Principles of Macroeconomics Solved
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Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical tools used to understand the economy as a whole. The course explores topics such as national income, economic growth, unemployment, inflation, fiscal and monetary policy, and the role of government in stabilizing the economy. Students will learn how macroeconomic indicators are measured and interpreted, and how they inform policy decisions that affect economic performance on a national and global scale. Through real-world examples and economic models, the course aims to develop critical thinking skills and a solid foundation for analyzing macroeconomic issues.
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Principles of Macroeconomics 7th Canadian Edition by N. Mankiw
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Chapter 1: Ten Principles of Economics
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Q1) What is likely to occur when the government implements programs such as progressive income tax rates?
A) Equity and efficiency is increased.
B) Equity is increased and efficiency is decreased.
C) Equity is decreased,and efficiency is increased.
D) Equity is decreased,and efficiency is decreased.
Answer: B
Q2) In economics,what is the cost of something?
A) the dollar amount of obtaining it
B) the value of the resources needed to produce it
C) what you give up to obtain it
D) the amount of labour to produce it
Answer: C
Q3) What does making decisions "at the margin" mean?
A) that people make those decisions that do not impose a marginal cost
B) that people evaluate how easily a decision can be reversed if problems arise
C) that people compare the marginal costs and marginal benefits of each decision
D) that people always calculate the marginal dollar costs for each decision
Answer: C
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Chapter 2: Thinking Like an Economist
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Q1) Why are production possibilities frontiers usually bowed outward?
A) constant opportunity cost
B) increasing opportunity cost
C) decreasing opportunity cost
D) increasing productivity
Answer: B
Q2) Refer to Figure 2-3.Which point or points are efficient?
A) points B and E
B) points A,B,and E
C) point C
D) point D
Answer: A
Q3) Refer to Figure 2-3.At which point or points can the economy produce?
A) points B,D,and E
B) points A,B,D,and E
C) points D and C
D) point D
Answer: A
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Chapter 3: Interdependence and the Gains From Trade
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Q1) Refer to Figure 3-2.Assume that Cliff and Paul were both producing wheat and corn,and both were dividing their time equally between the two.Then they decide to specialize in the product for which they have a comparative advantage.What would happen to the production of corn?
A) It would increase by 1 bushel.
B) It would increase by 2 bushels.
C) It would increase by 3 bushels.
D) It would increase by 4 bushels.
Answer: D
Q2) Refer to Figure 3-6.If Barney and Betty both specialize in the good in which they have a comparative advantage,what would the total production be?
A) 7 loaves of bread and 15 pies
B) 20 loaves of bread and 14 pies
C) 27 loaves of bread and 29 pies
D) 34 loaves of bread and 22 pies
Answer: B
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Chapter 4: The Market Forces of Supply and Demand
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Q1) How is a market supply curve constructed?
A) by vertically summing individual supply curves
B) by horizontally summing individual supply curves
C) by finding the average quantity supplied of the market's individual supply curves
D) by summing a consumer's demands for all goods
Q2) Refer to the Figure 4-2.What would happen at a price of $15?
A) There would be a shortage of 400 units.
B) There would be a surplus of 400 units.
C) There would be a shortage of 200 units.
D) There would be a surplus of 200 units.
Q3) Baseballs and baseball bats are substitute goods.
A)True
B)False
Q4) If a good is "normal," what will an increase in income result in?
A) an increase in supply of that good
B) an increase in the demand for the good
C) a decrease in the demand for the good
D) a lower market price
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Chapter 5: Measuring a Nations Income
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Q1) In computing GDP,what is investment?
A) spending on stocks,bonds,and other financial assets
B) spending on real estate and financial assets
C) spending on new capital equipment,inventories,and structures,including new housing
D) spending on capital equipment,inventories,and structures,excluding household purchases of new housing
Q2) Which statement supports the idea of using GDP as a measure of well-being?
A) Countries with higher GDP tend to have more luxury cars.
B) Countries with higher GDP tend to have more schools.
C) Countries with higher GDP tend to have more fast food restaurants.
D) Countries with higher GDP tend to have more food.
Q3) Which of the following is counted in GDP?
A) the estimated value of housework
B) the value of illegally produced goods and services
C) the value of newly issued stocks and bonds
D) the estimated value of housing services
Q4) Income exceeds production.
A)True
B)False
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Chapter 6: Measuring the Cost of Living
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Q1) What is the basket of goods used to construct the CPI?
A) a random sample of all goods and services produced in the economy
B) the goods and services typically bought by consumers,according to Statistics Canada surveys
C) goods and services weighted by the ratio of expenditures on them relative to the consumption component of GDP
D) the average price of goods and services in each major category of consumer expenditures
Q2) When does a cost-of-living allowance (COLA)automatically raise the wage rate?
