Principles of Macroeconomics
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and theories that explain the behavior of economies at the aggregate level. Topics covered include the measurement of national income, economic growth, unemployment, inflation, and the role of government policies in influencing economic activity. The course also examines the functioning of markets, fiscal and monetary policies, and international economics, providing students with analytical tools to understand current economic issues and policy debates. Through real-world examples and data analysis, students gain a comprehensive understanding of how macroeconomic factors impact societies and influence decision-making by policymakers.
Recommended Textbook
Economics Today The Macro View 5th Canadian Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Q1) Microeconomics is the study of
A)the behaviour of the economy as a whole.
B)how rising prices affect the level of employment in the economy.
C)the effect that money has in the economic system.
D)decisions made by individuals and firms.
Answer: D
Q2) Which of the following is a normative statement?
A)Ceteris paribus,an increase in consumer income will lead to increased sales of beef.
B)An increase in income tax will cause a greater reduction in savings than an increase in the sales tax.
C)A decrease in the rate of unemployment will lead to upward pressure on consumer prices.
D)Ceteris paribus,an economy with high unemployment is worse than an economy with high inflation.
Answer: D
Q3) Microeconomics concentrates on ________.
Answer: the behaviour of individual decision-makers.
Q4) The usefulness of a model is determined by ________.
Answer: whether it yields usable predictions about the real world.
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Chapter 2: Production Possibilities and Economic Systems
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Sample Questions
Q1) Another name for a capitalist economy is a
A)socialist economy.
B)market economy.
C)communist economy.
D)fascist economy.
Answer: B
Q2) A production possibilities curve represents
A)combinations of goods and services among which consumers are indifferent.
B)the maximum combination of goods and services that can be produced with fixed resources and technology,given efficient use of the resources.
C)the maximum amount of labour and capital available to society.
D)the maximum rate of growth of capital and labour in a country.
Answer: B
Q3) The fact that a country's production possibilities curve bows outward tells us that
A)opportunity costs are fixed as the production of a good increases.
B)opportunity costs decrease as the production of a good increases.
C)resources are of uniform quality.
D)opportunity costs increase as the production of a good increases.
Answer: D
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Chapter 3: Demand and Supply
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Q1) The equilibrium or market-clearing price occurs where A)quantity demanded equals quantity supplied.
B)there is a shortage of the desired good.
C)the supply curve intersects the horizontal axis.
D)the demand curve intersects the vertical axis.
Answer: A
Q2) The market demand curve for a particular good
A)is the horizontal sum of each individual demand curve for the good.
B)may be less than an individual demand curve for the good.
C)will not be affected by any of the determinants of individual demand.
D)may or may not show a direct relationship between price and quantity demanded.
Answer: A
Q3) In Figure 3-2,if gasoline were selling for twenty cents a litre,quantity demanded per day would be A)zero.
B)50 million litres.
C)30 million litres.
D)10 million litres.
Answer: B
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Chapter 4: Introduction to Macroeconomics
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Q1) The CPI is an accurate measure of inflation for A)farmers.
B)an elderly couple recently retired to Vernon,British Columbia. C)Apple Computer.
D)a family who consumes the market basket used to calculate the index.
Q2) What are discouraged workers and how do they affect labour force participation and unemployment rates?
Q3) The inflation rate has been 4 percent for twenty years and the nominal interest rate has been 8 percent during this same time period.Unexpectedly,the actual inflation rate the next year is 8 percent.The real rate of interest this last year is A)zero.
B)2 percent.
C)4 percent.
D)6 percent.
Q4) In Canada,the labour-force participation rate since 1950 has been A)increasing for females.
B)declining for females.
C)declining for both males and females.
D)unchanged for both males and females.
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Chapter 5: Measuring the Economys Performance
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Q1) Is looking at changes in gross domestic product over time a good way to determine whether the people in a country are experiencing an increase in their standards of living? Why or why not?
Q2) Which of the following is part of gross private domestic investment?
