Quantitative Methods in Economics Review
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Course Introduction
Quantitative Methods in Economics introduces students to the mathematical and statistical tools essential for analyzing economic data and solving economic problems. The course covers fundamental concepts such as probability theory, hypothesis testing, regression analysis, and optimization techniques. Emphasizing practical application, students learn to model economic relationships, interpret quantitative results, and apply these methods to real-world policy and business scenarios. By the end of the course, students are equipped with the analytical skills necessary to conduct empirical research and make data-driven decisions in economics.
Recommended Textbook
Microeconomics 2nd Canadian Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) What is the "omitted variable" problem in determining cause and effect?
A)It is a problem that arises when an insignificant variable is given too much weight in an economic analysis leading to skewed conclusions about cause and effect.
B)It is a problem that arises when a significant variable is not given enough weight in an economic experiment leading to skewed conclusions about cause and effect.
C)It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic experiment leading to false conclusions about cause and effect.
D)It is a problem that arises when an economic variable that affects other variables is omitted from an analysis and its omission leads to false conclusions about cause and effect.
Answer: D
Q2) Economic models do all of the following except
A)answer economic questions.
B)portray reality in all its minute details.
C)make economic ideas explicit and concrete for use by decision makers.
D)simplify some aspect of economic life.
Answer: B
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2.11.If the economy is currently producing at point Y, what is the opportunity cost of moving to point X?
A)5 million tons of steel
B)9 million tons of paper
C)5 million tons of paper
D)19 million tons of steel
Answer: C
Q2) Refer to Table 2.12.Does either Estonia or Finland have an absolute advantage and if so, in what product?
A)Finland has an absolute advantage in lumber.
B)Estonia has an absolute advantage in lumber.
C)Finland has an absolute advantage in both products.
D)Estonia has an absolute advantage in cell phones.
Answer: C
Q3) The resource income earned by those who supply ________ is called wages.
A)labour
B)capital
C)natural resources
D)entrepreneurship
Answer: A
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Chapter 3: Where Prices Come From: The Interaction of
Supply and Demand
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Sample Questions
Q1) Refer to Figure 3.14.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D<sub>1 </sub>and S<sub>1</sub> (point
A)none of the points shown
B)B
C)C
D)E
Answer: A
Q2) A surplus is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.
A)True
B)False
Answer: True
Q3) Holding everything else constant, a decrease in the price of GPS systems will result in
A)a decrease in the quantity of GPS systems demanded.
B)an increase in the demand for GPS systems.
C)a decrease in the supply of GPS systems.
D)an increase in the quantity of GPS systems demanded.
Answer: D
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Chapter 4: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Is nominal GDP measured in terms of quantity or in terms of dollars? If dollars, the value of the dollar from what period? Is real GDP measured in terms of quantity or in terms of dollars? If dollars, the value of the dollar from what period?
Q2) Canadian GDP shrank in the first half of 2016. Some of this fall in GDP was blamed on the forest fires that forced the evacuation of Fort McMurray. Why would a forest fire reduce GDP?
A)the fires caused oil production in the region to shut down.
B)the fires destroyed many homes and the loss of savings reduces GDP.
C)the clean up effort after the fire caused an increase in employment.
D)the evacuated people had to spend extra money on things they won't normally have bought, like hotel rooms.
E)the fires destroyed some of Fort McMurray's infrastructure which will now have to be rebuilt.
Q3) Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
Q4) People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power.If inflation and income grow at the same rate, is this complaint valid? Explain carefully.
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Chapter 5: Unemployment and Inflation
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Sample Questions
Q1) When an economy is at its natural rate of unemployment, which of the following will be true?
A)The unemployment rate will be 0%.
B)The labour force participation rate will be 100%.
C)The unemployment rate will be greater than 0%.
D)The employment population ratio will be 80%.
E)Only structural unemployment as a result of technological change will exist in the economy.
