Principles of Macroeconomics Study Guide Questions
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical tools used to understand the performance of national economies. The course covers topics such as gross domestic product (GDP), inflation, unemployment, fiscal and monetary policy, economic growth, and international trade. Through exploring these areas, students will develop an understanding of how economic policies influence overall economic activity, affect societal well-being, and shape the global economic environment. The course emphasizes real-world applications, helping students analyze current economic issues and evaluate the potential impacts of various macroeconomic policies.
Recommended Textbook
Macroeconomics 5th Canadian Edition by N Gregory Mankiw
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14 Chapters
1476 Verified Questions
1476 Flashcards
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Chapter 1: The Science of Macroeconomics
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) In the Canadian economy today,real GDP per person,compared with its level in 1900,is about:
A) 50 percent higher.
B) twice as high.
C) three times as high.
D) 11 times as high.
Answer: D
Q2) A graph of the rate of inflation in Canada over the twentieth century shows:
A) an overall upward trend interrupted by a large downturn in the 1930s.
B) some periods of deflation in the first half of the century,but almost entirely positive rates of inflation in the second half of the century.
C) a relatively steady,positive level throughout the century except for deflation in the 1930s.
D) a constant rate of inflation in the first half of the century followed by an upward trend in the second half.
Answer: B
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Chapter 2: The Data of Macroeconomics
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Sample Questions
Q1) Real GDP per capita is an imperfect measure of economic well-being because it does not value home production or production in the underground economy,among other factors.Give at least two examples that show why the omission of these types of items will make a difference in evaluating economic well-being.One example should explain how the omission distorts comparisons of economic well-being across countries,and the other example should explain how the omission distorts comparisons of economic well-being in the same country over time.
Answer: Answers will vary,but one example could show that measured GDP in one country could be much lower than in another country,but the amount of home production in the first country could be very large.In this case,measured real GDP indicates a much larger difference in economic well-being than actually exists between the countries. The other example could explain how changes in the amount of home production in a country over time make it difficult to compare economic well-being over time.For example,if most people grew their own food initially and then over time moved to commercial agriculture,the increase in real GDP per person would overstate the increase in the amount of goods and services available in the country,since the food grown at home was not counted in real GDP in the earlier period.
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Chapter 5: The Open Economy
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Sample Questions
Q1) An "open" economy is one in which:
A) the level of output is fixed.
B) government spending exceeds revenues.
C) the national interest rate equals the world interest rate.
D) there is trade in goods and services with the rest of the world.
Q2) The real exchange rate is determined by the equality of:
A) saving and the demand for net exports.
B) investment and the demand for net exports.
C) net capital outflow and the demand for net exports.
D) the negative value of net capital outflow and the demand for net exports.
Q3) In a small open economy,if domestic saving equals $50 billion and domestic investment equals $50 billion,then there is ______ and net capital outflow equals
A) a trade deficit; $100 billion
B) balanced trade; $0
C) a trade surplus; $100 billion
D) balanced trade; $100 billion
Q4) What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility,fully employed factors of production,and flexible prices?
Page 5
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Chapter 6: Unemployment
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Sample
Questions
Q1) When insiders have a much greater impact on the wage bargaining process than do outsiders,the negotiated wage is likely to be ______ the equilibrium wage. A) much greater than B) much less than C) almost equal to D) about one-half of
Q2) Explain how paying efficiency wages can help employers overcome both moral hazard and adverse selection problems in employment.
Q3) In recent years,Europe has experienced ______ unemployment than the United States,and employed Europeans work ______ hours than employed Americans. A) more; more B) more; fewer C) less; fewer D) less; more
Q4) If the economy were at a steady-state unemployment rate with a separation rate of 0.02 per month and a job-finding rate of 0.10 per month,and the labour force was 100 million,how many individuals would lose their jobs each month?
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Chapter 7: Economic Growth I
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Sample Questions
Q1) To determine whether an economy is operating at its Golden Rule level of capital stock,a policymaker must determine the steady-state saving rate that produces the:
A) largest MPK.
B) smallest depreciation rate.
C) largest consumption per worker.
