Economics I Practice Questions
Course Introduction
Economics I is an introductory course that explores the fundamental principles of microeconomics and macroeconomics. Students will learn about the basic concepts of supply and demand, market equilibrium, consumer behavior, production costs, and the organization of firms. The course also introduces national income accounting, economic growth, inflation, unemployment, and the role of government in managing the economy. Through real-world examples and analytical tools, Economics I equips students with a solid foundation to understand how economic decisions are made by individuals, businesses, and governments, and how these decisions impact society as a whole.
Recommended Textbook
Principles of Macroeconomics 5th Canadian Edition by N. Mankiw
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3430 Verified Questions
3430 Flashcards
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Chapter 1: Ten Principles of Economics
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205 Flashcards
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Sample Questions
Q1) A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $2.00. Since this shop does not sell day-old donuts the next day, what should the manager do if she still has 10 dozen left at 2:30 p.m.?
A) lower the price of the remaining donuts even if the price falls below $2.00
B) lower the price of the remaining donuts as long as it's more than $2.00
C) lower the price on all donuts so they will all be sold earlier in the day
D) throw them away and produce 10 fewer dozen tomorrow
Answer: A
Q2) What is the opportunity cost of an item?
A)the number of hours needed to earn money to buy it
B)what you give up to get that item
C)usually more than the dollar value of the item
D)usually less than the dollar value of the item
Answer: B
Q3) Productivity is the primary determinant of a country's living standards.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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230 Flashcards
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Sample Questions
Q1) What happens when economists test theories?
A)They must make do with whatever data the world gives them.
B)They can manipulate economic conditions easier than other scientific fields.
C)They can enlist the government's help to manipulate economic conditions.
D)They can achieve statistically valid results with much smaller sample sizes.
Answer: A
Q2) What does Human Resources Canada do?
A)enforce the country's antitrust laws
B)analyze economic developments in Canada
C)set the country's monetary policy
D)help formulate labour market policies
Answer: D
Q3) Refer to Figure 2-8. If this economy puts all of its resources into the production of bathtubs, how many could it produce?
A)20 barrels and 12 bathtubs
B)35 barrels and no bathtubs
C)no barrels and 16 bathtubs
D)This economy would not choose to put all of its resources into the production of one good.
Answer: C
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) How is absolute advantage found?
A)By comparing opportunity costs.
B)By calculating the dollar cost of production.
C)By comparing the productivity of one nation to that of another.
D)By first determining which country has a comparative advantage.
Answer: C
Q2) Refer to Table 3-6. If England and Spain trade based on the principle of comparative advantage, which product will Spain export to England?
A)Bread
B)both bread and cheese
C)Cheese
D)Spain cannot benefit from trade with England.
Answer: C
Q3) Refer to Table 3-6. What is the opportunity cost of 1 unit of cheese in England?
A)4 breads.
B)2 breads.
C)1/2 bread.
D)1/4 bread.
Answer: C
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Page 5
Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Refer to Figure 4-8. The graph shows the demand for cigarettes. Which most likely happened?
A)The price of marijuana rose.
B)Mandatory health warnings were placed on cigarette packages.
C)Several foreign countries banned Canadian cigarettes in their countries.
D)A tax was placed on cigarettes.
Q2) What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto workers negotiate higher wages?
A)price will fall and the effect on quantity is ambiguous
B)price will rise and the effect on quantity is ambiguous
C)quantity will fall and the effect on price is ambiguous
D)quantity will rise and the effect on price is ambiguous
Q3) Refer to Figure 4-4. At a price of $20, which would NOT be true?
A)The market would be in equilibrium.
B)Equilibrium price would be equal to equilibrium quantity.
C)There would be no pressure for price to change.
D)600 units would be bought and sold.
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) How is GDP computed?
A)Add up the quantities of all final goods and services.
B)Add up the cost of producing final goods and services.
C)Use weights determined by a survey regarding how much people value different sorts of goods and services to compute GDP as a weighted average.
D)Add up the market values of all final goods and services produced within a country in a given period of time.
Q2) A Canadian publisher purchases new computers. What impact does this purchase have on investment and GDP?
A)It makes investment and GDP higher.
B)It makes investment higher and leaves GDP unchanged.
C)It makes investment higher and reduces GDP.
D)It makes neither investment nor GDP higher.
Q3) Refer to Table 5-2. What is the national income for this economy?
A)$386
B)$392
C)$396
D)$398
Q4) Calculate the percentage changes in nominal GDP, real GDP, and GDP deflator.
