Principles of Macroeconomics
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Course Introduction
Principles of Macroeconomics introduces students to the foundational concepts and models used to analyze the economy as a whole. The course explores broad economic indicators such as gross domestic product (GDP), inflation, unemployment, and economic growth, along with the roles of government fiscal and monetary policy in influencing these measures. Students examine the causes and effects of economic fluctuations, the functioning of financial markets, international trade, and exchange rates. Through real-world examples and policy debates, students gain an understanding of how macroeconomic principles shape national and global economic performance.
Recommended Textbook Principles of Macroeconomics 6th Canadian Edition by N. Gregory Mankiw
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Chapter 1: Ten Principles of Economics
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Sample Questions
Q1) How are goods and services allocated in a market economy?
A)by government decisions
B)by giving each individual just enough for a decent standard of living
C)by the actions of all firms and consumers
D)by inherited rights and properties
Answer: C
Q2) 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 ten 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 ten fewer dozen tomorrow
Answer: A
Q3) Scarcity means that there is less of a good or resource available than people wish to have.
A)True
B)False
Answer: True
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Chapter 2: Thinking Like an Economist
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Sample Questions
Q1) What do economists at the Bank of Canada do?
A)analyze data on labour markets
B)help negotiate trade agreements
C)analyze macroeconomic developments
D)enforce competition laws
Answer: C
Q2) What will the slope of a fairly flat upward-sloping line be?
A)a small positive number
B)a large positive number
C)a small negative number
D)a large negative number
Answer: A
Q3) Refer to Figure 2-2.Which of the following best characterizes the money held by households in the circular-flow diagram?
A)It is earned from the sale of factors of production.
B)It becomes profit to firms.
C)It cannot be tracked in the circular-flow diagram.
D)It is used to purchase factors of production.
Answer: A
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Page 4
Chapter 3: Interdependence and the Gains from Trade
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Sample Questions
Q1) Belarus has a comparative advantage in the production of linen and an absolute advantage in the production of beer,compared to Russia.If these two countries decide to trade,what would the pattern of trade be?
A)Belarus would export linen to Russia.
B)Russia would export linen to Belarus.
C)Belarus would export both beer and linen to Russia.
D)Russia would export both beer and linen to Belarus.
Answer: A
Q2) Refer to Table 3-5.If England and Spain specialize and trade according to their respective comparative advantage,who gains in the short run in England?
A)owners of cheese-producing companies
B)owners of milk-producing companies
C)consumers who like cheese
D)consumers who like bread
Answer: C
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) What is a table called that shows the relationship between the price of a good and the quantity demanded?
A)demand table
B)demand schedule
C)price-quantity table
D)quantity-demanded schedule
Q2) Holding all else constant,what will result from a higher price for ski-lift tickets?
A)increased number of skiers
B)decreased supply of ski resorts
C)decreased demand for other winter recreational activities
D)decreased ski sales
Q3) Refer to the Figure 4-7.What would cause the movement from point B to point A on the graph?
A)an increase in price
B)a decrease in price
C)a decrease in the price of a substitute good
D)an increase in income
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Chapter 4: The Market Forces of Supply and Demand (PART
2)
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Sample Questions
Q1) For teens,what does a 10 percent increase in the price of cigarettes lead to?
A)a 6 percent drop in teenage smoking
B)a 12 percent drop in teenage smoking
C)a 18 percent drop in teenage smoking
D)a 24 percent drop in teenage smoking
Q2) The market demand is the average of all of the individual demands for a particular good or service.
A)True
B)False
Q3) A market is a group of buyers and sellers of a particular product.
A)True
B)False
Q4) A reduction in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way.
A)True
B)False
Q5) The behaviour of buyers and sellers drives markets toward equilibrium.
A)True
B)False
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Chapter 5: Measuring a Nation's Income
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Sample Questions
Q1) What would be the cause of a 2% increase in nominal GDP?
A)a 1% increase in prices of and a 3% decrease in output
B)a 1% decrease in prices and a 1% increase in output
C)a 1% increase in prices and a 1% increase in output
D)a 3% increase in prices and a 1% increase in output
Q2) A movie company makes 500 000 DVDs in the second quarter.It sells 300 000 of them before the end of the second quarter,and holds the others in its warehouse.How is the second quarter GDP affected?
A)The DVDs are included in second-quarter GDP.
B)The DVDs that are not purchased in the second quarter are not counted in the second-quarter GDP.
C)Since all the 500 000 DVDs will eventually be bought by consumers, they are included as consumption in the third quarter.
D)The DVDs will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise GDP.
Q3) Income exceeds production.
A)True
B)False
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Chapter 6: Measuring the Cost of Living
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Sample Questions
Q1) In 1990,Professor Fellswoop made $12 000,in 2000 he earned $24 000,and in 2012 he earned $36 000.If the CPI was 40 in 1990,60 in 2000,and 100 in 2012,then in real terms,when was Professor Fellswoop's salary highest and lowest?
