Fundamentals of Economics Exam Bank
Course Introduction
Fundamentals of Economics introduces students to the core principles and concepts underlying the study of economics. The course explores both microeconomic and macroeconomic frameworks, including supply and demand, market structures, consumer behavior, production, and the role of government in the economy. Students will develop an understanding of how individuals, businesses, and societies allocate scarce resources to satisfy unlimited wants. Emphasis is placed on real-world applications, critical thinking, and problem-solving skills that enable students to analyze economic issues and make informed decisions.
Recommended Textbook
Principles of Macroeconomics 5th Canadian Edition by N. Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Which is the most accurate statement about trade?
A)Trade can make every nation better off.
B)Trade makes some nations better off and others worse off.
C)Trading for a good can make a nation better off only if the nation cannot produce that good itself.
D)Trade helps rich nations and hurts poor nations.
Answer: A
Q2) What causes almost all variation in living standards in different countries?
A)population growth rates
B)endowments of natural resources
C)national government budgets
D)productivity
Answer: D
Q3) Which of the following would NOT be true in a world without scarcity?
A)There would be no need for the science of economics.
B)Everyone would have all the goods and services they wanted.
C)There would have to be an infinite supply of every resource.
D)There would be opportunity costs.
Answer: C
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Page 3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) The tradeoff between the production of different goods can change because of technological improvement over time.
A)True
B)False
Answer: True
Q2) What type of statement is "Prices rise when the government prints too much money"?
A)positive economic statement
B)statement made by the Harper administration
C)normative economic statement
D)welfare statement
Answer: A
Q3) Refer to Figure 2-11. The opportunity cost to the economy of moving from point A to point B is 10 dishwashers.
A)True
B)False
Answer: True
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Chapter 3: Interdependence and the Gains From Trade
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Sample Questions
Q1) Refer to Figure 3-3. For Jerry, what is the opportunity cost of 1 kg of cones?
A)2/3 kg of ice cream.
B)3 kg of ice cream.
C)1 kg of ice cream.
D)2 kg of ice cream.
Answer: A
Q2) Refer to Figure 3-3. Which of the following is correct?
A)Ben has an absolute advantage in ice cream and Jerry has an absolute advantage in cones.
B)Ben has an absolute advantage in cones and Jerry has an absolute advantage in ice cream.
C)Ben has an absolute advantage in neither good and Jerry has an absolute advantage in both goods.
D)Ben has an absolute advantage in both goods and Jerry has an absolute advantage in neither good.
Answer: B
Q3) Trade is based on absolute advantage.
A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand
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Sample Questions
Q1) Suppose that demand decreases AND supply decreases. What would you expect to occur in the market for the good?
A)Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
B)Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
C)Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
D)Both equilibrium price and equilibrium quantity would increase.
Q2) If the price of a substitute to good X increases, what will happen?
A)Demand for good X will decrease.
B)Market price of good X will decrease.
C)Demand for good X will increase.
D)Quantity demanded for good X will increase.
Q3) Which of the following would be an example of a monopoly?
A)a bakery in a large city
B)local cement companies
C)a local cable television company
D)a potato farmer
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Chapter 5: Measuring a Nations Income
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Sample Questions
Q1) If Ralph pays someone to mow his lawn and Norton mows his own lawn, what is the impact on GDP?
A)The answer depends on what Norton reports to survey takers.
B)What Ralph pays to have his lawn mowed and the estimated value to Norton of mowing his own lawn are both included in GDP.
C)Neither what Ralph pays nor the estimated value of Norton's mowing is included in GDP.
D)Only what Ralph pays to have his lawn mowed is included in GDP.
Q2) Income exceeds production.
A)True
B)False
Q3) With respect to GDP, how is unemployment compensation treated?
A)It is included as part of GDP because it represents income.
B)It is not included as part of GDP because it is a transfer payment.
C)It is included as part of GDP because the recipients must have worked in the past to qualify.
D)It is not included as part of GDP because the payments reduce business profits.
Q4) Calculate the percentage changes in nominal GDP, real GDP, and GDP deflator.
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Page 7
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Ralph puts money in the bank and earns a 5 percent nominal interest rate. What happens if the inflation rate is 3 percent?
A)Ralph will have 3 percent more money, which will purchase 2 percent more goods.
B)Ralph will have 3 percent more money, which will purchase 8 percent more goods.
C)Ralph will have 5 percent more money, which will purchase 2 percent more goods.
D)Ralph will have 5 percent more money, which will purchase 8 percent more goods.
Q2) What does the rate of core inflation EXCLUDE?