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Which of the following best describes nominal interest rates and real interest rates in the 1970s and 1990s?
A)Nominal interest rates were high in the 1970s, and real interest rates were high in the 1990s.
B)Nominal interest rates were high in the 1970s, and real interest rates were low in the 1990s.
C)Nominal interest rates were high in the 1990s, and real interest rates were high in the 1970s.
D)Nominal interest rates were high in the 1990s, and real interest rates were low in the 1970s.
Q2) If the nominal interest rate is 10 percent and the rate of inflation is 3 percent, what is the real interest rate?
A)-7 percent
B)-5 percent
C)5 percent
D)7 percent
Q3) The Canadian income tax system is indexed to the CPI.
A)True
B)False
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Page 8
Chapter 7: Production and Growth
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Sample Questions
Q1) The real GDP per capita in an economy increases at a rate of 2.6 percent. Calculate the number of years that it takes for real GDP to double. Assuming that the current GDP per capita is $40 000 and the growth rate will be on average 2.6 percent, how much will GDP per capita be after 10 years? After 20 years? After30 years? Draw a graph to show approximately the evolution of this economy for the next 30 years.
Q2) Which of the following is consistent with the catch-up effect?
A)The United States had a lower growth rate before 1900 than after.
B)Japan has a higher growth rate than Germany.
C)Although Canada has a relatively high level of output per person, its growth rate is still high compared to some poorer countries, such as Pakistan.
D)After World War II, Canada had lower growth rates than war-ravaged European countries.
Q3) The annual population growth rate in developed countries is about 1 percent, while the growth rate in developing countries is about 3 percent.
A)True
B)False
Q4) What is the difference between human capital and technology?
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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Sample Questions
Q1) Which of the following best describes the evolution of Canadian national debt between 1996 and 2008?
A)It fell by 10 percent of GDP.
B)It fell, and then it rose.
C)It fell by $60 billion.
D)It fell to 32 percent of GDP.
Q2) Since what year has the Dow Jones Industrial Average been computed regularly?
A)1976
B)1948
C)1913
D)1896
Q3) Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of government expenditures would make national saving equal 1000?
A)2500
B)3500
C)7500
D)9000
Q4) Explain why the demand for loanable funds slopes downward and the supply of loanable funds slopes upward.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Which of the following best defines job search?
A)It is a process through which the firms determine the equilibrium wage.
B)It is an imbalance between labour supply and labour demand.
C)It is the process of matching workers with appropriate jobs.
D)It is the process through which firms hire new employees.
Q2) How do sectoral shifts in the economy affect unemployment?
A)They create structural unemployment.
B)They reduce unemployment.
C)They increase unemployment due to job search.
D)Overall, they leave unemployment unchanged.
Q3) The unemployment rate reported by Statistics Canada clearly understates the true unemployment rate.
A)True
B)False
Q4) Which of the following is characteristic of the natural rate of unemployment?
A)It is a constant.
B)It is the desirable rate of unemployment.
C)It is a variable that cannot be altered by economic policy.
D)It is the amount of unemployment that the economy normally experiences.
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Chapter 10: The Monetary System
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Sample Questions
Q1) If the Bank of Canada buys bonds in the open market, the money supply decreases.
A)True
B)False
Q2) If the reserve ratio is 10 percent and a bank receives a new deposit of $800, which of the following will this bank most likely do?
A)It will increase its required reserves by $8000.
B)It will make new loans of $8000.
C)It will be able to make new loans of $800.
D)It will initially see its total reserves increase by $800.
Q3) Suppose an economy has no money, and people use gold for all payments.
a.Discuss the effects of economic growth (an increase in the amount of goods and services that the economy produces) on prices.
b.What happens to prices when more gold becomes available, say due to new openings of gold mines?
c.Who determines the economy's money supply?dDiscuss the advantages and disadvantages of such a "gold standard" economy.
Q4) The Bank of Canada was created in 1934 in the wake of the Great Depression.
A)True
B)False
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Based on the quantity equation, if M = 125, V = 4, and Y = 200, what is P?
A)0.5
B)1
C)1.5
D)2.5
Q2) Inflation induces people to spend more resources maintaining lower money holdings. This is called shoeleather costs.
A)True
B)False
Q3) Inflation distorts relative prices. What does this mean and why does it impose a cost on society?
Q4) Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a.the Bank of Canada increases the money supply. b.people decide to demand less money at each value of money.
Q5) The money supply curve shifts to the left when the Bank of Canada buys government bonds.