A)purchases of stocks and bonds
B)a decline in consumer debt
C)purchases of hamburgers for a family dinner
D)a positive change in business inventories
Q3) GDP figures may understate the value of goods and services due to
A)the exclusion of the underground economy.
B)the inclusion of household production.
C)the inclusion of legal non-reported,non-taxed income.
D)the exclusion of the value of stocks.
Q4) The difference between net domestic product and national income is that
A)net domestic product includes depreciation.
B)national income includes government and business transfer payments.
C)net domestic product includes indirect business taxes.
D)net domestic product doesn't include social security taxes or corporate retained earnings.
Q5) How is interest measured when used in deriving GDP?
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Chapter 6: Modelling Real Gdp and the Price Level in the Long Run
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Q1) Which of the following statements best categorizes the LRAS curve.
A)Vertical at the current level of real output.
B)Depends on the position of the AD curve.
C)The full-employment and full adjustment level of real output of goods and services in the economy.
D)Depends on the aggregate price level in the economy.
Q2) An individual holds $10 000 in a non-interest-earning checking account,and the overall price level rises significantly.Other things constant,we would expect
A)the individual's real wealth to decrease and consumption to diminish.
B)the individual's stock of real wealth to decrease but real national income to increase.
C)no change in the individual's real wealth but a decline in real national product.
D)the individual's wealth to increase.
Q3) One reason that the aggregate demand curve slopes downward is because
A)higher price levels increase real wealth and consumption.
B)higher price levels reduce net exports.
C)higher price levels increase interest rates.
D)higher price levels increase investment.
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Chapter 7: Economic Growth and Development
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Q1) An increasing number of chinese and Indian citizens who immigrated to Canada are now returning to their home countries to work.Why are these two counties experiencing a "reverse brain drain"? How do you think this might influence the economic development of these two countries?
Q2) "World population will be close to 9.3 billion by 2050.Close to a 30% increase in population.There will not be enough food to maintain the world population." Do you agree or disagree with the statement.
Q3) Productivity relates to
A)working harder over time.
B)working longer over time.
C)producing the same output with fewer labour hours.
D)producing the same output with more labour hours.
Q4) Productivity is ________ if we produce the same output with fewer labour hours.
A)increasing
B)not changing
C)decreasing
D)proportional
Q5) Provide a discussion on the costs and benefits of economic growth.Explain fully and be as specific as possible.
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Chapter 8: Modelling Real Gdp and the Price Level in the Short Run
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Q1) Economic growth will not result in inflation if aggregate demand shifts
A)outward to the right at the same speed as aggregate supply.
B)inward to the left at the same speed as aggregate supply.
C)outward to the right as aggregate supply shifts inward to the left.
D)inward to the left as aggregate supply shifts outward to the right.
Q2) A short run equilibrium occurs at the intersection of the ________ and the aggregate demand curve.
A)long-run aggregate supply curve
B)short-run aggregate supply curve
C)planned aggregate expenditure curve
D)investment demand curve
Q3) If the Canadian dollar becomes weaker in international foreign exchange markets,imported goods become more expensive.One result of this is that
A)net exports decrease.
B)net exports increase.
C)domestic employment rises.
D)real GDP increases.
Q4) Suppose that the sras decreases while AD is held constant.What happens to the price level and output in the short and long run?
Page 10
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Chapter 9: Consumption, investment, and the Multiplier
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Q1) The fraction of a change in real disposable income that is spent is referred to as the A)APC.
B)MPC.
C)MPS.
D)APS.
Q2) If the marginal propensity to consume is 0.8,the multiplier will be A)0)8.
B)1)
C)4)
D)5)
Q3) If the MPS = 0.33,a $100 increase in net exports will
A)reduce national income by $100.
B)reduce national income by $300.
C)increase national income by $33.
D)increase national income by $300.