D) largest output per worker.
Q2) In an economy with population growth at rate n,the change in capital stock per worker is given by the equation:
A) \(\Delta\)k = sf(k)+ \(\delta\)k.
B) \(\Delta\)k = sf(k)- \(\delta\)k.
C) \(\Delta\)k = sf(k)+ (\(\delta\)+ n)k.
D) \(\Delta\)k = sf(k)- (\(\delta\) + n)k.
Q3) The Golden Rule level of capital accumulation is the steady state with the highest level of:
A) output per worker.
B) capital per worker.
C) savings per worker.
D) consumption per worker.
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Chapter 8: Economic Growth II
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Sample Questions
Q1) In the Solow growth model,technological change is ______,whereas in endogenous growth theories,technological change is ______.
A) assumed; explained
B) explained; assumed
C) persistent; constant
D) constant; persistent
Q2) In the Solow growth model with population growth and technological change,the break-even level of investment must cover:
A) depreciating capital.
B) depreciating capital and capital for new workers.
C) depreciating capital and capital for new effective workers.
D) depreciating capital,capital for new workers,and capital for new effective workers.
Q3) Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:
A) using up scarce natural resources to create new products.
B) breaking down barriers to trade and development.
C) new product producers driving incumbent producers out of business.
D) creating new methods to destroy the environment.
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Chapter 9: Introduction to Economic Fluctuations
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Sample Questions
Q1) If all prices are stuck at a predetermined level,then when a short-run aggregate supply curve is drawn with real GDP (Y)along the horizontal axis and the price level (P)along the vertical axis,this curve:
A) is horizontal.
B) is vertical.
C) slopes upward and to the right.
D) slopes downward and to the right.
Q2) Aggregate supply is the relationship between the quantity of goods and services supplied and the:
A) money supply.
B) unemployment rate.
C) interest rate.
D) price level.
Q3) A short-run aggregate supply curve shows fixed ______,and a long-run aggregate supply curve shows fixed ______.
A) output; output
B) prices; prices
C) prices; output
D) output; prices
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Chapter 10: Aggregate Demand I
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Sample Questions
Q1) In the Keynesian-cross model,what adjusts to move the economy to equilibrium following a change in exogenous planned spending?
A) planned spending
B) the interest rate
C) production
D) the price level
Q2) In the Keynesian-cross model,if taxes are reduced by 100,then planned expenditures ______ for any given level of income.
A) increase by 100
B) increase by more than 100
C) decrease by 100
D) increase,but by less than 100
Q3) According to the theory of liquidity preference,holding the supply of real money balances constant,an increase in income will ______ the demand for real money balances and will ______ the interest rate.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
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Chapter 13: Aggregate Supply and the Short-Run
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Sample Questions
Q1) (Exhibit: AD-AS Shifts)Starting from long-run equilibrium at A with output equal to Y and the price level equal to P<sub>1</sub>,a cost-push inflation would be represented by a shift from:
A) AD<sub>1</sub> to AD<sub>2</sub>.
B) AD<sub>1</sub> to AD<sub>3</sub>.
C) AS<sub>1</sub> to AS<sub>2</sub>.
D) AS<sub>1</sub> to AS<sub>3</sub>.
Q2) In the case of cost-push inflation,other things being equal:
A) both the inflation rate and the unemployment rate rise at the same time.
B) the unemployment rate rises but the inflation rate falls.
C) the inflation rate rises but the unemployment rate falls.
D) both the inflation rate and the unemployment rate fall.
Q3) The Phillips curve depends on all of the following forces except:
A) the current exchange rate.
B) expected inflation.
C) the deviation of unemployment from its natural rate.
D) supply shocks.
Q4) How would an adverse supply shock change the short-run tradeoff between inflation and unemployment? Illustrate your answer using a Phillips curve diagram.
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Chapter 15: Stabilization Policy
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Sample Questions
Q1) The law makers who wrote the White Paper of 1946 believed that:
A) the economy was naturally stable.
B) the Great Depression could not happen again.
C) without active government policy the Great Depression could occur again.
D) monetary policy should be conducted according to rules.
