Introduction to Macroeconomics
Mock Exam
Course Introduction
Introduction to Macroeconomics explores the fundamental principles governing the economy as a whole, including the analysis of aggregate demand and supply, Gross Domestic Product (GDP), unemployment, inflation, and economic growth. Students examine how government policies affect the economy through fiscal and monetary measures, and gain insight into international trade, exchange rates, and the global economic environment. By applying theoretical models and real-world data, the course helps students develop an understanding of how economic indicators are interpreted and how policy decisions influence national and global economic performance.
Recommended Textbook
Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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Page 2
Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) Under what conditions might government intervention in an economy improve the market outcome?
Answer: If there is a market failure,such as an externality or monopoly,government regulation might improve the well-being of society by promoting efficiency.If the distribution of income or wealth is considered to be unfair by society,government intervention might achieve a more equitable distribution of economic well-being.
Q2) What is a primary function of prices in a market economy?
A)to provide participants with economic information
B)to provide participants with spending limits
C)to provide participants with accounting capabilities
D)to provide participants with an equitable distribution of goods
Answer: A
Q3) Which of the following is NOT a major area of study for economists?
A)how people make decisions
B)how countries choose national leaders
C)how people interact with each other
D)how forces and trends affect the overall economy
Answer: B
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3
Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) In the markets for goods and services,as in the markets for the factors of production,households are buyers and firms are sellers.
A)True
B)False
Answer: False
Q2) What happens when a relevant variable that is not named on either axis changes?
A)There will be a movement along the curve.
B)The curve may or may not change depending on how the variables are related.
C)The curve will be unaffected since only the variables on the axis affect the curve.
D)The curve will shift.
Answer: D
Q3) Refer to Figure 2-10.What is the movement from point A to point B?
A)a shift of the curve
B)a change in preferences
C)a movement along the curve
D)a change in consumer income
Answer: C
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Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Both Canada and the U.S.can produce equally tasty strawberries.What determines which country will export strawberries?
A)how the opportunity cost in Canada compares to the opportunity cost in the U.S.
B)how the costs of production in Canada compare to the costs of production in the U.S.
C)how the costs of labour in Canada compare to the costs of labour in the U.S.
D)how the costs of strawberries in Canada compares to the cost of strawberries in the U.S.
Answer: A
Q2) What did Adam Smith believe about trade?
A)that trade would hurt the British people
B)that trade with other countries was not necessary
C)that trade should be based on comparative advantage
D)that people are better off if they specialize in what they can do best
Answer: D
Q3) Some countries win in international trade,while other countries lose.
A)True
B)False
Answer: False
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Chapter 4: The Market Forces of Supply and Demand (PART
1)
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Sample Questions
Q1) Which of the following best resembles a perfectly competitive market?
A)the tap water market
B)the banana market
C)the soft drink market
D)the smart phone market
Q2) Market demand is given as Qd = 250 - 0.5P.Market supply is given as Qs = 2P.In a perfectly competitive equilibrium,what will be price and quantity traded in the market?
A)price will be $200 and quantity will be 150
B)price will be $35 and quantity will be 70
C)price will be $100 and quantity will be 200
D)price will be $150 and quantity will be 300
Q3) What is step one in the three-step program for analyzing changes in equilibrium?
A)Decide in which direction the curve shifts.
B)Decide whether the event shifts the supply or demand curve.
C)Use the supply-and-demand diagram to see how the shift changes the original equilibrium.
D)Analyze how equilibrium price and quantity have changed.
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Page 6
Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) A shortage will occur at any price below equilibrium price and a surplus will occur at any price above equilibrium price.
A)True
B)False
Q2) If cigarettes and marijuana had been found to be substitutes,what would a tax placed on cigarettes do?
A)decrease the demand for marijuana
B)increase the demand for marijuana
C)decrease the quantity demanded of marijuana
D)increase the quantity demanded of marijuana
Q3) What might cause a movement along the supply curve?
A)a change in technology
B)a change in input prices
C)a change in expectations about future prices
D)a change in the price of the good or service
Q4) The law of demand states that the quantity demanded of a product is positively related to price.
A)True
B)False
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) Why does expenditure equal income?
A)because firms are required by law to pay out all their revenue as income to someone
B)because ultimately firms are owned by households
C)because for every sale there is a buyer and a seller
D)because the demand and supply of goods and services must be equal
Q2) Dave knits ski caps with tassels at a negligible cost.He sells 3 percent more caps this year than last year.The market price this year is 1 percent lower than last year.Which inflation rate makes Dave as well off this year as last year?
A)1 percent
B)2 percent
C)3 percent
D)4 percent
Q3) Which of the following is included in Canadian GDP?