A)highest in 1990; lowest in 2000
B)highest in 2012; lowest in 2000
C)highest in 2000; lowest in 1990
D)highest in 2012; lowest in 1990
Q2) In the CPI,how are goods and services weighted?
A)according to how much consumers buy of each item
B)according to whether the goods and services are necessities or luxuries
C)according to the levels of production of the goods and services in the domestic economy
D)according to the expenditures on them in the GDP national income accounts
Q3) What is the purpose of measuring the overall level of prices in the economy?
A)to allow the measurement of GDP
B)to allow consumers to know what kinds of prices to expect in the future
C)to allow comparison between dollar figures from different points in time
D)to allow government officials to determine whether the value of the dollar has increased or decreased
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Chapter 7: Production and Growth
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Sample Questions
Q1) From 1960 to 1990,what happened to the growth rates of Canada and South Korea?
A)South Korea had a higher growth rate than Canada because it had a higher ratio of investment to GDP.
B)Canada had a higher growth rate than South Korea because it had a higher ratio of investment to GDP.
C)South Korea had a higher growth rate than Canada, even though it had a similar ratio of investment to GDP.
D)Canada had a higher growth rate than South Korea, even though it had a similar ratio of investment to GDP.
Q2) Which of the following would be considered physical capital?
A)the pizza oven at the Liquidity Preferences Tavern
B)soy beans used to make soy milk
C)the skills and knowledge of a barber
D)the number of hours people spend in the gym
Q3) Investment in both human and physical capital has opportunity costs.
A)True
B)False
Q4) Compare and contrast the population theories of Malthus and Kremer.
Q5) How do inward-oriented policies affect a nation's growth?
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Chapter 8: Saving,Investment,and the Financial System
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Sample Questions
Q1) In a closed economy,what does national saving equal?
A)income minus consumption
B)income minus the sum of consumption and government expenditures
C)income minus consumption minus taxes
D)income minus government expenditures
Q2) In the small closed economy of San Lucretia,the currency is the denar.Statistics for last year show that private saving was 60 billion denars,taxes were 70 billion denars,government purchases of goods and services were 80 billion denars,there were no transfer payments by the government,and GDP was 400 billion denars.What was investment in San Lucretia?
A)50 billion denars
B)60 billion denars
C)70 billion denars
D)80 billion denars
Q3) Which of the following terms refers to the profits NOT paid out to shareholders?
A)retained earnings
B)dividends
C)revenue
D)costs
Q4) Draw and label a graph showing equilibrium in the market for loanable funds.
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Chapter 9: Unemployment and Its Natural Rate
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Sample Questions
Q1) Dan decides to hire some additional workers for his golf-ball factory.The equilibrium wage is $12 per hour.What does efficiency wage theory suggest is a reasonable wage for Dan to offer?
A)$12 per hour
B)less than $12 per hour, since some people would be willing to work for less C)enough to attract the number of applicants necessary to fill the jobs available D)more than $12 per hour, so as to attract a better pool of applicants
Q2) Suppose that there is an excess supply of economics professors.Should universities necessarily reduce salaries? What does standard economic theory suggest? What does efficiency-wage theory suggest?
Q3) Cynthia is collecting unemployment insurance benefits.To continue to receive her benefits,she must be looking for work;however,she only applies at places where she is unlikely to be hired because she doesn't really want to work.People like Cynthia make the reported unemployment rate less than the true rate of unemployment.
A)True
B)False
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Chapter 10: The Monetary System
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Sample Questions
Q1) The use of money allows trade to be roundabout.
A)True
B)False
Q2) Who appoints the members of the Board of Directors at the Bank of Canada?
A)the Governor General
B)the Minister of Finance
C)the Director of the IMF
D)the Prime Minister
Q3) When Arnold uses dollars to record his income and expenses,how is he using money?
A)as a unit of account
B)as a means of payment
C)as a store of value
D)as a medium of exchange
Q4) Draw a simple T-account for First National Bank of Me,which has $5000 of deposits,a reserve ratio of 10 percent,and excess reserves of $300.
Q5) What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?
Q6) What is the difference between money and wealth?
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Chapter 11: Money Growth and Inflation
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Sample Questions
Q1) Randy pays $120 for a bag of goods he purchases at the HyValu discount store.Which of the following accurately identifies the types of variables involved?
A)The $120 is a real variable; the bag of groceries is a nominal variable.
B)The $120 is a nominal variable; the bag of groceries is a real variable.
C)Both the $120 and the bag of groceries are nominal variables.
D)Both the $120 and the bag of groceries are real variables.
Q2) What does the classical theory of inflation try to explain?
A)changes in relative prices in the economy determined by factors other than inflation
B)the effect of inflation on economic growth
C)the short-run determinants of the price level and the inflation rate
D)the long-run determinants of the price level and the inflation rate
Q3) Which of the following events took place in the early 1920s in Germany?