Q2) Inflation targeting is a monetary policy rule that requires the central bank to adjust _____ in order to attain the desired inflation rate.
A) a price index
B) the velocity of money
C) nominal GDP
D) the interest rate
Q3) Central-bank independence refers to:
A) whether central banks pursue monetary policy by rules or discretion.
B) the situation that occurs when the inside lag of monetary policy is not related to the outside lag.
C) the extent to which automatic stabilizers are relied on to cushion economic volatility.
D) the degree of separation between central-bank decision making and political influence.
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Chapter 16: Government Debt and Budget Deficits
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Sample Questions
Q1) A measure of the expected rate of inflation can be found by the:
A) yield on index bonds plus the yield on nominal bonds.
B) yield on index bonds minus the yield on nominal bonds.
C) observed rate of inflation minus the yield on real bonds.
D) observed rate of inflation minus the yield on nominal bonds.
Q2) Suppose a household considers only current income in making consumption decisions.This is an example of:
A) Ricardian equivalence.
B) the permanent-income hypothesis.
C) myopia.
D) the life-cycle model.
Q3) If the preferred bank stock acquired by the U.S.government through the TARP program is valued using a capital budgeting approach,then the government budget deficit in the year in which the stocks is acquired will be _____ than if a current budget approach were employed.
A) larger
B) smaller
C) no different
D) more cyclical
Q4) Explain how tax cuts can affect both aggregate demand and aggregate supply.
Page 13
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Chapter 18: Investment
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103 Flashcards
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Sample Questions
Q1) Use the model of residential investment to illustrate graphically the impact of a hurricane that destroyed a substantial quantity of the existing housing stock (holding other factors constant)on housing prices and the quantity of residential housing investment.Explain your answer in words.
Q2) James Tobin reasoned that:
A) the stock market is a random walk.
B) if the stock market values capital at less than its replacement cost,the stock market will go up.
C) if the stock market values capital at less than its replacement cost,the stock market will go down.
D) if the stock market values capital at less than its replacement cost,the firm's managers will not replace capital as it wears out.
Q3) Assume that a car-rental company buys cars for $20,000 each and rents them out to other businesses.The company faces a nominal interest rate of 10 percent per year,and car prices are rising at 6 percent per year.If cars depreciate at 30 percent per year,what will be the company's cost of capital per car?
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Chapter 19: Money Supply and Money Demand
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Sample Questions
Q1) In a system with fractional-reserve banking:
A) all banks must hold reserves equal to a fraction of their loans.
B) no banks can make loans.
C) the banking system completely controls the size of the money supply.
D) all banks must hold reserves equal to a fraction of their deposits.
Q2) If the ratio of reserves to deposits (rr)increases,while the ratio of currency to deposits (cr)is constant and the monetary base (B)is constant,then:
A) it cannot be determined whether the money supply increases or decreases.
B) the money supply increases.
C) the money supply decreases.
D) the money supply does not change.
Q3) In the Baumol-Tobin model of the transactions demand for money,the average money holding will:
A) increase as the interest rate increases.
B) increase as wealth increases.
C) decrease as transaction costs per trip to the bank increase.
D) increase as expenditure increases.
Q4) Why does the Bank of Canada not have complete control over the size of the money supply? Give at least two reasons.
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Chapter 20: The Financial System
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108 Flashcards
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Sample Questions
Q1) Mutual funds that buy a diversified pool of assets can:
A) eliminate all risk.
B) eliminate systematic risk.
C) reduce idiosyncratic risk.
D) reduce systematic risk.
Q2) Financial markets allow savers to:
A) eliminate risk.
B) directly provide resources for investment.
C) avoid adverse selection.
D) all of the above.
Q3) When the phrase _____ was coined,it referred to _____.
A) "too big to fail"; JPMorgan and Bank One
B) "one bank,one country"; Bank of America
C) "laissez-faire"; the Federal Reserve
D) "too big to fail"; Continental Illinois Bank
Q4) Stocks are:
A) loans to a firm.
B) assets minus liabilities of a firm.
C) leverage in a firm.
D) shares of ownership in a firm.
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