A)True
B)False
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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215 Flashcards
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Sample Questions
Q1) In Ireland, a pint of beer costs 4 Irish punts. In Australia, a pint of beer costs 6 Australian dollars. If the exchange rate is 0.6 punts per Australian dollar, what is the real exchange rate?
A)0.8 pints of Irish beer per pint of Australian beer
B)0.9 pints of Irish beer per pint of Australian beer
C)1.11 pints of Irish beer per pint of Australian beer
D)1.25 pints of Irish beer per pint of Australian beer
Q2) Suppose that money supply growth continues to be higher in Turkey than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?
Q3) Which of the following would a depreciation of the Canadian real exchange rate induce Canadian consumers to buy?
A)fewer domestic goods and fewer foreign goods
B)more domestic goods and fewer foreign goods
C)fewer domestic goods and more foreign goods
D)more domestic goods and more foreign goods
Q4) How can one derive the identity that saving equals the sum of domestic investment and net capital outflow from the national income accounting identity?
Page 14
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Chapter 13: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) According to the open-economy macroeconomic model, if the Canadian government decreased the government budget deficit, both Canadian domestic investment and Canadian net capital outflow would fall.
A)True
B)False
Q2) When the government increases the government budget deficit, national saving decreases.
A)True
B)False
Q3) According to the open-economy macroeconomic model, an increase in the Canadian government budget surplus increases Canadian net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases Canadian net exports.
A)True
B)False
Q4) Other things the same, when the real exchange rate of the dollar appreciates, Canadian goods become more attractive to Canadian residents, but less attractive to foreign residents.
A)True B)False
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Which of the following does real GDP measure?
A)the dollar value of all goods
B)economic activity and income
C)primarily long-run trends
D)profitability of all companies in the economy
Q2) At the end of World War II, many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. Where would we expect that the rebuilding increased aggregate demand?
A)in both Canada and Europe
B)in Canada, but not in Europe
C)in Europe, but not in Canada
D)in neither Canada nor Europe
Q3) All else equal, which of the following happens as the price level falls?
A)the money supply falls
B)interest rate rise
C)dollars become more valuable
D)dollars become less valuable
Q4) Use the sticky wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.
Q5) Make a list of things that would shift the aggregate demand curve to the right.
Page 16
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) How do permanent tax cuts shift the AD curve compared with temporary tax results?
A)Permanent tax cuts shift the AD curve farther to the right than temporary tax cuts do.
B)Permanent tax cuts shift the AD curve less to the right than temporary tax cuts do.
C)Permanent tax cuts shift the AD curve farther to the left than temporary tax cuts do.
D)Permanent tax cuts shift the AD curve less to the left than temporary tax cuts do.
Q2) In a small open economy with a flexible exchange rate, a monetary injection causes which of the following?
A)It causes the dollar to appreciate.
B)It causes net exports to decline.
C)It causes an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy.
D)It causes a shift of the aggregate demand curve farther to the right than in a closed economy.
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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Sample Questions
Q1) Suppose a war disrupts the supply of oil to the country. What would we expect to happen to the short-run aggregate supply curve, the short-run Phillips curve, and the long-run Phillips curve?
A)We would expect the short-run aggregate supply curve, short-run Phillips curve, and long-run Phillips curve to shift left.
B)We would expect the short-run aggregate supply curve, short-run Phillips curve, and long-run Phillips curve to shift right.
C)We would expect the short-run aggregate supply curve to shift left, and the short-run Phillips curve and long-run Phillips curve to shift right.
D)We would expect the short-run aggregate supply curve to shift left, the short-run Phillips curve to shift right, and the long-run Phillips curve to be unaffected.
Q2) Short-run outcomes in the economy can be expressed in terms of output and the price level, or in terms of unemployment and inflation.
A)True
B)False
Q3) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) Suppose that at the start of fiscal year 2010 the government had a debt of $6250 billion. Suppose that during the same fiscal year real GDP grew by about 4 percent and inflation was about 2 percent. What is the largest deficit the government could have run without raising the debt-to-GDP ratio?
A)about $122 billion
B)about $184 billion
C)about $245 billion
D)about $375 billion
Q2) Which of the following do opponents of using policy to stabilize the economy generally believe?
A)that neither fiscal nor monetary policy have much impact on aggregate demand
B)that attempts to stabilize the economy can increase the magnitude of economic fluctuations
C)that unemployment and inflation are not cause for much concern
D)that unemployment is a cause for concern, but inflation is not.
Q3) In essence, a consumption tax puts all saving into tax-advantaged savings accounts.
A)True
B)False
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