Economics I Test Preparation
Course Introduction
Economics I introduces students to the fundamental principles of microeconomics, focusing on the decision-making processes of individuals and firms, the functioning of markets, and the role of government in the economy. Topics include supply and demand analysis, consumer behavior, production and cost theory, market structures such as perfect competition and monopoly, and the basics of market efficiency and market failures. Through lectures, discussions, and problem-solving exercises, students gain a foundational understanding of how economic agents interact and the forces that shape economic outcomes.
Recommended Textbook
Principles of Macroeconomics 1st Edition by N. Gregory Mankiw
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17 Chapters
3530 Verified Questions
3530 Flashcards
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Page 2
Chapter 1: Ten Principles of Economics
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) With which nations does Canada benefit from trade?
A) only nations that can produce goods Canada cannot produce
B) with any nation
C) with any nation not in economic competition with Canada
D) only with less developed nations
Answer: B
Q2) Suppose your management professor has been offered a corporate job with a 30 percent pay increase. Why has he decided NOT to take the job?
A) The marginal cost of leaving was greater than the marginal benefit.
B) The marginal benefit of leaving was greater than the marginal cost.
C) The marginal benefit of leaving was less than the marginal cost.
D) The marginal benefit of teaching was greater than the marginal cost.
Answer: C
Q3) In 2014, what was the average Canadian income?
A) $25,368
B) $29,000
C) $36,800
D) $49,000
Answer: D
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Page 3
Chapter 2: Thinking Like an Economist
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239 Verified Questions
239 Flashcards
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Sample Questions
Q1) Refer to Figure 2-3. Which point represents the maximum possible production of tubas?
A) point A
B) point B
C) point C
D) point E
Answer: D
Q2) Refer to Figure 2-2. What do boxes C and D represent?
A) households and firms
B) the goods and services market and the factors of production market
C) the goods and services market and the financial market
D) government and foreign trade
Answer: B
Q3) Refer to Figure 2-5. What most likely caused the shift of the production possibilities frontier from A to B?
A) technological improvement in the production of batteries
B) more labour available in the economy
C) a general technological breakthrough
D) more capital available in the economy
Answer: A
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Chapter 3: Interdependence and the Gains From Trade
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) Suppose a producer can produce shirts with lower opportunity cost than jeans. What else do we need to know if we want to determine this producer's comparative advantage?
A) how this producer's opportunity cost compares with other producer's opportunity cost
B) nothing, the producer has a comparative advantage in jeans.
C) how many hours of work each product requires
D) nothing, the producer has a comparative advantage in shirts
Answer: A
Q2) Refer to Figure 3-4. For Jerry, what is the opportunity cost of one bottle of beer?
A) 1/3 bottle of wine
B) 1/2 bottle of wine
C) 1 bottle of wine
D) 3 bottles of wine
Answer: A
Q3) Adam Smith developed the theory of comparative advantage as we know it today.
A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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347 Flashcards
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Sample Questions
Q1) If the supply of a product increases, what would we expect?
A) equilibrium price to increase and equilibrium quantity to decrease
B) equilibrium price to decrease and equilibrium quantity to increase
C) equilibrium price and equilibrium quantity to both increase
D) equilibrium price and equilibrium quantity to both decrease
Q2) Refer to the Figure 4-4. In this market, what would the equilibrium price and quantity be?
A) $15 and 700
B) $20 and 600
C) $25 and 500
D) $25 and 800
Q3) Refer to the Figure 4-4. If the price is $25, what would the quantity demanded be?
A) 400
B) 500
C) 600
D) 800
Q4) Anyone willing to pay the market price for a resource may have it.
A)True
B)False
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) 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
Q2) A Canadian company owned by a Japanese citizen has opened a sushi restaurant in Romania. Where is the profit included?
A) in Romanian GNP
B) in Canadian GDP
C) in Romanian GDP
D) in Japanese GDP
Q3) How are goods that go into inventory and are not sold during the current period treated in GDP terms?
A) They are counted as intermediate goods and so are not included in current-period GDP.
B) They are counted in current GDP only if the firm that produced them sells them to another firm.
C) They are included in current-period GDP as inventory investment.
D) They are included in current-period GDP as consumption.
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) In recent years, there have been increases in the size of golf club drivers and the methods and materials used for making them have improved. Which problem in the construction of the CPI is this change in drivers most relevant to?
