Principles of Macroeconomics
Textbook Exam Questions
Course Introduction
Principles of Macroeconomics introduces students to the fundamentals of how large-scale economies operate, examining topics such as national income, inflation, unemployment, economic growth, fiscal and monetary policy, and international trade.
Through the study of economic indicators and models, students will learn how government policies and global events impact overall economic performance and societal well-being. The course lays the groundwork for understanding the dynamics of aggregate demand and supply, the role of central banks, and the challenges of managing economic stability and growth.
Recommended Textbook
Macroeconomics 3rd Edition Canadian by Paul Krugman Robin Wells
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) You like to read Vogue and Sports Illustrated.You have only $5 to spend,so you buy only Sports Illustrated.Which economic concept does this statement BEST represent?
A) Scarcity
B) Equilibrium
C) Marginal analysis
D) Specialization
Answer: A
Q2) Buying vegetables at a farmers' market benefits the community because:
A) it is not possible to be self-sufficient when it comes to growing food.
B) this will eliminate the opportunity cost of buying food.
C) buying locally will decrease human capital in the community.
D) one person's local spending will increase another local person's income.
Answer: D
Q3) Which statement is NOT a reason that markets usually lead to efficiency?
A) People are naturally efficient.
B) Individuals have incentives to offer what people want.
C) Trade encourages efficiency.
D) Inefficient firms will lose business.
Answer: A
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Page 3
Chapter 2: Economic Models: Trade-Offs and Trade
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Sample Questions
Q1) An apple is a resource sold in the factor market.
A)True
B)False
Answer: False
Q2) (Table: Comparative Advantage I)Use Table: Comparative Advantage I.The opportunity cost of producing one box of herring for Sweden is _____ box(es)of cell phones.
A) 10
B) 0.5
C) 5
D) 0.1
Answer: D
Q3) If LeRoyce trades two cookies for one of Amir's brownies,we say that they are engaging in:
A) exploitation.
B) benevolence.
C) barter.
D) a zero-sum game.
Answer: C
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) It is certain that the equilibrium price will fall when:
A) both the supply curve and the demand curve shift to the right.
B) the supply curve shifts to the right and the demand curve shifts to the left.
C) both supply and demand increase.
D) supply decreases and demand stays the same.
Answer: B
Q2) An increase in the price of contact lenses will increase the supply of contact lenses.
A)True
B)False
Answer: False
Q3) A competitive market occurs when there are many buyers and sellers of the same good.
A)True
B)False
Answer: True
Q4) An increase in income will always shift the demand curve to the right.
A)True
B)False
Answer: False
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Chapter 4: Price Controls and Quotas: Meddling With Markets
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Sample Questions
Q1) (Figure: The Market for Hybrid Cars)Use Figure: The Market for Hybrid Cars.What area represents consumer surplus if there is a binding price floor at P<sub>1</sub>?
A) a
B) a + b
C) a + b + c
D) a + b + d
Q2) Farmers in developing countries want Canada to reduce the subsidies that it gives to Canadian farmers because subsidized agricultural products from Canada:
A) lead to agricultural surpluses and lower prices for farmers in developing countries. B) raise the world price of agricultural products.
C) have led to a global shortage of agricultural products.
D) have led to an increase in the demand for agricultural products from the developing world.
Q3) Quantity controls usually take the form of price ceilings or price floors established by the government.
A)True
B)False
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Page 6
Chapter 5: International Trade
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Sample
Questions
Q1) Since Canada imports a large quantity of textiles from Asia,the overall wages of Canadian textile workers have _____,while the price of textiles in Canada has _____.
A) decreased;decreased
B) increased;decreased
C) decreased;increased D) increased;not changed
Q2) Saudi Arabia has a tremendous comparative advantage in petroleum.Which factor is a source of this comparative advantage?
A) mild temperatures
B) large reserves of crude oil
C) no opportunity cost associated with oil production
D) high tariffs on oil from other nations
Q3) Canada must give up the production of 300 motorcycles to produce 15 additional SUVs with the same resources.The opportunity cost of producing 100 motorcycles is _____ SUV(s).
A) 1
B) 5
C) 7
D) 15
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Page 7
Chapter 6: Macroeconomics: the Big Picture
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Sample Questions
Q1) Fiscal policy entails changes in the quantity of money or the interest rate.
A)True
B)False
Q2) The General Theory of Employment,Interest,and Money was written by:
A) Robert Lucas.
B) David Ricardo.
C) John Maynard Keynes.
D) Thomas Malthus.
Q3) Which statement is TRUE?
A) Inflation means an increase in the overall level of prices.
B) Deflation refers to a decrease in prices only in the energy and transportation sectors.
C) During inflation,most people enjoy an increase in their standard of living even if their wages don't increase.
D) Inflation was a problem for the first time in the recession of 1929-1933.
Q4) Which two types of policy are considered to be macroeconomic?