Q2) You lend $5,000 to a friend for one year at a nominal interest rate of 10%.The CPI over that year rises from 180 to 190.What is the real rate of interest you will earn?
A)0%
B)4.4%
C)5.5%
D)5.8%
E)7.8%
Q3) When the actual inflation rate turns out to be greater than the expected inflation rate, who gains - the borrower or the lender - and who loses? Explain why.
Q4) Describe how inflation can be costly even if it is anticipated.
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Chapter 6: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) Which of the following financial securities is most liquid?
A)a savings account
B)a share of stock
C)a cashier's cheque
D)a $20 bill
E)a certificate of deposit
Q2) Which of the following explains why the unemployment rate tends to rise as a recession ends?
A)Discouraged workers begin to search for jobs.
B)The federal government uses a different definition of "unemployed" during recession.
C)Employment insurance tends to be more generous during recessions.
D)The birth rate tends to rise during recessions.
E)Firms reducing hiring as recessions come to an end.
Q3) Explain and show graphically how government deficits can "crowd out" private investment.
Q4) In an open economy, the relationship between GDP (Y)and expenditures is Y = C + I + G.
A)True
B)False
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Chapter 7: Long-Run Economic Growth: Sources and Policies
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Sample Questions
Q1) An explanation for the productivity slowdown from 1973 through 1995 is
A)measurement problems.
B)creative destruction.
C)a decline in oil prices.
D)an increase in labour quality.
E)falling government deficits.
Q2) Because knowledge capital is nonexcludable and nonrival, firms have an incentive to ________ the research and development of other firms.
A)make bids on
B)not use
C)ignore
D)free ride on
E)steal
Q3) Which of the following is not a reason why low-income countries might experience low economic growth?
A)The country has endured extended periods of war.
B)The country fails to enforce a rule of law.
C)The country has a good education system.
D)The country has a low rate of saving and investment.
E)The country has poor public education.
Page 9
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Chapter 8: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) As a result of the drop in the oil price and resulting drop in oil production in 2015, many Alberta companies including local Tim Hortons cut production and employment.The total amount of spending in the economy is known as
A)deficit spending.
B)planned investment spending.
C)aggregate expenditure.
D)equilibrium spending.
E)total production.
Q2) Refer to Table 8.3.Given the consumption schedule in the table above, the marginal propensity to save is
A)0.1.
B)0.4.
C)0.7.
D)0.9.
E)1.0.
Q3) Would a larger multiplier lead to longer and more severe recessions or shorter and less severe recessions? Briefly explain.
Q4) Ceteris paribus, how does a recession in the United States affect Canadian net exports?
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Chapter 9: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) When the aggregate demand curve and the short-run aggregate supply curve intersect,
A)the long-run aggregate supply curve must also intersect at the same point.
B)inflation must be increasing.
C)structural and frictional unemployment equal zero.
D)the economy is in short-run macroeconomic equilibrium.
E)the economy likely to experience higher than normal unemployment.
Q2) Potential GDP refers to the level of
A)real GDP in the long run.
B)nominal GDP in the long run.
C)real GDP in the short run.
D)nominal GDP in the short run.
E)the maximum real GDP possible.
Q3) Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?
Q4) Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.
Q5) Why does the short-run aggregate supply curve slope upward?
Q7) Explain why the long-run aggregate supply curve is vertical. Page 11
Q6) Explain the three reasons the aggregate demand curve slopes downward.
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Chapter 10: Money, Banks, and the Bank of Canada
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Sample Questions
Q1) Suppose a bank has $100,000 in chequing account deposits with no excess reserves and the desired reserve ratio is 5 percent.If commercial banks lower the desired reserve ratio to 3 percent, then the bank will now have excess reserves of A)$0.
B)$2,000.
C)$3,000.
D)$5,000.
E)$20,000.
Q2) If households in the economy decide to take money out of chequing account deposits and hold it as currency, this will initially
A)not change M1+ and increase M1++.