Q4) Suppose the marginal propensity to consume is 0.75.What does this mean? What do we know about the marginal propensity to save? What do we know about the average propensity to consume?
Q5) What are the simplifying assumptions that are made in the Keynesian Model?
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Chapter 10: The Public Sector
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Sample Questions
Q1) Suppose the income tax rate is zero on the first $10,000;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on all income above $70,000.Family A has income of $100,000 while Family B has income of $40,000.The marginal tax rate for A will be ________% and for B will be ________%.
Q2) A family making $30,000 pays $4,500 in taxes and a family making $40,000 pays $6,000 in taxes.The tax system is
A)progressive.
B)proportional.
C)regressive.
D)flat-rate.
Q3) A consumption tax would
A)discourage saving because individuals would only pay taxes on income they spend.
B)be progressive because everyone would be subject to the same tax system. C)be proportional because everyone would be subject to the same tax system.
D)be progressive or regressive depending on the structure of the tax system.
Q4) Describe the 3 types of tax systems.Discuss the fairness and the feasibility of Canada's moving to a proportional tax system as is occasionally suggested.
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Chapter 11: Fiscal Policy and the Public Debt
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Q1) Suppose the government increases lump-sum taxes.This causes
A)disposable income to decrease,which causes consumption spending to decrease and aggregate demand to decrease.
B)government spending to decrease,which causes aggregate demand to decrease.
C)consumption spending to decrease and spending on imports to increase.The effect on aggregate demand depends on whether domestic spending or spending on imports decreased the most.
D)disposable income to decrease,which causes aggregate supply to decrease.
Q2) According to supply-side economists,lower marginal tax rates will not necessarily lead to lower tax revenues because
A)the crowding out effect does not apply to taxes.
B)an increase in tax rates increases the opportunity cost of labour.
C)the aggregate supply curve will shift inward to the left if the tax rates are lowered.
D)the lower marginal tax rates will be applied to a growing tax base due to economic growth.
Q3) Explain what fiscal policy actions could eliminate an inflationary gap.
Q4) What are direct expenditure offsets and what are their effects on the effectiveness of fiscal policy?
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Chapter 12: Money and the Banking System
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Q1) The M2+ definition of the money supply includes
A)savings deposits and non-personal notice deposits.
B)M1 plus M2.
C)M1 plus personal savings and non-personal notice deposits.
D)M2 plus deposits held at near banks such as trust companies and credit unions.
Q2) The reason we are willing to accept money with no intrinsic value is that
A)paper currency may be exchanged for full-bodied money.
B)the money supply is backed by an equal amount of gold and silver.
C)we have a fiduciary monetary system in which currency has both acceptability and predictability of value.
D)the value of the money varies directly with changes in the price level.
Q3) As a ________,money is used to define prices of all other goods.
A)unit of account
B)medium of exchange
C)store of value
D)fiat money
Q4) Explain the structure of the Canadian Banking system.
Q5) Are cheques considered money?
Q6) Describe monetary standards and how they relate in the Canadian context.
Q7) What are the functions of money?
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Chapter 13: Money Creation and Deposit Insurance
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Q1) If banks have zero excess reserves,then the net effect on the money supply of any cheque writing from one commercial bank to another is
A)positive since the desired reserve ratio is always less than one.
B)zero since the gain in excess reserves at one bank is offset by a reduction in excess reserves of the same amount at another bank.
C)negative since the loss in excess reserves at one bank is always greater than the gain in excess reserves at another bank.
D)positive as long as the person who makes a deposit does not take out cash.
Q2) If the desired reserve requirement is raised,the money multiplier
A)is lowered.
B)is increased.
C)stays the same.
D)is doubled.
Q3) Explain the process by which the banking system creates money
Q4) To reach the maximum money multiplier,it is assumed that
A)commercial banks keep excess reserves.
B)all loans get redeposited in a chequing account.
C)there is insufficient loan demand.
D)loans are diverted into circulating currency.