A)clothing and footwear
B)alcoholic beverages and tobacco products
C)the most volatile components from the CPI basket of goods and services
D)the least volatile components from the CPI basket of goods and services
Q3) Which is likely to have the larger effect on the CPI, a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.
Q4) List the three major problems in using the CPI as a measure of the cost of living.
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8
Chapter 7: Production and Growth
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Sample Questions
Q1) What does diminishing returns to capital imply?
A)Capital produces fewer goods as it ages.
B)New ideas are not as useful as old ideas.
C)Increases in the capital stock eventually decrease output.
D)Increases in the capital stock increase output by ever smaller amounts.
Q2) Which of the following is a characteristic of inward-oriented policies?
A)They are generally supported by economists.
B)They are primarily concerned with the development of human capital.
C)They are in some ways like prohibiting the use of certain technologies.
D)They are generally rejected by domestic producers in import-competing industries.
Q3) Suppose that an economy with constant returns to scale doubled its physical capital stock, doubled its available natural resources, and doubled its human capital, but kept the size of the labour force the same. How does the change in output compare to the change in productivity?
A)Output would stay the same and so would its productivity.
B)Output and productivity would increase, but by less than double.
C)Output and productivity would increase by more than double.
D)Output would increase by less than double, but productivity would double.
Q4) What is the difference between human capital and technology?
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Chapter 8: Saving, Investment, and the Financial System
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Sample Questions
Q1) When the federal government is in debt, it follows that it has a deficit.
A)True
B)False
Q2) Suppose the Canadian government allowed taxpayers to earn their first $5000 of interest free of income tax. How would this shift the supply of, or demand for, loanable funds?
A)The supply of loanable funds would shift to the right.
B)The supply of loanable funds would shift to the left.
C)The demand for loanable funds would shift to the right.
D)The demand for loanable funds would shift to the left.
Q3) Which of the following is a secondary advantage of mutual funds?
A)An investor can avoid investment charges and fees.
B)They give ordinary people access to loanable funds for investing.
C)They usually outperform stock market indexes.
D)They give ordinary people access to the skills of professional money managers.
Q4) Which of the following terms refers to the profits NOT paid out to shareholders?
A)retained earnings
B)dividends
C)revenue
D)costs
Page 10
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Chapter 9: Unemployment and Its Natural Rate
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Sample
Questions
Q1) Why might a favourable change to the economy such as technological change or a decrease in the price of imported oil be associated with an increase in frictional unemployment?
Q2) About one-half of all spells of unemployment end when the unemployed person leaves the labour force.
A)True
B)False
Q3) In Canada, about what fraction of the time do spells of unemployment end with the person leaving the labour force?
A)1/5 of the time
B)1/4 of the time
C)1/3 of the time
D)1/2 of the time
Q4) Unemployment due to job search is best classified as structural unemployment.
A)True B)False
Q5) Firms might offer efficiency wages in order to attract a better pool of applicants. A)True
B)False
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Chapter 10: The Monetary System
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Sample Questions
Q1) What does the legal tender requirement imply?
A)People are more likely to accept the dollar as a medium of exchange.
B)The government must hold enough gold to redeem all currency.
C)People may not make trades with anything else.
D)It is illegal to hold foreign currencies.
Q2) Which of the following is a generally accepted medium of exchange?
A)a plane ticket
B)federal government bonds
C)fine art
D)currency
Q3) Are credit cards and debit cards money? What's the difference between credit and debit cards?
Q4) Which of the following best defines the bank rate?
A)It is the interest rate the Bank of Canada charges banks.
B)It is one divided by the difference between one and the reserve ratio.
C)It is the interest rate banks receive on reserve deposits with Bank of Canada.
D)It is the interest rate that banks charge on overnight loans to other banks.
Q5) The use of money allows trade to be roundabout.
A)True
B)False
Page 12
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) If inflation is more than expected, how are creditors or debtors affected?
A)Creditors receive a lower real interest rate than they had anticipated.
B)Creditors pay a lower real interest rate than they had anticipated.
C)Debtors receive a higher real interest rate than they had anticipated.
D)Debtors pay a higher real interest rate than they had anticipated.
Q2) According to the quantity equation, if Y and V are constant, and M doubles, which of the following will happen to the price level?
A)It will more than double.
B)It will less than double.
C)It will double.
D)It might double, less than double, or more than double; more information is needed.
Q3) When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?
A)The quantity of money demanded increases.
B)The quantity of money demanded decreases.
C)The quantity of money supplied increases.
D)The quantity of money supplied decreases.
Q4) Explain how inflation affects savings.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Q1) If the exchange rate changes from 100 yen per dollar to 150 yen per dollar, what has happened to the dollar?