A) substitution bias
B) introduction of new goods
C) unmeasured quality change
D) income bias
Q2) Suppose the average price of gas in 2014 was $0.95 per litre and $0.97 in 2015. The inflation rate was 3 percent in 2015. What was the 2015 price of gas in 2014 dollars?
A) $0.922
B) $0.942
C) $0.978
D) $0.999
Q3) Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.
A)True
B)False
Q4) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Chapter 7: Production and Growth
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182 Flashcards
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Sample Questions
Q1) In the traditional view, which production process is considered when studying economic growth?
A) constant returns
B) increasing returns
C) diminishing returns
D) diminishing returns for low levels of capital, and increasing returns for high levels of capital
Q2) Other things equal, how do relatively poor countries tend to grow?
A) They grow slower than relatively rich countries; this is called the poverty trap.
B) They grow slower than relatively rich countries; this is called the Malthus effect.
C) They grow faster than relatively rich countries; this is called the catch-up effect.
D) They grow faster than relatively rich countries; this is called the constant-returns-to-scale effect.
Q3) Why are property rights important for the growth of a nation's standard of living
Q4) How do inward-oriented policies affect a nation's growth
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) Suppose the following equations give the demand and supply for loanable funds in billions of dollars; r is the real interest rate in percentage points (e.g., if the interest rate is 5 percent, r = 5):
QD = 160 - 10r
QS = -20 + 20r
a) Calculate the equilibrium savings, investment, and interest rate.
b) How much is the total amount received by lenders in interest
c) Calculate the gains to lenders from financial transactions (producer surplus).
d) Calculate the gains to borrowers (the equivalent of consumer surplus).
Q2) How does the risk of long-term bonds compare with short-term bonds?
A) Long-term bonds are generally less risky than short-term bonds and so pay higher interest.
B) Long-term bonds are generally less risky than short-term bonds and so pay lower interest.
C) Long-term bonds are generally more risky than short-term bonds and so pay higher interest.
D) Long-term bonds are generally more risky than short-term bonds and so pay lower interest.
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Page 10
Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) About what fraction of unemployed persons have been unemployed for less than a month?
A) 1/3
B) 2/3
C) 3/4
D) 4/5
Q2) In 2009, Canada was in a serious recession. By 2013, Canada was experiencing a strong economic recovery. How did employment growth and gross job creation compare between 2009 and 2013?
A) Both employment growth and job creation were smaller in 2009.
B) Employment growth was the same in both years but job creation was smaller in 2009.
C) Employment growth was smaller in 2009 but job creation was larger in 2009.
D) Employment growth was smaller in 2009 but job creation was the same in both years.
Q3) Over half of the unemployed are recent entrants into the labour force.
A)True
B)False
Q4) Most spells of unemployment are short, and most unemployment observed at any given time is long term. How can this be?
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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) Which of the following is included in the M2 definition of the money supply?
A) credit cards
B) term deposits
C) corporate bonds
D) foreign currency accounts
Q3) Which statement best explains whether bank runs are a problem for the economy?
A) They are not a problem because bank runs will affect neither the money supply nor the money multiplier.
B) Bank runs are only a problem for insolvent banks.
C) They are a problem, but they can be neither prevented nor stopped by a central bank.
D) Bank runs are a problem because bank failures may spread to healthy banks.
Q4) Which statement best illustrates the medium of exchange function of money?
A) You keep some money hidden in your shoe.
B) Your recent tax assessment has valued your condo at $200,000..
C) You pay for your double latte using currency.
D) You lend $25 to your friend.
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Chapter 11: Money Growth and Inflation
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196 Flashcards
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Sample Questions
Q1) According to the classical dichotomy, what is influenced by monetary factors?
A) production
B) the interest rate adjusted for inflation
C) the current-dollar wage
D) the constant-dollar GDP
Q2) According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?
A) 200, 3
B) 400, 4
C) 600, 5
D) 800, 6
Q3) Inflation induces people to spend more resources maintaining lower money holdings. This is called shoe leather costs.
A)True
B)False
Q4) When does the supply of money increase?
A) when the Bank of Canada increases the overnight rate
B) when the Bank of Canada makes open-market sales
C) when the Bank of Canada makes open-market purchases
D) when the Bank of Canada increases the bank rate
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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218 Flashcards
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Sample Questions
Q1) What is the formula for a closed economy's GDP?
A) Y = C + I + G
B) Y = (C - T) + I + G
C) Y = C + I + G + S
D) Y = C + I + G + NX
Q2) How did the real interest rates paid on long-term government debt in Canada and the United States compare with each other over the period from 1984 to 2015?