A)deflation that proved detrimental to farmers
B)an aversion to inflation by policymakers that kept wages stagnant
C)an unexpected drop in inflation that hurt borrowers
D)an extraordinarily high rate of inflation
Q4) What are the costs of inflation?
Q5) Define each of the symbols and explain the meaning of M × V = P × Y.
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Chapter 12: Open-Economy Macroeconomics: Basic Concepts
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Sample Questions
Q1) Suppose that the dollar buys more bananas in Honduras than in Guatemala.How could traders make a profit?
A)by buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras
B)by buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Guatemala
C)by buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Guatemala
D)by buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Honduras
Q2) Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S.gasoline,1 litre of U.S.gasoline costs $0.50 U.S.,and a litre of Canadian gas costs $1.30 Canadian.What is the nominal exchange rate?
A)0.38 U.S. dollars per Canadian dollar
B)0.65 U.S. dollars per Canadian dollar
C)0.77 U.S. dollars per Canadian dollar
D)1.30 U.S. dollars per Canadian dollar
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Chapter 13: A Macroeconomic Theory of the Small Open Economy
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Sample Questions
Q1) If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed,then the Canadian net capital outflow will be which of the following?
A)positive
B)negative
C)decreasing
D)increasing
Q2) In 2002,it looked like the Argentinean government might default on its debt (which eventually it did).Which of the following is consistent with what the open-economy macroeconomic model predicts?
A)This event should have raised Argentinean interest rates and caused the Argentinean currency to appreciate.
B)This event should have raised Argentinean interest rates and caused the Argentinean currency to depreciate.
C)This event should have lowered Argentinean interest rates and caused the Argentinean currency to appreciate.
D)This event should have lowered Argentinean interest rates and caused the Argentinean currency to depreciate.
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Chapter 14: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) According to the sticky-price theory,which of the following is consistent with a more-than-expected rise in the price level?
A)Some firms' prices are higher than desired, which increases their sales.
B)Some firms' prices are higher than desired, which depresses their sales.
C)Some firms' prices are lower than desired, which increases their sales.
D)Some firms' prices are lower than desired, which depresses their sales.
Q2) What does a fall in the economy's overall level of prices tend to do?
A)It tends to raise both the quantity demanded and supplied of goods and services.
B)It tends to raise the quantity demanded of goods and services, but lower the quantity supplied.
C)It tends to lower the quantity demanded of goods and services, but raise the quantity supplied.
D)It tends to lower both the quantity demanded and the quantity supplied of goods and services.
Q3) Like real GDP,investment fluctuates,but investment fluctuates by a larger percentage.
A)True
B)False
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Chapter 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand
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Q1) Suppose that consumers become pessimistic about the future health of the economy,and so cut back on their consumption spending.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?
Q2) Assume the money market is initially in equilibrium.If the price level increases,according to liquidity-preference theory,what is in excess and for how long?
A)The supply of money is in excess until the interest rate increases.
B)The supply of money is in excess until the interest rate decreases.
C)The demand for money is in excess until the interest rate increases.
D)The demand for money is in excess until the interest rate decreases.
Q3) In which of the following situations do people want to hold less money?
A)when the price level and the interest rate increases
B)when the price level and the interest rate decreases
C)when the price level increases and the interest rate decreases
D)when the price level decreases and the interest rate increases
Q4) Which of the following is an effect of an increase in the interest rate?
A)It induces firms to invest more.
B)It induces households to increase consumption.
C)It shifts money demand to the right.
D)It leads to the appreciation of the exchange rate.
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Chapter 16: The Short-Run Tradeoff between Inflation and Unemployment
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Q1) What happened to aggregate supply and the Phillips curve in the mid- and late 1990s?
A)Aggregate supply and the Phillips curve shifted right.
B)Aggregate supply and the Phillips curve shifted left.
C)Aggregate supply shifted right and the Phillips curve shifted left.
D)Aggregate supply shifted left and the Phillips curve shifted right.
Q2) What do the data for the period of 1973 through 1980 demonstrate?
A)that there is a short-run tradeoff between inflation and unemployment in a stable economy
B)that a supply shock changes the natural rate of unemployment
C)that there is no long-run tradeoff between inflation and unemployment
D)that a supply shock increases both inflation and unemployment
Q3) Which of the following terms refers to the short-run relationship between inflation and unemployment?
A)the classical dichotomy
B)money neutrality
C)the Phillips curve
D)the Keynesian cross
Q4) Discuss the advantages and disadvantages of drawing the AD-AS model in terms of inflation (p)and rate of growth (g).
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Chapter 17: Five Debates over Macroeconomic Policy
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Sample Questions
Q1) Suppose the budget deficit is rising 4 percent per year and nominal GDP is rising 7 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 not sustainable, and the future burden on your children cannot be offset.
C)The debt is sustainable, and the future burden on your children can be offset if you save for them.
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) Suppose that the government goes into deficit in order to help local school districts build better schools.Does this action burden future generations?
Q4) What is the political business cycle and how does it relate to whether the central bank should have discretion or use a rule?
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