A)It has appreciated and so buys more Japanese goods.
B)It has appreciated and so buys fewer Japanese goods.
C)It has depreciated and so buys more Japanese goods.
D)It has depreciated and so buys fewer Japanese goods.
Q2) Between 1981 and 1988, which of the following happened to Canadian net capital outflow as a percent of GDP?
A)It became a larger, positive number.
B)It became a smaller, positive number.
C)It became a larger, negative number.
D)It became a smaller, negative number.
Q3) How are net exports of a country determined?
A)the value of goods and services imported minus the value of goods and services exported
B)the value of goods and services exported minus the value of goods and services imported
C)the value of goods exported minus the value of goods imported
D)the value of goods imported minus the value of goods exported
Q4) What does purchasing-power parity imply about the real exchange rate?
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Chapter 13: A Macroeconomic Theory of the Open Economy
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Sample Questions
Q1) Suppose that the Canadian budget deficit rises. At the same time the Canadian trade deficit grows larger, the real exchange rate of the dollar appreciates, and Canadian net capital outflow decreases. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?
A)The Canadian trade deficit grew.
B)The real exchange rate of the dollar appreciated.
C)Canadian net capital outflow fell.
D)The supply of dollars in the foreign exchange market increased.
Q2) Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.
A)True
B)False
Q3) According to the open-economy macroeconomic model, which of the following would NOT be a consequence of an increase in the Canadian government budget deficit?
A)Canadian trade balance rises.
B)Canadian net capital outflow falls.
C)Canadian investment abroad decreases.
D)The real exchange rate of the Canadian dollar appreciates.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) We could explain continued increases in both output and the price level by supposing that only long-run aggregate supply shifted right over time.
A)True
B)False
Q2) In which of the following situations does investment spending decrease?
A)when the price level rises, causing interest rates to rise
B)when the price level rises, causing interest rates to fall
C)when the price level falls, causing interest rates to rise
D)when the price level falls, causing interest rates to fall
Q3) Compare the effects of an aggregate-demand-induced recession with an aggregate-supply-induced recession. How would you recognize that a recession is induced by demand or supply? What policies would be appropriate in the first case and what in the second?
Q4) Refer to Figure 14-1. If the economy starts at A and moves to D, what happens to the economy in the long run?
A)It moves to A.
B)It moves to B.
C)It moves to C.
D)It moves back to D.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) 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.
Q2) How does the interest rate change when the price level falls and when the money supply falls?
A)The interest rate rises both when the price level falls and when the money supply falls.
B)The interest rate rises when the price level falls and falls when the money supply falls.
C)The interest rate falls when the price level falls and rises when the money supply falls.
D)The interest rate falls both when the price level falls and when the money supply falls.
Q3) Suppose that the government spends more on a missile defence program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, and investment-accelerator effects?
Q4) Why and in what way are fiscal policy lags different from monetary policy lags?
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17
Chapter 16: The Short-Run Tradeoff Between Inflation and Unemployment
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Sample Questions
Q1) Which of the following would cause the price level to rise and output to fall in the short run?
A)an increase in the money supply
B)a decrease in the money supply
C)an adverse supply shock
D)a favourable supply shock
Q2) Where does the short-run Phillips curve intersect the long-run Phillips curve?
A)where expected inflation is greater than actual inflation
B)where expected inflation equals actual inflation
C)where the quantity of goods and services demanded equals the quantity supplied
D)where the quantity of labour demanded equals the quantity supplied
Q3) How will a favourable supply shock shift the short-run Phillips curve, and how does unemployment change?
A)It will shift the short-run Phillips curve right, and unemployment will rise.
B)It will shift the short-run Phillips curve right, and unemployment will fall.
C)It will shift the short-run Phillips curve left, and unemployment will rise.
D)It will shift the short-run Phillips curve left, and unemployment will fall.
Q4) Explain the connection between the vertical long-run aggregate supply curve and the vertical long-run Phillips curve.
Q5) 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) If the central bank has discretion to make policy, it may create economic fluctuations that reflect the electoral calendar. This is called the political business cycle.
A)True
B)False
Q2) Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, what should the central bank do, and what will happen to output?
A)The central bank should increase the money supply, which causes output to move closer to its long-run equilibrium.
B)The central bank should increase the money supply, which causes output to move farther from its long-run equilibrium.
C)The central bank should decrease the money supply, which causes output to move closer to its long-run equilibrium.
D)The central bank should decrease the money supply, which causes output to move farther from its long-run equilibrium.
Q3) What was the evolution of Canada's federal debt over the period 1967-2009?
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