Macroeconomics
Study Guide Questions
Course Introduction
Macroeconomics is the study of the economy as a whole, focusing on aggregate measures such as national income, unemployment, inflation, and economic growth. This course examines the fundamental principles and models of macroeconomics, exploring how different sectors of the economy interact and respond to various policy measures. Key topics include the measurement of economic performance, the role of government in stabilizing the economy through fiscal and monetary policies, and the impact of international trade and finance. Through real-world examples and theoretical analysis, students will develop a comprehensive understanding of the forces driving economic fluctuations and long-term growth.
Recommended Textbook
Macroeconomics 5th Canadian Edition by N Gregory Mankiw
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14 Chapters
1476 Verified Questions
1476 Flashcards
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Chapter 1: The Science of Macroeconomics
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) Variables that a model tries to explain are called:
A) endogenous.
B) exogenous.
C) market clearing.
D) fixed.
Answer: A
Q2) Endogenous variables are:
A) determined outside the model.
B) determined within the model.
C) the inputs of the model.
D) from outside the model.
Answer: B
Q3) Using a market-clearing model to analyze the demand for haircuts is ______ because the price of a haircut usually changes ______.
A) realistic; frequently
B) realistic; infrequently
C) unrealistic; frequently
D) unrealistic; infrequently
Answer: D
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Page 3
Chapter 2: The Data of Macroeconomics
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116 Flashcards
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Sample Questions
Q1) Net national product equals GDP:
A) plus net investment.
B) minus net investment.
C) plus depreciation.
D) minus depreciation.
Answer: D
Q2) All of the following transactions that took place in 2014 would be included in GDP for 2014 except the purchase of a:
A) book printed in 2014,entitled The Year 3000.
B) 2001 Jeep Cherokee.
C) year 2015 calendar printed in 2014.
D) ticket to see the movie 2001.
Answer: B
Q3) According to the usual seasonal pattern of the Canadian economy,GDP is highest in the quarter of the year that includes:
A) January,February,and March.
B) April,May,and June.
C) July,August,and September.
D) October,November,and December.
Answer: D
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Chapter 5: The Open Economy
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124 Flashcards
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Sample Questions
Q1) What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility,fully employed factors of production,and flexible prices?
Q2) If purchasing-power parity held,if a Big Mac costs $2 in Canada,and if 10 Mexican pesos trade for $1 Canadian dollar,then a Big Mac in Cancun,Mexico should cost:
A) 2 pesos.
B) 5 pesos.
C) 10 pesos.
D) 20 pesos.
Q3) An increase in the trade deficit of a small open economy could be the result of:
A) an increase in taxes.
B) an increase in government spending.
C) a decrease in the world interest rate.
D) the expiration of an investment tax-credit provision.
Q4) Explain why government budget deficits crowd out private investment spending in a closed economy,but crowd out net exports in a small open economy.Assume prices are flexible and that factors of production are fully employed in both economies.Use the basic version of the open-economy model that abstracts from foreign debt accumulation.
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Chapter 6: Unemployment
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112 Flashcards
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Sample Questions
Q1) The earned income tax credit:
A) increases the government's tax revenue.
B) reduces the incomes of poor working families.
C) does not raise labour costs.
D) is not an alternative to raising the minimum wage.
Q2) If wage rigidity holds the real wage above the equilibrium level,an increase in the supply of labour will ______ the number unemployed.
A) increase
B) decrease
C) not change
D) possibly increase,decrease,or leave unchanged
Q3) During the past 50 years the natural rate of unemployment in Canada ______ during the 1970s and 1980s,compared with the 1950s and 1960s,and then ______ during the 1990s,compared with the previous two decades.
A) increased; increased
B) increased; decreased
C) decreased; decreased
D) decreased; increased
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Chapter 7: Economic Growth I
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114 Flashcards
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Sample Questions
Q1) To determine whether an economy is operating at its Golden Rule level of capital stock,a policymaker must determine the steady-state saving rate that produces the: A) largest MPK.
B) smallest depreciation rate.
C) largest consumption per worker.
D) largest output per worker.
Q2) Consider two countries that are otherwise identical (have the same saving rates and depreciation rates),but the population of Country Large is 100 million,while the population of Country Small is 10 million.Use the Solow model with no technological change to compare the steady-state levels of output per worker if: a.the population growth rates are the same in the two countries.b.the population growth rate is higher in Country Large.