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Chapter 14: The Bank of Canada and Monetary Policy
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Q1) Suppose the economy is initially in long-run and short-run equilibrium.If the Bank of Canada decides to pursue a contractionary monetary policy,we will see
A)bond prices fall,interest rates fall,aggregate demand remain unchanged as consumption spending decreases,but investment spending increases.Real national income remains constant in both the short run and the long run,but the price level falls in both.
B)bond prices fall,interest rates rise,aggregate demand fall as investment and consumption spending decrease,and real national income and the price level decreasing in the short-run,but only the price level decreasing in the long run.
C)bond prices fall,interest rates rise,aggregate demand falls as investment spending decreases and consumption spending remains unchanged,and real national income and the price level decrease in the short run,but only the price level fall in the short run.
D)interest rates rise but no change in bond prices.Aggregate demand falls as consumption spending and investment spending decrease,and the price level and real national income fall in both the short run and the long run.
Q2) Two advantages of monetary policy are:
Q3) How is the Bank of Canada organized?
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Chapter 15: Issues in Stabilization Policy
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Q1) The rational expectations hypothesis argues that a monetary policy designed to stabilize the economy will fail unless
A)changes in the money supply are unexpected.
B)the government's budget is not in deficit.
C)labour unions have long-term contracts.
D)changes in the money supply are completely anticipated.
Q2) According to new classical economists who adhere to the policy irrelevance proposition,
A)monetary policy can effectively reduce the rate of unemployment in the short run.
B)workers are not rational in the long run.
C)the Phillips curve actually slopes upward,not downward as traditionally assumed.
D)expansionary monetary policy will only lead to a higher rate of inflation in the long run.
Q3) The rational expectations hypothesis is associated with the A)classical model of economics.
B)new classical model of economics.
C)Keynesian model of economics.
D)neo-Keynesian model of economics.
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Chapter 16: Comparative Advantage and the Open Economy
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Q1) Given two economic systems,A and B,if economy A must give up less of all other goods to produce widgets than economy B,then
A)economy A has an absolute advantage in the production of widgets.
B)economy A has a comparative advantage in the production of widgets.
C)economy A is less efficient in the production of some goods than economy B.
D)economy A would not benefit from the specialization of production.
Q2) Specialization in trade will be economically efficient if it is based upon
A)national security needs.
B)absolute advantage.
C)comparative advantage.
D)government regulations.
Q3) The General Agreement on Tariffs and Trade is an international agreement
A)that outlaws all tariffs but permits quotas.
B)to encourage world trade by lowering tariffs and other trade barriers.
C)to encourage world trade by lending resources to developing countries.
D)between the United States and Japan that has never been ratified,resulting in several trade wars with Japan.
Q4) List and explain fully the arguments against free trade.
Page 18
Q5) Distinguish between absolute advantage and comparative advantage.
Q6) What are the effects of a tariff on a good?
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Chapter 17: Exchange Rates and the Balance of Payments
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Sample Questions
Q1) How are deficit and surplus items determined in the balance of payments?
Q2) Which of the following is a deficit item in balance of payments accounts?
A)A Canadian firm sells a product to a Mexican firm.
B)An Italian tourist in Victoria purchases a beach ball.
C)A Spaniard buys 100 shares of Toronto Dominion stock.
D)A Canadian buys gold from the Japanese central bank.
Q3) The basic purpose of the Bretton Woods meeting was to A)fix prices.
B)locate the world's supply of gold.
C)slow down inflation after World War II.
D)create a new international payment system.
Q4) Why does the supply curve of euros slope up?
Q5) With the aid of diagrams,explain how a shift in demand,a shift in supply,and market determinants affect the Canadian exchange rate.
Q6) If the capital account is in surplus,we know that
A)the merchandise trade balance is also in deficit.
B)the merchandise trade balance is in surplus.
C)the current account is in deficit.
D)there is a statistical discrepancy in the surplus.
Q7) Outline how exchange rates are determined in a free market.
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