter 5: Aggregate Demand and Supply
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Q1) Macroeconomic equilibrium occurs where the aggregate demand is equal to long-run aggregate supply.
A)True
B)False
Q2) Refer to the information above to answer this question.Which of the listed economic events will cause an increase in both the aggregate supply and in the LAS curve?
A)1 only
B)2 only
C)3 only
D)5 only
Q3) If the economy is close to full employment,what will be the result of an increase in aggregate demand?
A)The price level will increase only a little,and Real GDP will increase a lot.
B)The price level will increase a lot,and Real GDP will increase only a little.
C)Both the price level and Real GDP will increase only a little.
D)Both the price level and Real GDP will increase a lot.
Q4) What does the term Potential GDP mean?
Q5) Distinguish the difference between a Keynesian AS curve and Neoclassical AS curve
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Chapter 6: Aggregate Expenditures
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Sample Questions
Q1) If the MPE is equal to 0.6,what is the value of the multiplier?
A)0.4.
B)0.6.
C)1.66.
D)2.5
Q2) If in an economy,the MTR = 0.2,the MPS = 0.25,and the MPM = 0.15,what is the value of the multiplier?
A)1.67
B)2
C)2.22
D)2.5
E)3.33
Q3) If the MPE is 0.9,what will be the value of the multiplier?
A)0.1.
B)0.9.
C)10.
D)1.67.
E)1.
Q4) What four factors will cause a change in net exports?
Q5) What is meant by the term induced expenditures? Provide an example.
8
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Chapter 7: Fiscal Policy
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Q1) If aggregate demand increases as a result of counter-cyclical fiscal policy,prices will rise and GDP will fall.
A)True
B)False
Q2) All of the following,except one,are reasons why Canada's national debt has grown.Which is the exception?
A)World War II.
B)Building necessary infrastructure such as roads and bridges and the address a recessionary gap.
C)Consistently falling tax revenue.
D)Increased expenditures on income-support programs.
Q3) The national debt is the sum of the federal government's past budget deficits less its surpluses.
A)True
B)False
Q4) What is the primary goal of counter-cyclical fiscal policy? What are three criticisms of it?
Q5) Why do economists prefer to examine the debt as a percentage of GDP rather than the level of debt?
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Chapter 8: Money and Banking
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Sample Questions
Q1) The currency held by banks is considered to be part of what definition of money?
A)M1.
B)M2.
C)M3.
D)Part of all three-M1,M2,and M3.
E)Not part of any definition of money.
Q2) Why are demand deposits (chequing accounts)classified as money?
A)Because they can be readily used in making purchases and for the payment of debts.
B)Because they earn interest income for the depositor.
C)Because they are ultimately the obligations of the government.
D)Because banks hold currency equal to the value of their outstanding deposits.
E)Because they are insured by the Canadian Deposit Insurance Company.
Q3) Distinguish between M1 and M2.
Q4) Money acts as a medium of exchange,a store of wealth,and a unit of account.
A)True
B)False
Q5) Explain why bank reserves are not a part of money supply.
Q6) Explain how an increase in the amount of cash that people hold will lead to a smaller money multiplier.
Page 10
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Chapter 9: The Money Market and Monetary Policy
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Q1) The desire of people to hold money as a store of wealth describes what type of money demand?
A)The asset demand for money.
B)The transactions demand for money.
C)The investment demand.
D)The velocity of circulation.
Q2) What is the effect of an increase in the money supply?
A)It will lower the interest rate.
B)It will increase the interest rate.
C)It will decrease the demand for money.
D)It will decrease the quantity of investment spending.
Q3) The transactions demand for money is determined by how much money people need.
A)True
B)False
Q4) What is the demand for money?
A)The same as the demand for income.
B)It is made up of the transactions demand plus asset demand.
C)It is made up of the transactions demand minus asset demand.
D)Whatever the Bank of Canada determines it to be.
Q5) How and why is the asset demand for money related to the interest rate?
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Chapter 10: International Trade
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Sample
Questions
Q1) List four major advantages of free trade.
Q2) Refer to the information above to answer this question.Which of the following is true?
A)Cholesterol has an absolute advantage in pork and Fat has an absolute advantage in beef.
B)Cholesterol has an absolute advantage in beef and Fat has an absolute advantage in pork.
C)Cholesterol has a comparative advantage in pork and Fat has a comparative advantage in beef.
D)Cholesterol has a comparative advantage in pork and Fat has an absolute advantage in beef.
Q3) Some commentators have suggested that the government should protect the Canadian automobile industry.Which argument against free trade is being suggested?
A)The strategic-industry argument.
B)The comparative-protection argument.
C)The infant-industry argument.
D)The cultural-identity argument.
Q4) Explain why Canada imports banana.
Q5) What are Canada's main exports?
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Chapter 11: Exchange Rates and the Balance of Payments
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Q1) When will the supply of Canadian dollars on world markets increase?
A)When Canadians travel abroad.
B)When an American corporation invests in Canada.
C)When a Canadian resident receives interest payments on a foreign investment.
D)When a Canadian exporter sells products abroad.
E)When a retired American,living on Prince Edward Island,receives a pension cheque from the U.S.
Q2) If a nation's exports are $100 billion,its imports are $110 billion,the net foreign investment income is minus $10 billion and net transfers are plus $5 billion,then what can we deduce?
A)That its balance of trade is +$10 billion.
B)That its current account balance is +$15 billion.
C)That its net exports are +$10 billion.
D)That its balance of current and capital accounts are -$15 billion.
E)That its current account balance is -$15 billion.
Q3) Assume that Canada has a fixed exchange rate regime.Explain the effect on the foreign exchange market if there is a decrease in foreign income.What will the Bank of Canada do to maintain the fixed exchange rate?
Q4) What are the four determinants of the demand of the Canadian dollar?
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Chapter 12: Macroeconomic Policy Revisited
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Sample Questions
Q1) The Laffer Curve is a central concept in:
A)monetarism.
B)Keynesianism.
C)the expectation theory.
D)supply-side economics.
Q2) The problem portrayed by the short-run Phillips curve is that:
A)unemployment tends to increase when prices are rising.
B)changes in the composition of the labor force tend to increase the natural rate of unemployment.
C)inflation tends to increase when unemployment falls.
D)stagflation is unavoidable.
Q3) What characterized the economic conditions in Canada from 1990-2008?
A)Low inflation and steady economic growth
B)Stagflation
C)Rising levels of unemployment but low inflation
D)Low unemployment and high inflation.
Q4) The Phillips curve is based on the relationship between tax rates and the amount of tax revenue.
A)True
B)False
Page 14
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Chapter 13: A Walk Through the Twentieth Century and Beyond
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Q1) During the Great Depression,several changes in the economic performance occurred.What were these changes?
Q2) Explain why Canada had mainly budget deficits between 1970s and 1990s.
Q3) Which of the following best describes the federal government's annual budgets for the last eighteen years?
A)There were budget surpluses for the first several years,then budget deficits for several more,followed by two years of surpluses.
B)There were budget deficits for the first couple of years,then budget surpluses for several more,followed by several years of deficits.
C)There were budget deficits for all of the years.
D)There were budget surpluses for all of the years.
Q4) Sub-prime mortgages and derivatives are associated with stagflation.
A)True B)False
Q5) Explain the role of credit-rating agencies in the assessing the value of the new forms of financial securities
Q6) What is the difference between demand side policies and supply side policies?
Q7) Define 'derivative'.
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