Q3) Explain the two uses of saving in the steady state in the Solow model of an economy with population growth but no technological progress.
Q4) Larger quantities of steady-state capital have both a positive and negative effect on consumption per worker in the Solow model (assume no population growth or technological progress).Explain.
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Chapter 8: Economic Growth II
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94 Flashcards
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Sample Questions
Q1) Suppose that technological change is not labour-augmenting,but affects only capital.Use the Solow growth model of Chapter 8 to graphically illustrate the impact of the slower rate of technological change that increases the rate at which capital wears out (the rate of depreciation increases)on the steady-state capital-labour ratio and the steady-state level of output per worker.Be sure to label the: i.axes
ii.curves
iii.initial steady-state levels
iv.terminal steady-state levels
v.the direction curves shift.
Q2) Based on the Solow growth model with population growth and labour-augmenting technological progress,explain how each of the following policies would affect the steady-state level and steady-state growth rate of total output per person:
a.a reduction in the government's budget deficit
b.grants to support research and development
c.tax incentives to increase private saving
d.greater protection of private property rights
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Chapter 9: Introduction to Economic Fluctuations
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106 Flashcards
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Sample Questions
Q1) In the aggregate demand/aggregate supply model,long-run equilibrium occurs at the combination of output and prices where:
A) aggregate demand equals long-run aggregate supply.
B) aggregate demand equals short-run aggregate supply.
C) aggregate demand equals short-run and long-run aggregate supply.
D) short-run aggregate supply equals long-run aggregate supply.
Q2) If the demand for money increases,but the Bank of Canada keeps the money supply the same,then in the short run output will:
A) fall and in the long run prices will remain unchanged.
B) remain unchanged and in the long run prices will fall.
C) remain unchanged and in the long run prices will remain unchanged.
D) fall and in the long run prices will fall.
Q3) Assume that the economy starts from long-run equilibrium.If the Bank of Canada increases the money supply,then ______ increase(s)in the short run and ______ increase(s)in the long run.
A) prices; output
B) output; prices
C) output; output
D) prices; prices
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Page 9
Chapter 10: Aggregate Demand I
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142 Flashcards
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Sample Questions
Q1) The intersection of the IS and LM curves determines the values of:
A) r,Y,and P,given G,T,and M.
B) r,Y,and M,given G,T,and P.
C) r and Y,given G,T,M,and P.
D) p and Y,given G,T,and M.
Q2) An explanation for the slope of the LM curve is that as:
A) the interest rate increases,income becomes higher.
B) the interest rate increases,income becomes lower.
C) income rises,money demand rises,and a higher interest rate is required.
D) income rises,money demand rises,and a lower interest rate is required.
Q3) In the Keynesian-cross model,fiscal policy has a multiplied effect on income because fiscal policy:
A) increases the amount of money in the economy.
B) changes income,which changes consumption,which further changes income.
C) is government spending and,therefore,more powerful than private spending.
D) changes the interest rate.
Q4) Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect.Can you reconcile this difference?
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Chapter 13: Aggregate Supply and the Short-Run
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112 Flashcards
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Sample Questions
Q1) The model of aggregate demand and aggregate supply is consistent with short-run monetary ______ and long-run monetary ______.
A) neutrality; neutrality
B) nonneutrality; nonneutrality
C) neutrality; nonneutrality
D) nonneutrality; neutrality
Q2) a.What is the sacrifice ratio?
b.What factor could possibly lower the sacrifice ratio for an economy?
c.What factor could possibly increase the sacrifice ratio for an economy?
Q3) All of the following events represent a supply shock except:
A) a change in the minimum wage.
B) the repeal of government controls on prices.
C) the introduction of automatic teller machines.
D) a decrease in world oil prices.
Q4) The percentage of a year's real GDP that must be foregone to reduce inflation by 1 percentage point is called the:
A) NAIRU.
B) short-run Phillips curve.
C) sacrifice ratio.
D) Okun's law.
Page 11
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Chapter 15: Stabilization Policy
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) When a government honours its debt obligations,this is an example of:
A) discretionary fiscal policy.
B) discretionary monetary policy.