A) monetary and fiscal policy
B) monetary and regulation policy
C) fiscal and regulation policy
D) fiscal policy and price controls
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Chapter 7: Gdp and the Cpi: Tracking the Macroeconomy
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Sample Questions
Q1) In the circular-flow diagram,the places where resources,especially capital and labour,are bought and sold are the:
A) product markets.
B) factor markets.
C) households.
D) firms.
Q2) The GDP deflator measures changes in the cost of a market basket of raw commodities,such as steel,electricity,and coal.
A)True
B)False
Q3) The scale MOST often used to compare economic performance in other years is:
A) the circular-flow diagram.
B) real GDP.
C) the business cycle.
D) fiscal policy.
Q4) The industrial producer price index measures changes in the cost of a market basket of raw commodities,such as steel,electricity,and coal.
A)True
B)False
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Chapter 8: Unemployment and Inflation
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Sample Questions
Q1) The increased availability of automatic teller machines has decreased the shoe-leather costs of high inflation.
A)True
B)False
Q2) Discouraged workers is another term for the unemployed.
A)True
B)False
Q3) Suppose that a country has a progressive income tax code and taxable income is calculated in nominal terms,but the schedule of income tax rates is NOT indexed to inflation.An individual whose income keeps up with inflation over time will pay:
A) a lower rate of the alternative minimum tax.
B) a lower percentage of income in taxes over time.
C) the same percentage of income in taxes over time.
D) a higher percentage of income in taxes over time.
Q4) Inflation reduces nominal interest rates.
A)True
B)False
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Chapter 9: Long-Run Economic Growth
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Sample Questions
Q1) To acquire human capital a person would:
A) save to buy a printing press.
B) purchase a printing press rather than a very large television.
C) learn to use a printing press.
D) sell the books that the printing press produces.
Q2) Education's effect on productivity:
A) is believed to be less important than the amount of physical capital a worker has available.
B) is even more important than increases in physical capital.
C) has fallen in the past century in Canada.
D) depends on the wealth of the country.
Q3) Reasons for which Latin American growth since the 1920s have been relatively slow do NOT include:
A) a lack of savings to finance investment.
B) a lack of a solid education system.
C) a lack of political stability.
D) Canadian intervention.
Q4) The Paris Agreement attempts to limit greenhouse gas emissions.
A)True
B)False
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Chapter 10: Savings, Investment Spending, and the Financial System
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Sample Questions
Q1) If Mega Corp.borrows $8 000 and agrees to pay the lender $9 000 in 1 year,the annual interest rate on the loan is approximately _____%.
A) 9.0
B) 10.5
C) 12.5
D) 11.8
Q2) (Table: Investment Spending,Private Spending,and Capital Inflows)Use Table: Investment Spending,Private Spending,and Capital Inflows.What is the budget balance as a percentage of GDP in Northlandia?
A) -10%
B) 0%
C) 10%
D) 20%
Q3) In an open economy,total investment equals:
A) national savings plus capital inflow.
B) private savings plus national savings plus capital inflow.
C) private savings plus capital inflow.
D) national savings minus private savings minus capital inflow.
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Chapter 11: Income and Expenditure
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Sample Questions
Q1) The aggregate consumption function can shift because of changes in expected disposable income and in aggregate wealth.
A)True
B)False
Q2) (Figure: Planned Aggregate Expenditures Curve II)Use Figure: Planned Aggregate Expenditures Curve II.Suppose that the consumption function in this figure rises by $100.The planned aggregate expenditures curve would shift upwards by:
A) $100.
B) $250.
C) $100 times the multiplier.
D) $150.
Q3) Alice's disposable income increases by $1 000,and she spends $600 of it.Assuming no taxes,Alice's:
A) marginal propensity to save is 0.4 and she saves $400.
B) MPC is 0.4 and she saves $400.
C) marginal propensity to save is 0.4 and she saves $600.
D) MPC is 0.6 and she consumes $400.
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Chapter
12: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) In the short run,wages and some prices are considered to be:
A) sticky.
B) unpredictable.
C) extremely flexible.
D) irrelevant.
Q2) (Figure: Shift of the Aggregate Demand Curve)Refer to Figure: Shift of the Aggregate Demand Curve.A movement from point C on AD<sub>2</sub> to point A on AD<sub>1</sub> may have been the result of:
A) an increase in investment spending following optimistic GDP forecasts.
B) a decrease in investment spending following pessimistic GDP forecasts.
C) decreases in the taxes paid by businesses.
D) lower interest rates.
Q3) (Figure: An Increase in Aggregate Demand)Refer to Figure: An Increase in Aggregate Demand.Because of the pressures at the short-run equilibrium at Y<sub>2</sub> and P<sub>2</sub>:
A) the SRAS will shift to the right.
B) the SRAS curve will shift to the left.
C) unemployment will decrease.
D) LRAS will shift to the right.
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Page 14
Chapter 13: Fiscal Policy
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Sample Questions
Q1) (Figure: AD-AS)Refer to Figure: AD-AS.Consider an economy that is producing an output level of Y<sub>1</sub>.The economy has a(n)_____ gap,which can be closed by _____ fiscal policy.