B)decrease M1+ and decrease M1++.
C)decrease M1+ and not change M1++.
D)not change M1+ and not change M1++.
E)increase M1+ and decrease M2+.
Q3) Canada was the first nation to remove the penny from circulation.
A)True
B)False
Q4) What is the principle monetary policy tool used by the Bank of Canada.Why?
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Chapter 11: Monetary Policy
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Sample Questions
Q1) An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.
A)decrease; decrease
B)decrease; increase
C)increase; decrease D)increase; increase E)increase; not change
Q2) In response to already low interest rates doing little to stimulate the economy, the U.S.Federal Reserve began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as A)inflation targeting.
B)contractionary monetary policy.
C)securities-bubble deflating.
D)quantitative easing.
E)discretionary monetary policy.
Q3) A borrower defaults on a loan when he stops making payments on the loan.
A)True
B)False
Q4) List the Bank of Canada's four main monetary goals.
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Chapter 12: Fiscal Policy
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Sample Questions
Q1) Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude.
Q2) Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.
A)True
B)False
Q3) Which of the following is the largest category of federal government expenditures?
A)health care spending
B)transfer payments to individuals
C)interest on government debt
D)grants to provincial and local governments
E)military spending
Q4) Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.
A)True
B)False
Q5) The federal government increased income tax deductions (effectively lowered taxes)in 2009.Explain how this might increase aggregate supply.
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Chapter 13: Inflation, Unemployment, and Bank of Canada Policy
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Sample Questions
Q1) An increase in the inflation rate increases employment only if the increase in inflation is unexpected.
A)True
B)False
Q2) In the long run, the Bank of Canada can control which of the following?
A)the inflation rate
B)the unemployment rate
C)the growth rate of real GDP in the economy
D)the natural rate of unemployment
E)the federal budget deficit
Q3) Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by
A)workers and firms using Bank of Canada policy to predict inflation.
B)workers and firms using all the information available to predict inflation.
C)workers and firms rapidly adjusting wages and prices in response to changes in expectations.
D)workers and firms being fooled by unexpected changes in monetary policy.
E)workers and firms refusing to negotiate wages on a regular basis.
Q4) What is the relationship between the short-run Phillips curve and the long-run Phillips curve?
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Chapter 14: Macroeconomics in an Open Economy
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Sample Questions
Q1) Suppose the federal government is successful in enacting tariffs large enough to eliminate the current account deficit.What would happen to the level of domestic investment?
A)It would not change.
B)It would rise and exceed national saving.
C)It would rise to a level equal to net foreign investment.
D)It would fall to a level equal to national saving.
E)It would rise to a level equal to exports.
Q2) If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion, what is the balance on the capital account, assuming no statistical discrepancy?
A)$1,445 billion
B)$842 billion
C)$239 billion
D)$0
E)-$239 billion
Q3) In Canada, domestic investment is greater than national saving.
A)True
B)False
Q4) Why is the balance of payments always zero?
Page 17
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Chapter 15: The International Financial System
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Sample Questions
Q1) Destabilizing speculation refers to
A)actions taken by the International Monetary Fund that increase lending to countries who have pegged their currencies against the dollar.
B)actions taken by currency traders to sell a currency that is undervalued.
C)actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price.
D)any depreciation of a country's currency as a result of long-run adjustments to purchasing power parity.
E)any purchase of foreign currency assets by foreign investors.
Q2) Refer to Figure 15.9.The equilibrium exchange rate is at A, $1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise, and this shifts the demand curve for euros to D<sub>2</sub>.After the shift,
A)there is a shortage of euros equal to 1,000 million.
B)there is a surplus of euros equal to 400 million.
C)there is a shortage of euros equal to 800 million.
D)there is a surplus of euros equal to 500 million.
E)there is a short of euros equal to 400 million.
Q3) Which aspects of globalization help to increase growth in the world economy?
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