C) a fiscal policy rule.
D) a monetary policy rule.
Q2) The outside lag is the time:
A) before automatic stabilizers respond to economic activity.
B) when automatic stabilizers are not effective.
C) between a shock to the economy and the policy action responding to the shock.
D) between a policy action and its influence on the economy.
Q3) In comparison with the other decades of the last half of the twentieth century,the decade of the 1990s can be described as the decade with the ______ of real GDP growth,inflation,and unemployment.
A) lowest average rates
B) highest average rates
C) smallest volatility
D) greatest volatility
Q4) You are hired as a consultant to set up the central bank of a new country.Suggest at least two possible ways to structure the central bank to keep inflation levels low.
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Chapter 16: Government Debt and Budget Deficits
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91 Flashcards
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Sample Questions
Q1) If the government levies a one-time temporary tax on the young and gives the proceeds to the elderly,and both generations follow the life-cycle consumption pattern but are not altruistically linked:
A) both the young and the old will consume more.
B) there will be a net increase in overall consumption.
C) there will be a net decrease in overall consumption.
D) there will be no change in overall consumption.
Q2) Finance Canada reports the budget deficit or surplus of the federal government.Give at least one reason why the measured budget deficit might overstate the "true" deficit and at least one reason the measured figure might understate the "true" deficit.
Q3) Proponents of Ricardian equivalence argue that the relevant decisionmaking unit is the:
A) individual.
B) household.
C) infinitely lived family.
D) community.
Q4) What is Ricardian equivalence? Explain at least three reasons why Ricardian equivalence might not correctly describe an economy.
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Page 13
Chapter 18: Investment
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Give at least two reasons why a decline in stock prices might lead to a slowdown in economic activity.Be sure to connect your reasons to economic models.
Q2) The function showing total spending on investment would be shifted inward and to the left by:
A) a technological innovation that increases the production function parameter A.
B) any event that raises the marginal product of capital.
C) any event that raises the purchase price of capital.
D) an accident that destroyed one-quarter of the Canadian capital stock while leaving the labour supply intact.
Q3) The theory behind Tobin's q indicates that:
A) the stock market may be expected to predict every turning point in real GDP.
B) the stock market may be expected to be closely tied to fluctuations in output and employment.
C) every time investment goes up we would expect the stock market to go down.
D) the stock market and the economy are basically independent of each other.
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Chapter 19: Money Supply and Money Demand
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) As interest rates increase,people economize on their holdings of currency relative to other types of bank deposits,and banks economize on their holdings of reserves relative to deposits.a.Using the monetary base-money multiplier framework,explain how the money supply changes as interest rates increase.b.Graphically illustrate money supply and money demand when the nominal interest rate is on the vertical axis and the quantity of money is on the horizontal axis.
Q2) In the Baumol-Tobin model,the optimal number of trips to the bank is determined by minimizing the total costs of holding money that are the:
A) forgone interest.
B) costs of trips to the bank.
C) forgone interest plus the costs of trips to the bank.
D) costs of trips to the bank minus the forgone interest.
Q3) To increase the money supply,the Bank of Canada can:
A) conduct open-market sales.
B) switch government deposits away from the Bank of Canada.
C) raise the required reserve ratio.
D) lower the required reserve ratio.
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Chapter 20: The Financial System
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108 Flashcards
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Sample Questions
Q1) When a borrower uses borrowed funds to engage in activities that are detrimental to the profitability of the business venture that was financed,there is a problem of:
A) adverse selection.
B) moral hazard.
C) systematic risk.
D) risk aversion.
Q2) Suppose Bank A has a leverage ratio of 20 and Bank B has a leverage ratio of 10.Explain the meaning of these ratios and what would happen to each of these banks if the value of their assets fell by 6 percent.
Q3) Banks help mitigate the problem of adverse selection in lending by:
A) developing expertise in evaluating the business prospects of loan applicants.
B) making loans to many different types of borrowers.
C) adjusting the amount of the loan to fit the requirements of the borrower.
D) monitoring the business after a loan is made to the business.
Q4) What is the difference between systematic and idiosyncratic risk? Which type of risk can be almost eliminated through diversification?
Q5) What are the benefits of a well-functioning financial system? What are the costs of a financial crisis?
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