A)Canadian exports of goods and services
B)CPP/QPP payments
C)the sale of used goods
D)Canadian imports of goods and services
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8
Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) Samantha deposits $2000 into a saving account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 2 percent.What happens at the end of the year?
A)Samantha has $100 more in her account, and her purchasing power has increased by about $40.
B)Samantha has $100 more in her account, and her purchasing power has increased by about $60.
C)Samantha has $140 more in her account, and her purchasing power has increased about $100.
D)Samantha has $140 more in her account, and her purchasing power has increased about $40.
Q2) In 1972 in Kelowna,BC,one could buy model rocket engines for $1.50.If those same engines cost $3.00 today,which of the following sets of CPIs represents the same purchasing power for the cost in 1972 and the cost today?
A)60 in 1972 and 100 today
B)60 in 1972 and 110 today
C)60 in 1972 and 120 today
D)60 in 1972 and 130 today
Q3) Why does the GDP deflator give a different rate of inflation than the CPI does?
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Page 9
Chapter 7: Production and Growth
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Sample Questions
Q1) In the 1800s,Europeans purchased stock in Canadian companies,which used the funds to build railroads and factories.What type of investments did the Europeans make?
A)foreign portfolio investments
B)foreign capital investments
C)foreign direct investments
D)foreign indirect investments
Q2) In the traditional view,which of the following production processes 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
Q3) What is the difference between human capital and technology?
Q4) A country that made its courts less corrupt and its government more stable would likely see its standard of living rise.
A)True
B)False
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) Assuming that other things remain the same,what effect does a government budget deficit have on saving?
A)It increases both private and national saving.
B)It increases public saving but reduces national saving.
C)It reduces both public and national saving.
D)It reduces private saving but increases national saving.
Q2) Suppose that Parliament were to repeal an investment tax credit.Which of the following would most likely happen in the market for loanable funds?
A)The demand and supply of loanable funds would shift right.
B)The demand and supply of loanable funds would shift left.
C)The supply of loanable funds would shift right.
D)The demand for loanable funds would shift left.
Q3) What are junk bonds?
A)Junk bonds are those that yield low interest rates.
B)Junk bonds are those that never mature.
C)Junk bonds refer to bonds that have been resold many times.
D)Junk bonds are those issued by financially weak corporations.
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
Q5) What are the basic differences between bonds and stocks?
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Chapter 9: Unemployment and Its Natural Rate
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Sample
Questions
Q1) Most spells of unemployment are short,and most unemployment observed at any given time is long term.How can this be?
Q2) According to economists,how should the reported unemployment rate be viewed?
A)as a useful but imperfect measure of joblessness
B)as clearly smaller than the true unemployment rate
C)as clearly larger than the true unemployment rate
D)as being very close to the true unemployment rate
Q3) Which of the following lists includes all the categories into which Statistics Canada divides the adult population?
A)employed, unemployed
B)discouraged workers, employed, unemployed
C)employed, unemployed, not in the labour force
D)discouraged workers, employed, not in the labour force
Q4) How is the labour-force participation rate defined?
A)(Employed ÷ Adult population) × 100
B)(Employed ÷ Labour force) × 100
C)(Labour force ÷ Adult population) × 100
D)(Adult population ÷ Labour force) × 100
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Page 12
Chapter 10: The Monetary System
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Sample Questions
Q1) How do deposits and reserves appear on a bank's T-account?
A)Both deposits and reserves are assets.
B)Both deposits and reserves are liabilities.
C)Deposits are assets, and reserves are liabilities.
D)Reserves are assets, and deposits are liabilities.
Q2) Mia puts money into a piggy bank so she can spend it later.Which of the following functions of money does this illustrate?
A)store of value
B)medium of exchange
C)unit of account
D)wealth
Q3) A bank has $100 reserves,$10 000 loans,$500 securities,$9000 deposits,and $1400 debt.
a)Calculate the bank's capital.
b)Calculate the bank's leverage ratio.
c)Suppose the bank's securities are mainly mortgage-based bonds and a wave of mortgage defaults combined with a fall in the stock market reduces the bank's assets by 10 percent.What is the percentage and dollar-value change of the bank's capital? Is the bank solvent?
Q4) What is the difference between money and wealth?
Page 13
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) In order to maintain stable prices,which of the following must the central bank do?
A)maintain low interest rates
B)keep unemployment low
C)tightly control the money supply
D)sell indexed bonds
Q2) 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
Q3) Casimir purchased one share of Norcet stock for $200 in year 1 and sold that share in year 2 for $400.The inflation rate between year 1 and year 2 was 50 percent.If the capital gains tax is imposed at a rate of 50 percent,what is Casimir's after-tax real capital gain?
A)$0
B)$50
C)$100
D)$200
Q4) List and define any two of the costs of high inflation.