A) when GDP increases
B) when the consumer price index increases
C) when taxes increase
D) when the consumer price index is announced
Q3) Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2015 if the base year is 2014? A) 120.00
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Chapter 7: Production and Growth
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Sample Questions
Q1) If a country's saving rate increases,what happens in the long run?
A) Income decreases faster.
B) Productivity increases faster.
C) Productivity decreases.
D) Income increases.
Q2) Which statement best defines proprietary technology?
A) It is knowledge that is known but no longer relevant in a market.
B) It is knowledge that is known,but has only recently been discovered.
C) It is knowledge that is known widely by those in a profession.
D) It is knowledge that is known only by the company that discovers it.
Q3) Suppose you bake cupcakes.One day,you double the time you spend baking and double the sugar,flour,eggs,and all the other inputs in order to bake twice as many cupcakes.What kind of production function is this?
A) decreasing returns to scale
B) zero returns to scale
C) constant returns to scale
D) increasing returns to scale
Q4) Why are property rights important for the growth of a nation's standard of living?
Q5) Compare and contrast the population theories of Malthus and Kremer.
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Chapter 8: Saving, investment, and the Financial System
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Q1) If a share of stock in Skylight Chili Ltd.sells for $75,the retained earnings per share are $5,and the divided per share is $2,then the price / earnings ratio is 15.
A)True
B)False
Q2) Suppose a country has a consumption tax that is similar to a provincial sales tax.If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings,what would most likely happen?
A) Both the interest rate and saving would decrease.
B) The interest rate would decrease,and saving would increase.
C) The interest rate would increase,and saving would decrease.
D) Both the interest rate and saving would increase.
Q3) Country A has taxes of $40 billion,transfers of $30 billion,and government expenditures on goods and services of $30 billion.How much is Country A's deficit?
A) $0 billion
B) $10 billion
C) $20 billion
D) $30 billion
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Chapter 9: Unemployment and Its Natural Rate
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Questions
Q1) Refer to the Figure 9-1.If there was a minimum wage of $4 and then the government instituted a minimum wage of $5,what would happen to employment in this market?
A) Unemployment would be unchanged.
B) Unemployment would drop by 10.
C) Unemployment would rise by 10.
D) Unemployment would rise by 20.
Q2) In 2014 in Japan,based on concepts similar to those used to compute Canadian employment statistics,the unemployment rate was about 3.4 percent,the labour force participation rate was about 59 percent,and the adult population was about 127 million.How many people were employed?
A) about 52 million
B) about 64 million
C) about 72 million
D) about 103 million
Q3) About half of all spells of unemployment end when the unemployed person leaves the labour force.
A)True
B)False
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Chapter 10: The Monetary System
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Sample Questions
Q1) How can the Bank of Canada increase the money supply?
A) by conducting open-market sales and raising the bank rate
B) by conducting open-market sales and lowering the bank rate
C) by conducting open-market purchases and raising the bank rate
D) by conducting open-market purchases and lowering the bank rate
Q2) Gary's wealth is $1 million.Economists would say that Gary has $1 million worth of money.
A)True
B)False
Q3) Monetary policy is determined by the Bank of Canada's governor.
A)True
B)False
Q4) How do deposits and reserves appear on a bank's T-account?
A) Both deposits and reserves are assets.
B) Both deposits and reserves are liabilities.
C) Deposits are assets,and reserves are liabilities.
D) Reserves are assets,and deposits are liabilities.
Q5) Economists argue that the move from barter to money increased trade and production.How is this possible?
Page 12
Q6) What is the difference between money and wealth?
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Chapter 11: Money Growth and Inflation
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Q1) What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?
A) the Keynes effect
B) the Hume effect
C) the Fisher effect
D) the Ricardian equivalence effect
Q2) What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?
Q3) Which statement best explains why governments may prefer an inflation tax to some other kind of tax?
A) The inflation tax is easier to impose.
B) The inflation tax reduces inflation.
C) The inflation tax falls mainly on high-income individuals.
D) The inflation tax reduces the real cost of government expenditure.
Q4) Which statement best describes the inflation tax?
A) It is an income tax.
B) It is a sales tax.
C) It is the revenue created when the government prints money.
D) It is the revenue created when inflation is low.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Q1) When Canada imports more than it exports,it must also buy domestic assets from foreigners.
A)True
B)False
Q2) Refer to Table 12-1.What currency(ies)is(are)less valuable than predicted by the purchasing-power parity theory?
A) the yen
B) the yen and kroner
C) the baht and kroner
D) the boliviano
Q3) If the purchasing power of the dollar is always the same at home and abroad,then the nominal exchange rate defined as foreign goods per unit of Canadian goods decreases if the Canadian price level rises more than the price level in foreign countries.