A) The average real interest rate was 3.4 percent in Canada and 4.4 percent in the United States.
B) The average real interest rate was 3.7 percent in Canada and 3.0 percent in the United States.
C) The average real interest rate was 5.7 percent in Canada and 6.7 percent in the United States.
D) The average real interest rate was 6.7 percent in Canada and 5.7 percent in the United States.
Q3) Suppose a bottle of wine costs 25 euros in France and $20 in Canada. If the exchange rate is 1.25 euros per dollar, what is the real exchange rate?
Q4) How do the nominal exchange rate and the real exchange rate differ?
Page 14
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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195 Flashcards
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Sample Questions
Q1) Jack and Jill are co-owners of the Canadian firm, Peak Petroleum Pipeline. Jack borrows money to build a pipeline from Alberta to the BC coast. Jill borrows money to build a pipeline in Venezuela. How does this affect the market for loanable funds in Canada?
A) Jack increases the demand for loanable funds.
B) Jill increases the demand for loanable funds.
C) Jack increases the supply for loanable funds.
D) Jill increases the supply of loanable funds.
Q2) What is the most likely result from an increase in the government's budget surplus?
A) higher interest rates
B) lower imports
C) lower net capital outflows
D) lower domestic investment
Q3) Which of the following is an effect of capital flight in a small economy such as Panama?
A) a shift of the supply of loanable funds to the left
B) a decrease of the Panamanian interest rate
C) a shift of the net capital outflow to the right
D) an appreciation of the Panamanian real exchange rate
Page 15
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) What are the recessions of the 1970s often most attributed to?
A) OPEC increasing oil production
B) an increase in oil prices
C) declines in the price of stock
D) decreases in the money supply
Q2) What happens to prices and output when the long-run aggregate-supply curve shifts left?
A) Prices and output both increase.
B) Prices and output both decrease.
C) Prices increase and output decreases.
D) Prices decrease and output increases.
Q3) An increase in which of the following (assuming the increase was not due to a price level change) shifts aggregate demand to the right?
A) interest rates
B) immigration
C) government surplus
D) net exports
Q4) Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) If inflation is zero, then the nominal and real interest rates are the same.
A)True
B)False
Q2) Compare the classical model of money market with the liquidity preference model.
a. Are they consistent with each other?
b. Draw the classical money-demand curve in a Price-Quantity-of-money diagram.
c. How does your money-demand curve shift when income, Y, increases?
d. Use your classical money-demand diagram to derive an aggregate-demand curve.
Q3) What tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?
A) multiplier effect
B) crowding-out effect
C) catch-up effect
D) Fisher effect
Q4) If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?
A) The money supply increases, and aggregate demand shifts right.
B) The money supply increases, and aggregate demand shifts left.
C) The money supply decreases, and aggregate demand shifts right.
D) The money supply decreases, and aggregate demand shifts left.
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Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years, and it made the unemployment rate rise from 3 percent to 9 percent for three years. What is the sacrifice ratio?
A) 1
B) 3
C) 4
D) 5
Q2) How will a favourable supply shock shift short-run aggregate supply, and how will output change?
A) It will shift short-run aggregate supply left, making output rise.
B) It will shift short-run aggregate supply left, making output fall.
C) It will shift short-run aggregate supply right, making output rise.
D) It will shift short-run aggregate supply right, making output fall.
Q3) Refer to the Figure 16-2. What is Curve 2?
A) the long-run Phillips curve
B) the short-run Phillips curve
C) the long-run aggregate-demand curve
D) the short-run aggregate-demand curve
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 18
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Chapter 17: Five Debates Over Macroeconomic Policy
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Sample Questions
Q1) Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate demand shifts right, what must the central bank do, and what will happen to output?
A) The central bank must decrease the money supply, which will move output back toward its long-run level.
B) The central bank must decrease the money supply, which will move output farther from its long-run level.
C) The central bank must increase the money supply, which will move output back toward its long-run level.
D) The central bank must increase the money supply, which will move output farther from its long-run level.
Q2) Why should the central bank aim for zero inflation?
A) Reducing inflation imposes temporary costs but provides permanent benefits.
B) Reducing inflation from 2 percent to 0 percent is virtually costless.
C) The government has indexed tax brackets to prevent the adverse effects of inflation.
D) The costs of inflation are very high.
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Page 19