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Page 14
Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) A country's exports are $600 billion,and imports are $700 billion.What is the country's trade balance?
A)$100 billion deficit
B)$100 billion surplus
C)$1300 billion deficit
D)$1300 billion surplus
Q2) Suppose inflation is higher in Canada over the next few months than in foreign countries,and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods Canadian goods buy.According to purchasing-power parity,which of the following should we expect to see?
A)Only the nominal exchange rate depreciates.
B)Both the real and nominal exchange rates appreciate.
C)Both the real and nominal exchange rates depreciate.
D)Only the real exchange rate appreciates.
Q3) For an economy as a whole,net exports must equal minus one times net capital outflow.
A)True
B)False
Q4) How do we find the real exchange rate from the nominal exchange rate?
Page 15
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) Which of the following best defines capital flight?
A)the movement of workers across international borders in response to exchange rate changes
B)the movement of funds between financial intermediaries when interest rates change
C)the ability of investment expenditures to lift a country out of poverty
D)the large and sudden reduction in the demand for assets located in a country
Q2) How does an increase in the Canadian government budget deficit change the graph representing the Canadian market for loanable funds?
A)The supply of loanable funds curve shifts to the right.
B)The supply of loanable funds curve shifts to the left.
C)The demand for loanable funds shifts to the right.
D)The demand for loanable funds shifts to the left.
Q3) If the real exchange rate of the Canadian dollar were above its equilibrium level,the real exchange rate of the Canadian dollar would appreciate.
A)True
B)False
Q4) Why do higher real interest rates lead to lower net capital outflow?
Q5) Explain why saving need not equal domestic investment in an open economy.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Suppose there was an economic contraction caused by a shift in aggregate supply;suppose the central bank changes the money supply to offset the effects of that contraction.How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?
A)Aggregate supply would shift to the right.
B)Aggregate supply would shift to the left.
C)Aggregate demand would shift to the right.
D)Aggregate demand would shift to the left.
Q2) Which of the following characterizes the long-run aggregate-supply curve?
A)It is determined by the things that determine output in the classical model.
B)It is located at the point where unemployment is zero.
C)It shifts to the right when the price level increases.
D)It is positioned at the point where the economy would cease to grow.
Q3) Which of the following did NOT happen during the onset of the Great Depression?
A)The money supply fell as households took money out of banks.
B)The Bank of Canada decreased the bank rate.
C)The real GDP per person fell about 30 percent.
D)Bankers began holding greater reserves.
Q4) Make a list of things that would shift the aggregate-demand curve to the right.
Q5) Discuss what economists believe is different about the long and short run.
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Sample Questions
Q1) How does the multiplier change when the MPC increases,and what is the effect on aggregate demand?
A)Higher MPC increases the multiplier so that changes in government expenditures have a larger effect on aggregate demand.
B)Higher MPC increases the multiplier so that changes in government expenditures have a smaller effect on aggregate demand.
C)Higher MPC decreases the multiplier so that changes in government expenditures have a larger effect on aggregate demand.
D)Higher MPC decreases the multiplier so that changes in government expenditures have a smaller effect on aggregate demand.
Q2) If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $200 billion will eventually shift the AD curve to the right by how much?
A)$80 billion
B)$133.33 billion
C)$150 billion
D)$800 billion
Q3) What is the difference between monetary policy and fiscal policy?
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Page 18
Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Sample Questions
Q1) Suppose the Bank of Canada decreased the growth rate of the money supply.Which of the following would permanently decrease?
A)the unemployment level
B)the unemployment rate
C)the inflation rate
D)the price level
Q2) How does the short-run Phillips curve reflect an increase in the price of oil as the one in the early 1970s?
A)as a leftward shift in the short-run Phillips curve
B)as a rightward shift in the short-run Phillips curve
C)as a downward movement along the short-run Phillips curve
D)as an upward movement along the short-run Phillips curve
Q3) According to Friedman and Phelps,when is the unemployment rate below the natural rate?
A)when actual inflation is greater than expected inflation
B)when actual inflation is less than expected inflation
C)when actual inflation equals expected inflation
D)when actual inflation is low
Q4) Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?
Page 19
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year.How are the debt and the burden on future generations created by these continuing deficits?
A)The debt is sustainable, but the future burden on your children cannot be offset.
B)The debt is sustainable, and the future burden on your children can be offset if you save for them.
C)The debt is not sustainable, and the future burden on your children cannot be offset.
D)The debt is not sustainable, but the future burden on your children can be offset if you save for them.
Q2) A recession has no benefit to society: it represents a sheer waste of resources.
A)True
B)False
Q3) Which of the following would transfer wealth from the old to the young?
A)increases in the budget deficit
B)decreased building of highways and bridges
C)more generous education subsidies
D)indexation of pensions to inflation
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