A)True
B)False
Q4) Negative net exports are the same as a trade surplus.
A)True
B)False
Page 14
Q5) What does purchasing-power parity imply about the real exchange rate?
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Q1) If the government of Colombia implemented a policy that reduced national saving,which statement would best predict the consequences?
A) Its real exchange rate would depreciate,and Colombian net exports would rise.
B) Its real exchange rate would depreciate,and Colombian net exports would fall.
C) Its real exchange rate would appreciate,and Colombian net exports would rise.
D) Its real exchange rate would appreciate,and Colombian net exports would fall.
Q2) Refer to the Figure13-1.If the world interest rate equals 4 percent,what is the net capital outflow?
A) -$4000
B) -$2000
C) $2000
D) $4000
Q3) Using the macroeconomic model studied,analyze the impact of the following events on the Canadian economy:
a.a voluntary export restraint (VER)by Japanese car producers
b.an export subsidy by Canadian government for Canadian lumber producers
c.an increase in U.S.GDP
Q4) Why do higher real interest rates lead to lower net capital outflow?
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Q5) Explain why saving need not equal domestic investment in an open economy.
Chapter 14: Aggregate Demand
and Aggregate Supply
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Q1) What was one of the major reasons why the United States was slower to recover from the 2008-2009 recession than Canada?
A) Housing price declines in Canadian were much larger than in the United States.
B) Housing price declines in the United States were much larger than in Canada.
C) The impact of the rise in house prices on Canadian household consumption was greater.
D) The impact of the rise in house prices on American household consumption was greater.
Q2) What has NOT been suggested as a cause of the Great Depression?
A) rapidly rising asset prices
B) a decline in Canadian exports
C) a decrease in stock prices
D) the collapse of the banking system
Q3) In the mid-1970s the price of oil rose dramatically.What did this event cause?
A) It shifted aggregate supply left.
B) It caused Canadian prices to fall.
C) The aggregate demand increased because of an increase in the demand for gasoline.
D) OPEC to increase oil production
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) The economy is in long-run equilibrium.Suppose that automatic teller machines become cheaper and more convenient to use,and as a result the demand for money falls.Other things being equal,what would we expect will happen to the price level and real GDP in the short and long run?
A) In the short run,the price level and real GDP would rise,but in the long run they would both be unaffected.
B) In the short run,the price level and real GDP would rise,but in the long run the price level would rise and real GDP would be unaffected.
C) In the short run,the price level and real GDP would fall,but in the long run they would both be unaffected.
D) In the short run,the price level and real GDP would fall,but in the long run the price level would fall and real GDP would be unaffected.
Q2) Which of the following shifts money demand to the left?
A) an increase in the price level
B) a decrease in the price level
C) an increase in the interest rate
D) a decrease in the interest rate
Q3) Explain how unemployment insurance acts as an automatic stabilizer.
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Q1) When aggregate demand increases,what happens to prices and employment?
A) Prices will fall and unemployment will rise.
B) Prices and unemployment fall.
C) Prices and unemployment rise.
D) Prices will rise and unemployment will fall.
Q2) Refer to the Figure 16-4e.If the economy is at point h and the Bank of Canada pursues a contractionary monetary policy,then the economy will move to which point in the short run?
A) point a
B) point b
C) point c
D) point m
Q3) Explain the causes and consequences of the early 1970s recession in Canada.How did the authorities respond,and what were the long-term effects of this response? What do we learn from this case study?
Q4) According to the Friedman-Phelps analysis,in the long run,actual inflation equals expected inflation,and unemployment is at its natural rate.
A)True
B)False
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Chapter 17: Five Debates Over Macroeconomic Policy
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Q1) How would a permanent reduction in inflation impact menu costs and unemployment?
A) It would permanently reduce menu costs and permanently lower unemployment.
B) It would permanently reduce menu costs and temporarily raise unemployment.
C) It would temporarily reduce menu costs and temporarily lower unemployment.
D) It would temporarily reduce menu costs and temporarily raise unemployment.
Q2) If firms were faced with greater uncertainty because of concern that oil prices might rise,they might decrease expenditures on capital.What response might someone who advocated for "lean against the wind" policies support
A) decrease the money supply
B) decrease taxes
C) decrease government expenditures
D) increase interest rates
Q3) In which situation does inflation reduction have the lowest cost?
A) when the efforts are credible,so that the sacrifice ratio is low
B) when the efforts are credible,so that the sacrifice ratio is high
C) when the efforts are unexpected,so that the sacrifice ratio is high
D) when the efforts are unexpected,so that the sacrifice ratio is low
Q4) Suppose that the government goes into deficit in order to help local school districts build better schools.Does this action burden future generations?
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