A) recessionary;expansionary
B) inflationary;contractionary
C) inflationary;expansionary
D) recessionary;contractionary
Q2) The decision to build more trains to keep employment high is an example of:
A) expansionary monetary policy.
B) expansionary fiscal policy.
C) neutral fiscal policy.
D) infrastructure policy.
Q3) Funding for social insurance:
A) must come from government borrowing.
B) comes from dedicated taxes.
C) is likely to increase with the retirement of baby boomers.
D) can be accomplished with lower taxes in the future.
Q4) A lump sum tax is a tax whose rate increases as income increases.
A)True
B)False
Page 15
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Chapter 14: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) When Angela puts cash in her desk drawer to save for Christmas shopping,she is using money primarily as a store of value.
A)True
B)False
Q2) Bonds of the Canadian government that mature in less than a year are called:
A) commercial paper.
B) Canadian Treasury bills.
C) short-term federal funds.
D) Canadian reserves.
Q3) M2 is made up of currency in circulation + personal deposits at chartered banks + ______ - interbank deposits + continuity adjustment.
A) non-personal demand and notice deposits at chartered banks
B) deposits and other taking financial institutions
C) near-moneys
D) deposits at trust and mortgage and loan companies
Q4) Normally the bank rate is below the overnight rate to encourage banks to borrow from the Bank of Canada rather than from other banks.
A)True
B)False
Page 16
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Chapter 15: Monetary Policy
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Sample Questions
Q1) As the opportunity cost of holding money changes from 5% to 3%,the quantity of money demanded increases.
A)True
B)False
Q2) Expansionary monetary policy _____ the money supply,_____ interest rates,and _____ consumption and investment spending.
A) increases;increases;increases
B) decreases;decreases;decreases
C) increases;decreases;increases
D) decreases;increases;decreases
Q3) Consider an economy that is facing a recessionary gap.The Bank of Canada decides to use expansionary monetary policy to close that gap.As a result of this policy,in the short run the money supply will _____,the interest rate will _____,investment and consumption spending will _____,and real GDP will _____.
A) decrease;fall;decrease;increase
B) increase;increase;decrease;decrease
C) decrease;increase;decrease;decrease
D) increase;fall;increase;increase
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17
Chapter 16: Inflation, Disinflation, and Deflation
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Sample Questions
Q1) The difference between the actual and potential GDP is the output gap.
A)True
B)False
Q2) A supply shock:
A) moves our economy along the short-run aggregate supply curve.
B) moves us along the short-run Phillips curve.
C) shifts the short-run Phillips curve.
D) shifts the short-run aggregate supply curve but not the short-run Phillips curve.
Q3) The liquidity trap is NOT associated with:
A) a large reduction in the demand for loanable funds.
B) the nominal interest rate falling to zero.
C) monetary policy becoming ineffective.
D) fiscal policy becoming ineffective.
Q4) Politicians may accept moderate inflation in an election year,since the _____ in aggregate _____ serves to _____.
A) increase;supply;decrease employment
B) decrease;supply;increase employment
C) decrease;demand;increase output
D) increase;demand;increase employment
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Chapter 17: Macroeconomics: Events and Ideas
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Sample Questions
Q1) Which view of the macro economy holds that since the long-run growth of real GDP is 3%,the money supply should grow at 3%?
A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus
Q2) A monetarist rule would be to vary the money growth rate between set limits,such as 3% to 5% annual growth.
A)True
B)False
Q3) Joseph believes that changes in the business cycle can be attributed to shifts in the vertical aggregate supply curve.These shifts are caused by faster or slower increases in economic productivity.Joseph is best described as supporting the _____ theory.
A) rational expectations
B) supply-side
C) real business cycle
D) new Keynesian
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Chapter 18: International Macroeconomics
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Sample Questions
Q1) Foreign exchange reserves are gold and silver that a government maintains to buy its currency in foreign exchange markets.
A)True
B)False
Q2) Economists summarize a country's transactions with other countries with a(n)_____ account.
A) circular flow
B) balance of payments
C) exchange rate
D) purchasing power parity
Q3) The Canadian dollar is a floating currency.If the exchange rate for the Canadian dollar changes from CAD $0.95 to CAD $0.98,the Canadian dollar has appreciated.
A)True
B)False
Q4) After a revaluation,all other things being equal,a country's balance of payments on the current account will likely increase.
A)True
B)False
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Chapter 19: Graphs in Economics
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Sample Questions
Q1) (Figure: y = f(x))Use Figure: y = f(x).The slope of the relation between x and y is:
A) positive and constant.
B) negative and getting steeper.
C) positive and getting steeper.
D) positive and getting flatter.
Q2) A bar graph:
A) is useful when showing what has happened over time.
B) may be shown by vertical bars to illustrate the comparative sizes of different observations.
C) is useful when the true direction of causality between two variables is reversed. D) shows the percentages of a total amount that can be attributed to various components.
Q3) The relation between two variables that move in the same direction is said to be:
A) independent.
B) neutral.
C) positive.
D) indirect.
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